60+ Credit Analyst Interview Questions and Answers

Answers to questions related to Credit Analyst job profile and finance ratios.

• Minimum permissible banking finance is the minimum amount of loan that a bank can provide to a borrower.

• Credit Analyst job profile involves analyzing financial data to assess creditworthiness of individuals or companies.

• Current Ratio is a liquidity ratio that measures a company's ability to pay its short-term liabilities with its short-term assets.

• DSCR (Debt Service Coverage Ratio) is a financial ra...read more

EBITDA and FCF are important financial metrics for credit analysis. FCF can be derived from EBITDA by adjusting for non-cash expenses and changes in working capital.

• EBITDA measures a company's operating performance before interest, taxes, depreciation, and amortization.

• FCF measures the cash generated by a company's operations that is available for distribution to investors.

• To derive FCF from EBITDA, you need to adjust for non-cash expenses such as depreciation and amortizatio...read more

To check the repayment capacity of an applicant, I assess their income, credit history, and financial obligations.

• Evaluate the applicant's income and employment stability

• Review their credit history and credit score

• Assess their existing financial obligations such as loans, mortgages, and credit card debt

• Consider their debt-to-income ratio

• Analyze their repayment track record on previous loans or credit facilities

• Verify their assets and collateral, if applicable

Hypothecation is when an asset is pledged as collateral without transferring ownership, while pledge involves transferring ownership of an asset as collateral.

• Hypothecation allows the borrower to retain possession and use of the asset.

• In a pledge, the lender takes ownership of the asset until the debt is repaid.

• Hypothecation is commonly used in loans for vehicles, where the lender holds the vehicle's registration papers.

• Pledge is often used in pawnbroking, where the pawnshop ...read more

Answers to questions related to Credit Analyst position.

• Liquidity ratios measure a company's ability to meet short-term obligations.

• Financial statement components include income statement, balance sheet, and cash flow statement.

• Current economic trends may include inflation, interest rates, and GDP growth.

• Current assets include cash, accounts receivable, inventory, and prepaid expenses.

Credit analyst evaluates the creditworthiness of individuals or companies applying for loans.

• Credit analyst assesses the risk of lending money to borrowers.

• They analyze financial data, credit reports, and other information to determine the likelihood of repayment.

• Minimum CIBIL score is 300 and maximum is 900.

• Repo rate is the rate at which the central bank of a country lends money to commercial banks.

• Inflation rate is the rate at which the general level of prices for goods and...read more

Axis Bank offers a range of products for processing including loans, credit cards, savings accounts, and investment options.

• Loans such as personal loans, home loans, and car loans

• Credit cards with various rewards and benefits

• Savings accounts with competitive interest rates

• Investment options such as mutual funds and fixed deposits

Financial statements have three main components: balance sheet, income statement, and cash flow statement.

• Balance sheet shows the company's assets, liabilities, and equity at a specific point in time.

• Income statement shows the company's revenue, expenses, and net income over a period of time.

• Cash flow statement shows the company's cash inflows and outflows over a period of time.

• Other components may include footnotes, management discussion and analysis, and auditor's report.

Credit managers analyze various ratios to assess the creditworthiness of a borrower.

• Liquidity ratios (e.g. current ratio, quick ratio)

• Profitability ratios (e.g. return on assets, return on equity)

• Leverage ratios (e.g. debt to equity ratio)

• Efficiency ratios (e.g. asset turnover ratio)

• Coverage ratios (e.g. interest coverage ratio)

Maximum permissible Bank Finance is the maximum amount of loan a bank is willing to provide to a borrower based on their creditworthiness and financial situation.

• Maximum permissible Bank Finance is determined by the bank's assessment of the borrower's creditworthiness, financial stability, and ability to repay the loan.

• Factors such as the borrower's income, assets, liabilities, credit history, and industry trends are taken into consideration.

• The bank may also consider the pur...read more

Term loan is a general purpose loan while project finance is a specific loan for a particular project.

• Term loan is a loan provided for general business purposes while project finance is a loan provided for a specific project.

• Project finance is secured by the assets and cash flows of the project while term loan is secured by the general assets of the borrower.

• Project finance is usually for a longer term than term loan.

• Project finance is usually non-recourse while term loan is ...read more

As a Credit Analyst, I would collect details about the business to assess its creditworthiness.

