Commercial Banking Interviews - Credit Tests & Case Studies
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- Опубліковано 24 сер 2021
- 🧑🎓Click The Link Below For The ULTIMATE Commercial Banking Interview Prep Guide With Credit Case Studies 👩🎓
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How do you prepare for commercial banking interviews and credit tests? What does a commercial banking credit case study look like? In today’s video we will cover four common underwriting skills and techniques that will help you ace your next commercial banking interview and credit test. They are;
1) Calculating the adjusted cash flow (ACF) of a borrower to determine how much they can borrow.
2) Structure the amortization and interest pricing of real estate, cash flow, equipment and working capital loans to help answer credit case studies.
3) Calculate the historical debt service coverage ratio (DSCR) of a borrower
4) Calculate and understand the common balance sheet and liquidity ratios including Working capital, funded debt to EBITDA and tangible net worth to EBITDA.
Credit tests are usually a secondary interview requirement to test a candidates ability to understand basic credit underwriting principals while also testing their knowledge of the commercial banking sector. Whether you are preparing for a relationship manager or credit analyst interview, this video will help you out.
If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! If you want to reach out directly, contact me at;
financeekid@gmail.com
If you are looking to sell your business and would like to learn more about Roblee Capital, please reach out to me for an introductory call. You can contact me through email or through my LinkedIn at;
www.linkedin.com/in/robert-be...
Roblee Capital is a Toronto-based M&A Investment Bank focused on serving companies with revenues between $1MM to $100MM primarily offering sell and buy-side M&A services. We work with Canadian-based business owners looking to sell their lower mid-market business. Check out our website at;
www.robleecapital.ca
I watched this a few weeks ago, but I wanted to come back and say thanks because you helped me land a job at one of the 10 largest banks in the US (I won't say which one for obvious reasons). Such a helpful and informative video!
Great to hear, congrats on the new role!
im happy for you!
can you help me out with some tips?
I saw this video. Watched it 5 times! Got a new job. Highest score too!!! Remember to explain your thinking not aim to be perfect!! And Remember the notes in the Financials!
Glad to hear, congrats on the new job! And good reminder, the financial notes are where most of the key details are.
Great series of videos!! I am trying to break in to a commercial role currently and breaking the misconception that my background in smaller credit deals is a factor of the box I operated in (deal size swim lanes) and not my capacity as a banker. This has been a tough objection to overcome.
As a beginner/entry-level learner/junior RM I am impressed by this video of its concise, down-to-earth and hands on experience which definitely helps to promote technical credit skills and most of the cases are quite similar to real-case interview scenario. Thank you!!
Thanks for watching! Good luck hunting for those deals!
Good to see your back putting out too content again ✅
Thank you!
Helped me land a commercial banking analyst job, many thanks !!
You know what I have been looking for this kind of video for so long. Thanks for doing such a great work Im really appreciated.❤
Thanks for watching! Let me know if you have any other commercial banking video ideas that are not covered on the channel today.
Thank you so much! You're golden!
Thank you so much for these super helpful videos!!
This is excellent and well explained. A great way to get an insight into the industry and the whole analysis field
Thanks for watching, I am glad it helped!
Thank you so much for explaining things in a very simple manner. I do really appreciate your work here. 👍
Thanks for watching! Glad to hear it was helpful.
Thanks that u are back!!!
Excited to be back!
Thanks for this! Really useful!
You did a great job on explaining the basic concepts of commerical loan and lending. It's very informative to me as I am looking for such information to prep for an interview.
Thanks for watching! Make sure to check out the comprehensive interview guide on our website! Good luck with your interviews.
I found this very helpful. thank you.
Glad it was helpful!
Your the reason I got my job! Welcome back!
I love to hear that! That is why I make these videos, glad I could help Juan.
very good !
Did you get the commercial banking job you were preparing for? If so, check out my video on your first 90 days as a commercial banker and what you should do to be ready yourself for success! See the link here - ua-cam.com/video/-m9EX1BZQmA/v-deo.html
If you are looking to learn more about how much commercial bankers earn in salary and how sales bonuses work in the industry, I recently posted a new video covering this topic in depth. Check out the link below!
ua-cam.com/video/mFMl4zDMKao/v-deo.html
Respect!
Do you take requests? I'd love an analysis of ETFs in your brilliant in-depth style. How they work, what are their risks, how they influence the market, examples of what happens when X, is ARKK a doomsday device of illiquidity...?
