Examination Report From Assoc Prof Fock Siew Tong BF326 Bank Financing & Credit Management Semester

2 AY2010-11 Question 1 a) Many students tried explaining the reason why Garrett Pet Supplies Private Limited (GPS) had to borrow money from the bank by showing the need for bridge financing needed for completing the asset conversion cycle of the company or due to increasing working investment needs of the company. They key to answer the question adequately is to show that the internal capacity of rapid growth of the company is unable to support the rapid growth of the company, and as such, this profitable company had to not just borrow money from the bank but to borrow more and more money from the bank. b) There was some confusion among some students on doing and analyzing a sources and uses statement as from doing a cash flow analysis. While the computation of the key financial ratios was completed by all students, several students failed to provide an adequate financial analysis based on the computed financial ratios to determine the factors that were mainly responsible for GPS urgent needs for funds despite good profits made by the company. c) Most students argued and supported their answer well as to why GPS should retain UOB as the companys main SME banker in terms of the in-depth knowledge of local SMEs that UOB as an established local bank has over a foreign bank and the fact that a long term banking relationship based on trust has been established. What was missing in terms of advice to be given to Mr Marcus Tan from students was the following:i) The need for GPS to share more candidly its growth plans with its current banker, UOB.

ii) In pursuing a rapid growth strategy, GPS has to watch its debt leverage and consciously develop a larger equity cushion to ride through a business downturn. d) Only few students did provide a diagram of options that are available to GPS and its related financing requirements. Most students advocated that GPS needs to slow down its sales growth. However, only few students computed the optimum sustainable growth rate to conclude that a needed contraction of growth rate from prevailing 18% to 14.1% would have been helpful for the companys long term viability. The minority of students who advocated a continuous rapid sales growth rate for the company was unable to support their stand and implicitly was not able to explain how the company can continue to depend on borrowing more and more money from the bank to sustain its long term viability.

Question 2 a) Some confusion by students whether the ethical issue is theft of insider information or bribery or insider trading and why these unethical issues are not mutually exclusive. b) and c) Generally well answered. d) Fundamentally, the need for McKinsey & Co to institutionalize a strong underlying corporate culture that values the trust and respect of individuals, to conduct business with uncompromising integrity, and to safeguard the good reputation and integrity of the firm is of utmost importance.

Question 3 a) The crux of the answer needed is how would credit risk factors impact on consumer banking customers if personal indebtedness in exposure to housing loans and the rolling over of credit card monthly outstanding debt continue to increase. The answer calls for a short comment stating that such consumer customers are placing themselves in a very precarious credit situation if the economy stumbles and real estate prices decline and borrowing interest rates increase resulting in the individuals inability to pay off their debts if they are in an overleveraged position. b) Students who were able to provide the updated actual statistics on the housing market mortgage loans and credit card loan outstanding volume explained very well the importance of these two core consumer banking products to banks. The second part of the question on the important revenue generating activities of the 0% Installment Card Payment Plan in terms of specific increase in volume of card debt and generation of higher merchant fees by banks from the participating retailers was not answered well specifically.

Question 4 a) The infrastructural strengths of Singapore as an international financial centre in contributing to the factors that explain why Singapore is increasing from strength to strength were well stated by most students. The changing trend, creation and movement of wealth and capital in line with the strong grow growth of Asia and China in particular augers well for Singapore to be well positioned geographically as a private banking hub to seize the growing opportunities in the private banking industry. b) Very well answered by the students who were also appreciative why acquired knowledge in consumer and corporate lending is a competitive asset for aspiring private bankers.

Associate Professor Fock Siew Tong BF326 Course Coordinator and Examiner

Date: 31 May 2011