• Business financial statements (income statement, balance sheet, cash flow statement)

• Credit history and payment behavior

• Industry trends and market conditions

• Management team and their experience

• Collateral and assets

• Legal and regulatory compliance

• Customer base and revenue streams

If 3 activities in cash flow statements are showing negative balance, it could indicate potential financial issues.

• Investigate the reasons behind the negative balances in each activity

• Analyze the impact of the negative balances on overall cash flow

• Consider the timing of the negative balances and any potential trends

• Evaluate the company's liquidity and ability to meet its financial obligations

• Develop strategies to address the negative balances and improve cash flow

• Seek input f...read more

INDAS and US GAAP are accounting standards used in different countries.

• INDAS stands for Indian Accounting Standards, while US GAAP stands for Generally Accepted Accounting Principles used in the United States.

• INDAS is based on International Financial Reporting Standards (IFRS), while US GAAP is based on a mixture of IFRS and local accounting principles.

• INDAS is used by companies in India, while US GAAP is used by companies in the United States.

• There are several differences be...read more

I will assess the case by analyzing the financial statements, credit history, industry trends, and potential risks.

• Review the company's financial statements to assess its financial health and performance.

• Evaluate the credit history of the company to determine its repayment ability.

• Research industry trends and economic conditions that may impact the company's creditworthiness.

• Identify potential risks such as market volatility, competition, and regulatory changes.

• Consider the c...read more

Banks analyze the creditworthiness of a company by assessing its financial statements, credit history, industry trends, and management team.

• Evaluate financial statements to assess profitability, liquidity, and leverage ratios

• Review credit history and payment patterns to determine past credit behavior

• Analyze industry trends and economic conditions to assess the company's competitive position

• Assess the management team's experience and track record in running the business effect...read more

Credit score is a numerical representation of a person's creditworthiness based on their credit history.

• Credit score ranges from 300 to 850

• Higher credit score indicates better creditworthiness

• Factors affecting credit score include payment history, credit utilization, length of credit history, types of credit used, and new credit inquiries

• Lenders use credit score to determine the likelihood of a borrower repaying their debts

• Credit score can affect loan approvals, interest rate...read more

LTV stands for Loan-to-Value ratio. Analyzing a home loan application involves assessing the borrower's creditworthiness and the property's value.

• LTV is calculated by dividing the loan amount by the appraised value of the property.

• A lower LTV ratio indicates a lower risk for the lender.

• Analyzing a home loan application involves reviewing the borrower's credit score, income, debt-to-income ratio, employment history, and the property's appraisal value.

• The lender may also consid...read more

Credit analysts evaluate the creditworthiness of individuals or organizations applying for loans.

• Credit analysts assess the financial statements and credit history of borrowers to determine their ability to repay loans

• Debt service coverage ratio (DSCR) is a measure of a borrower's ability to meet debt obligations

• Basic ratios include debt-to-equity ratio, current ratio, and quick ratio

• CC stands for credit card, a payment card issued to users to enable the cardholder to pay a m...read more

I would gather sales data and installed capacity information of the customers to analyze their creditworthiness.

• I would request sales data from the customers to understand their revenue generation.

• I would also gather information on their installed capacity to assess their production capabilities.

• This data would help me determine their creditworthiness and ability to repay loans.

• For example, if a customer has high sales and a large installed capacity, they may be a low-risk bo...read more

Basel norms focus on capital adequacy and risk management for banks, while IFRS9 norms focus on accounting standards for financial instruments.

• Basel norms are set by the Basel Committee on Banking Supervision to ensure banks maintain adequate capital to cover risks.

• IFRS9 norms are accounting standards set by the International Financial Reporting Standards Foundation to address classification and measurement of financial instruments.

• Basel norms primarily focus on risk manageme...read more

The loan amount is based on various factors such as credit score, income, collateral, and loan purpose.

• Credit score is a major factor in determining the loan amount.

• Income is also considered to ensure the borrower can repay the loan.

• Collateral can increase the loan amount as it provides security for the lender.

• Loan purpose can also affect the loan amount, such as a mortgage for a house.

Financial ratios and definition of Quasi Equity

• Financial ratios are tools used to analyze a company's financial performance

• Examples of financial ratios include liquidity ratios, profitability ratios, and solvency ratios

• Quasi equity refers to financial instruments that have characteristics of both debt and equity

• Examples of quasi equity include convertible bonds and preferred shares

• Quasi equity is often used as a way to raise capital without diluting ownership

Analyzing liquidity involves assessing a company's ability to meet short-term financial obligations.