Thanks for the stuff you've already done!
Ivan
I already made a video on ETFs in general, check out my channel for more info. It may make sense to do an update video however....
Really helpful .
Thanks for watching!
Thank you for such a great video. I have a question, when calculate DSCR, why we only account interest for working capital loan part? We don't need to pay principle this year? Or it will run a lot of years in a company? Because in China, we usually ask for pay interest monthly and principle finally or pay both interest and principle monthly with equal amount. Working capital loan is usually offered one year. But borrower could use the limit again and again. Only need to guarantee risk exposure part less than credit limit is ok.
Visit the link below for the comprehensive Commercial Banking Interview Prep Guide available on the FinanceKid Website. This 48-page guide covers all the common behavioral & technical questions with three credit case studies to help you fully prepare for your commercial banking interviews.
www.financekid.ca/products/commercial-banking-interview-guide
Hi! Super useful video thank you so much for taking the time! 2 quick questions:
1. What if the unsecured term loan had a grace period of say 3 yyears and then 2 of amortisation, how would that change the DSCR calculation? would we have to calculate an NPV or something?
2. For leverage ratios, how do i know if a ratio is high or low? What is an acceptable ratio for a small/medium business for example?
Thanks again and if u answer it would help me sooo much!
Great questions: 1) yes you would still account for a hypothetical amortization when underwriting the loan even if the loan is interest only (the only exception would be high risk lenders who can bear the risk). The reason is risk management. You dont want to lend to a company that cannot refinance the mezzanine loan into an amortizing facility. When looking at an interest only period, credit managers will still map out what a worst case scenario would look like if they asked the client to begin amortizing, if the company is unable to amortize the leverage they have on the books, then you know the leverage is very high which increases the refinancing risk of the loan. From the customers perspective, you wouldn't include the amortization in their DSCR calculation, you would simply increases the DSCR covenant to 1.5x or higher setting a higher covenant hurdle due to the lower repayment risk in the interim 2) Its all relative based on the type and size of the busines in addition to the lending environment (country and type of lender). For a real estate deals if can extend in to the +5x senior funded debt to EBITDA (because the NOI of the property is maybe 5% of the total value of the property being financed) while for cash flow loans, its usually 3-4x for private companies and 4-6x for publicly traded businesses that are larger in scale. So to answer your question, I would aim for 2.5-3.5x for SME companies based on Canadian banking standards.
@@financekid3163 you are an actual genius! Thank you so so much for taking the time to provide me with such a detailed answer, you don’t even know how much you are helping me out here!
Hitting that follow button now… you’re a star, so grateful for your help!! Please keep doing what you’re doing, the type of content you post is so useful and honestly not covered at all in any blog or even other UA-cam videos… I’ve spent hours researching about this topic and your video hands down helped me the most out of all of them!
So keep working on this amazing content, you’re helping improve people’s knowledge and possibly lives! Wishing you loads of success and wishing I could ask you so many more questions!! Haha
Awesome video with great explanations. One question though, why are we taking the interest expense of the full loan amount as the annual interest expense? shouldn't it be the interest rate on the ( loan amount/# of years ) if we're calculating annual P&I ?
No, annual interest is charged to the entire amount borrowed. Similar to credit card debt or other loans, the interest rate is charged annually rather than divided based on the number of years in the loan.
At 12:02, I think the tax shield be $7500?
5% interest on $1m is $50k, of which 15% is $7500
Opps you are right, that should be $7,500 not $10,000. Good catch!
as straight forward as it is, this comment should be pinned 🙏
@@financekid3163 Outstanding vid. But I also want to politely point out another (trivial) error. On 33:40, the 5% interest rate on the $7M cash flow loan should amount to $350K annually, not $315. So the DSCR comes out to 1.24, not 1.26. But again this is trivial! Look forward to your new uploads :)
haha and i thought my answer was wrong. yes it is 7500
If you're subtracting CAPEX, doesn't that make it free cash flow instead of ocf/acf?
Very helpful vedio ❤
Thanks for watching!
Can you clarify how the 10,000 tax shield is derived from calculating 1Mil x 5% interest paid for the year x 15% tax rate. I get 7,500$.
Thank you
Hey, I have a question. For calculating the ACF, where do you find the proposed loan ? Are you talking about the actual loan the business want to borrow ? thx!
Yes, whatever the proposed loan amount is (which is given to you in a case study or in real life), you can run the numbers to determine if that business can support that desired amount.
