The 5 C's of Credit - CONDITIONS

What are the three main components of "Conditions" in credit analysis?

1) Industry Attractiveness
2) Competitive Advantage
3) Specific Loan Contract

What questions help assess industry attractiveness?

What are the risks, trends, and forces influencing the industry?

What is the main goal when evaluating industry attractiveness?

To understand how sustainable and appealing the industry is for the long term.

What framework is commonly used to analyze industry attractiveness?

Porter's 6 Forces model.

What does Porter’s force “intensity of industry rivalry” assess?

Number and strength of competitors, and whether they're increasing or decreasing.

What do barriers to entry refer to in Porter’s analysis?

Obstacles that prevent new competitors from easily entering the industry.

Why is the bargaining power of buyers important?

It shows how much influence customers have on business practices.

What is assessed under bargaining power of suppliers?

Whether suppliers are few or many, and their ability to influence prices or supply terms.

What do substitute goods/services represent in Porter’s framework?

Alternatives that can replace industry products and potentially shift the market.

What are complementary goods/services in Porter’s model?

Products that enhance or support industry offerings; their strength or weakness can impact attractiveness.

What other framework is used alongside Porter's to assess market conditions?

PEST Analysis (Political, Economic, Social, Technological, Legal).

What does political forecasting examine in PEST?

Impact of regulations, laws, and political changes on the company or industry.

What is the goal of economic forecasting in PEST analysis?

To evaluate the stage of the economic cycle and future economic outlook.

What does social forecasting focus on in PEST?

Social trends and demographics that could affect the industry.

What does technological forecasting assess?

The role of innovation, R&D needs, and tech advancements in industry sustainability.

What does legal forecasting in PEST evaluate?

Current and future legal issues that could impact the company or industry.

After completing a PEST analysis, what should the analyst assess next?

Whether the company is anticipating and responding to these external factors.

What key questions help evaluate a company’s competitive position?

How well the company manages threats/opportunities, and whether they understand their own strengths and weaknesses.

What framework helps identify internal and external company factors?

SWOT Analysis – Strengths, Weaknesses, Opportunities, Threats.

What do internal factors in a SWOT analysis include?

Strengths and Weaknesses

What do external factors in a SWOT analysis include?

Opportunities and Threats

What are the three key elements of a loan contract under Conditions?

Funding requirements, ongoing obligations, and clarity in contract terms.

Why is specificity in loan conditions important?

It reduces confusion and increases mutual understanding between lender and borrower.

What factors determine loan conditions?

Cash flow, management skills, financial condition, and economic life of the project or asset.