• Calculate current ratio (current assets / current liabilities)

• Assess quick ratio (liquid assets / current liabilities)

• Examine cash flow from operations to see if it covers short-term obligations

• Review working capital to determine if there are enough current assets to cover current liabilities

The ideal current ratio for a company to finance WCDL & Term Loan depends on the industry and specific circumstances.

• A current ratio of 1.5 to 2 is generally considered healthy for most industries.

• A higher current ratio indicates a company is more capable of covering its short-term obligations.

• However, a very high current ratio may suggest inefficient use of assets.

• Conversely, a low current ratio may indicate liquidity issues.

• It's important to consider industry norms and the ...read more

Assessing a credit proposal involves analyzing the borrower's financial history, creditworthiness, and ability to repay the loan.

• Review the borrower's credit report and score

• Analyze the borrower's income and expenses

• Evaluate the purpose of the loan and the borrower's ability to repay it

• Consider any collateral or guarantors offered by the borrower

• Assess the overall risk of the loan and make a recommendation

NPA stands for Non-Performing Assets, which are loans or advances that have stopped generating income for the lender.

• NPA is a term used in the banking industry to refer to loans that are in default or are close to being in default.

• A loan is classified as an NPA if the borrower fails to pay interest or principal for a period of 90 days or more.

• Banks and financial institutions are required to set aside provisions for NPAs to cover potential losses.

• NPAs can have a negative impac...read more

Ratios are essential tools in financial analysis to assess a company's performance and financial health.

• Ratios help evaluate a company's profitability, liquidity, solvency, and efficiency.

• Common ratios include the current ratio, debt-to-equity ratio, return on equity, and gross profit margin.

• These ratios provide insights into a company's ability to meet short-term obligations, manage debt, generate profits, and control costs.

• For example, a high current ratio indicates good li...read more

Important ratios for credit analysis include debt-to-equity, current ratio, and interest coverage ratio.

• Debt-to-equity ratio: Indicates the proportion of debt used to finance a company's assets. A lower ratio is generally preferred.

• Current ratio: Measures a company's ability to cover its short-term liabilities with its short-term assets. A ratio above 1 is ideal.

• Interest coverage ratio: Shows a company's ability to pay interest on its debt. A higher ratio indicates better fin...read more

I selected the banking industry due to its stability, growth opportunities, and the chance to work with diverse clients.

• Stability: Banking industry is known for its stability even during economic downturns.

• Growth opportunities: There are various career advancement opportunities within the banking sector.

• Working with diverse clients: Banking allows me to interact with clients from different backgrounds and industries.

Valuation formulas in credit analysis

• DCF calculation formula is used to estimate the value of an investment based on its future cash flows discounted back to present value

• Ratios formula includes Debt-to-Equity ratio, Current ratio, and Interest Coverage ratio to assess a company's financial health

• Interpretation of ratios involves comparing them to industry benchmarks and historical data

DSCR stands for Debt Service Coverage Ratio. It is a financial metric used to evaluate a company's ability to pay its debt obligations.

• DSCR is calculated by dividing a company's operating income by its total debt service obligations.

• A DSCR of 1 or higher indicates that a company is generating enough income to cover its debt payments.

• Lenders often use DSCR to assess the creditworthiness of a borrower before extending a loan.

• For example, if a company has an operating income of ...read more

Documents required for loan applications include proof of income, identification, credit history, and collateral.

• Proof of income such as pay stubs or tax returns

• Identification documents like driver's license or passport

• Credit history report from credit bureaus

• Collateral documentation for secured loans

My compensation expectations are negotiable and dependent on the job responsibilities and market standards.

• My compensation expectations are flexible and open to negotiation.

• I am aware of the market standards for this position and will take that into consideration.

• I am more interested in the job responsibilities and growth opportunities than just the compensation.

• I am open to discussing the compensation package further in the interview process.

Banking products include savings accounts, checking accounts, loans, credit cards, and investment accounts.

• Savings accounts: earn interest on deposited funds

• Checking accounts: used for daily transactions and bill payments

• Loans: borrowed funds with interest to be paid back over time

• Credit cards: allow users to make purchases on credit with interest

• Investment accounts: used to invest in stocks, bonds, and other securities

OTC stands for Over-The-Counter and refers to the trading of financial instruments directly between two parties without the involvement of an exchange.

