SINGAPORE POLYTECHNIC

SP Business School
BA 9103 Discovering Business and Enterprise

Term 2 : Week 12

Topics : C5 Credit Functions of a bank

C6 International Trade Finance & Documentation

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IN CLASS TUTORIAL ASSIGNMENT

Tutorial Learning Objectives: By the end of the tutorial, you should be able:

1. Describe the credit process.

2. Explain the principles of good lending practices and provide examples.
3. Describe corporate lending products.
4. Explain the international trade transaction process.
5. Explain the purpose of various trade documents used in international trade.
6. Explain the risks involved in a international trade transaction.
Section A :
Individually, fill up the attached Housing loan worksheet, with the information provided
below:
On 20 October 2008 afternoon, you received an urgent call from Adrian Foh a real estate
agent from DTZ Toa Payoh. He wanted to refer his clients to you. His clients bought a
property and they want to take a bank loan in their personal name. So at once set off and had
coffee with his clients : Mr Tim Bak Tu and Mdm Chan Bee Bee, who are Singaporean
Permanent residents here; who decided to buy a condominium in the secondary market in
West Coast Road – 21 Frangipani Gardens #01-10 Singapore 680456. They were previously
renting a flat for $1,500 paid by company and now consider a good time to buy property as
interest rates are low. The negotiated property price is SGD$2.5M. Additional details are :
Built-in area is 2000sqft, total built-up/land area is 2500sft and renovation done 13 years ago
was $300k. Mr Tim is already 40, was born on June 18 1970, is a Senior Manager in ‘Build
Your Dreams’ - BYD in Singapore for the last 10 years, earning net $35,000 monthly. Mdm
Chan was born on 30th June 1973 and is a sole-proprietor of 2nd-Hand goods called Cash
Converters. Her declared income was $2,000. They intend to have their relative Mdm
Josephine Chan who is a retiree, to be one of the joint owners of the newly acquired property.
They have $500 monthly instalment for their Lamborghini and other total expenses of about
$2,000. They want to take a 80% loan and take the maximum loan tenure allowed. Finally,
Mr Tim also mentioned that he is quitting his job in a month’s time to help his wife’s business
which is expanding to China. They will like to take up a loan with your bank. He also wants
you to liaise with their lawyers from Harry & Elias Partners, Max Tan. (Assume there are no
CPF monies involved in this transaction)

It was too late to do anything now, as it was end of day. So first thing next morning, you
quickly called up a few valuers to get the property’s ‘Indicative Value.’ The valuers gave the
following quotes : Orange Tee (Alex Mun) gave $2.3M, Huttons (Agnes Tang) gave 2.6M
and Richard Ellis gave $2.5M based on the property details you gave them. You also found
out that at the current 1% loan rate, monthly cash instalment for Client’s maximum loan
period/tenure of 25 years is $6,934 and if in future loan rate rises to 4% it is about $10,000.
Assess the prospects suitability in taking a bank loan with you.

Answer:
I would not approve Mr Tim and his wife’s request for a housing loan. Although both of them
combined together have a high net income, and they would be able to complete repayment of
the loan with no problems in 25 years. (They have a Debt Service Ratio of 25.5%)
However Mr Tim, the main contributor to their monthly net income, is quitting his job in a
month’s time to help expand his wife’s business in China. The sole proprietor of the business,
Mdm Chan Bee Bee has only a declared income of SGD 2000. As there is high uncertainty
whether both of them have the sufficient income to facilitate the loan after Mr Tim quits his
job, I would not approve of the loan.