Regarding the ACF calculation - why can we not use Operating Cash Flows instead from the CF statement?
You can use the operating cash flow but then need to adjust for the cash CAPEX. Also some businesses dont prepare a cash flow statement! Especially businesses where they prepare a NTR or compilation report. But there will always be an income statement so its good to know how to calculate it off the IS instead.
Can you please clarify why the principal from the operating line is not included in the Total P&I while calculating DSCR?
Because the loan is revolving, that is not a "required" payment, it can remain fully outstanding for future periods. The DSCR looks at the required/scheduled debt repayment costs for the business. You will see alot of businesses tight on cash focus on paying down their scheduled term debt while riding out their operating line and waiting for a future period to pay it down. Hopefully that clarifies things. Thanks for watching.
Hey, could you make a video about commercial banking lender mistakes when financing their client from your experience, please?
Good video idea, I will add it to the list, thanks for watching!
Hello! Great video.
Question: @11:20 why did you add back interest on long term debt?
Good question, most lenders look to refinance any existing debt and roll it into one single facility for ease of administration. If for example the loan was not going to be refinanced, you would still add back the interest but then account for the ongoing cost of the loan when building the debt table and calculating the servicing costs for your DSCR.
@@financekid3163 Thank you for explaining
6:11 calculating cash flows
Any idea on any courses/resources for the financial modelling in commercial banks? For RCF, Term loans etc.
There are not many courses available, I don't know of any. I am planning on developing a case study guide to help prep for interviews, stay tuned as this will be available in a few months. Thanks for watching.
At 31:02, Is that a short term loan(AR & Inventory)? Because I was thinking that might be the reason there isn't an amortization for that loan. And for clarification, are all working capital loans are short term?
Yes working capital lines (ie. short term working capital loans) are financed against AR and inventory. Operating lines have no fixed repayment terms and are intended to be used for short-term working capital needs.
@@financekid3163 Thank you
14:05 - Shouldn't the interest tax shield be $7,500? Making sure I am head is in the right place…
How goodwill can be tangible ??
For The ACF calculation, I have added those numbers up at least ten times and did not get $2,484,495. Can someone explain? If the only thing we’re subtracting is CAPEX forecast, I get: 2,529,345
You would also be subtracting the deferred income taxes to get to $2.484MM.
Are there any part-time Commercial Underwriter positions that exist?
Not that I am aware of.
How did you get interest tax shield 10k when the tax rate was 15%? 10k equals 20% out of 50k which is 5% of the 1M loan.
Why we are not considering the investment in Working Capital when calculating ACF? I also don't understand why Goodwill and intangibles are included as tangible net worth? cuz its kinda contradictory.
Great question. For equity investors it is important to consider the changes/investment in working capital accounts as it affects the cash flow available to take out of the company. From a lenders point of view, if the investment in working capital increases (ie. cash is used to buy inventory or tied up in accounts receivable) and the accounts are healthy (ie the NWC ratio is above 1.2>), the lender can increase their working capital line (which is secured against inventory and receivables) to finance these short term assets and provide liquidity to the borrower if needed. Lenders do not penalize borrowers for the regular inflow/outflow of current assets as this is available liquidity from a debt investors point of view.
How can I buy an entry course and see it content?
Please visit the financekid.ca website to purchase the commercial banking guide or click on the link in the video description. Thanks for watching!
Are these slides available for download? Or is from a book ?
No download is available unfortunately, this is my own content. Thank you for watching.
@@financekid3163 OKAY ,thanks for taking the time making these videos
More of these tutorials please this was well produced 🙏 🙌
why is interest added back?
In some of the analysis, I have seen factoring in ‘Unfinanced Capex’ in the ACF calculations. Is it the same as Capital Expenditure’ that you used?
Correct, its the same concept. The idea is that CAPEX is something that cannot be deferred for too long as its needed to maintain the assets which ultimately generates the cash flow of the business. A lender views CAPEX as a financing cost which is factored into their payback analysis (ie. it reduces the amount of cash flow available for debt payback). Hopefully that helps explain it.
@@financekid3163 Thank you so much. Your videos are very helpful. Please make more on Commercial Banking! I’m a happy patron!
4:34
Thank you for putting everything together and explaining the concepts in such a clear and concise manner. I have a job interview today for a Credit Analyst role and this made me much more confident. I really appreciate the time and effort you have invested in preparing this. Keep up the excellent work. It is really helping a lot of candidates.
Thanks for watching! Good luck with your interview.