• OTC trading is done through a dealer network rather than a centralized exchange

• OTC markets are less regulated than exchange-traded markets

• OTC markets include trading of stocks, bonds, derivatives, and currencies

• OTC trading allows for greater flexibility in terms of contract terms and pricing

• Examples of OTC markets include the N...read more

Equity is calculated by subtracting liabilities from assets.

• Equity represents the residual value of a company's assets after deducting liabilities.

• It is calculated by subtracting total liabilities from total assets.

• Equity can also be calculated as the sum of share capital and retained earnings.

• For example, if a company has total assets of $1 million and total liabilities of $500,000, its equity would be $500,000.

• Equity is an important metric for investors as it indicates the ...read more

As a loan officer, I would assess the creditworthiness of applicants and make decisions on loan approvals.

• Review applicant's credit history, income, and debt-to-income ratio

• Evaluate collateral if applicable

• Consider the purpose of the loan and the applicant's ability to repay

• Communicate loan terms and conditions to the applicant

• Make a decision on loan approval or denial

Leverage is calculated by dividing total debt by total assets.

• Total debt includes both short-term and long-term debt.

• Total assets include both tangible and intangible assets.

• The formula for leverage is: Total Debt / Total Assets.

• A high leverage ratio indicates a company has a high level of debt relative to its assets.

• For example, if a company has $500,000 in total debt and $1,000,000 in total assets, its leverage ratio would be 0.5.

Mortgage Backed Securities are investments that are backed by a pool of mortgages.

• MBS are created when a financial institution bundles together a group of mortgages and sells them to investors.

• Investors receive payments based on the interest and principal payments made by the borrowers of the underlying mortgages.

• MBS can be issued by government agencies like Ginnie Mae, or private institutions like Fannie Mae and Freddie Mac.

The 3 financial statements are the income statement, balance sheet, and cash flow statement.

• Income statement shows a company's revenues and expenses over a period of time.

• Balance sheet provides a snapshot of a company's financial position at a specific point in time.

• Cash flow statement shows how changes in balance sheet and income statement affect cash and cash equivalents.

• Examples: Income statement - revenue, expenses, net income; Balance sheet - assets, liabilities, equity;...read more

Ageing bucket refers to the categorization of overdue debts based on the number of days they have been outstanding.

• Ageing bucket is used to track the payment status of accounts receivable.

• It helps in identifying the accounts that are overdue and need immediate attention.

• The buckets are usually categorized as 0-30 days, 31-60 days, 61-90 days, and 90+ days.

• The longer the debt remains unpaid, the higher the risk of default.

• Credit analysts use ageing bucket to assess the creditw...read more

Credit bureau is a company that collects and maintains credit information on individuals and businesses.

• Credit bureaus gather data from various sources such as lenders, creditors, and public records.

• They compile this information into credit reports, which are used by lenders to assess creditworthiness.

• Examples of credit bureaus include Equifax, Experian, and TransUnion.

The basic credit assessment process involves gathering information, analyzing financial statements, and assigning a credit rating.

• Gather information about the borrower's financial history and current financial situation

• Analyze financial statements to assess the borrower's ability to repay the loan

• Assign a credit rating based on the borrower's creditworthiness

• Consider factors such as credit score, debt-to-income ratio, and payment history

• Use the credit rating to determine the ...read more

The components of FS refer to the financial statements, including the balance sheet, income statement, and cash flow statement.

• Balance Sheet: Shows a company's assets, liabilities, and shareholders' equity at a specific point in time.

• Income Statement: Summarizes a company's revenues, expenses, and profits over a specific period of time.

• Cash Flow Statement: Reports a company's cash inflows and outflows during a specific period of time.

Three financial statements used by companies to assess their financial performance.

• Income Statement: Shows a company's revenues, expenses, and profits over a specific period of time.

• Balance Sheet: Provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and equity.

• Cash Flow Statement: Details the cash inflows and outflows of a company, helping to assess its liquidity and financial health.

My biggest strength is my analytical skills and attention to detail.

• Strong analytical skills allow me to accurately assess credit risk and make informed decisions.

• Attention to detail ensures that I thoroughly review financial documents and identify any red flags.

• Ability to think critically and problem-solve effectively in complex financial situations.