Glossary

A

According to Ross, Westerfield & Jaff (1995,581), in the granting of credit, companies try to distinguish between customer who probably will pay and the ones who will not honor their commitment.

Credit Analysis cannot be brought up without mentioning: Nature, Capacity, Conditions and Collateral, that are essential for any credit granting process and evaluation.

Some bibliographies cite new credit factors (for example: Conglomerate, Control and Competition), that simply derive from the previously listed dimensions.

Gitman (1997, p. 697) refers to the dimensions of nature and capacity as the most important ones to subsidize the analyst when granting credit to a requester.

B

Score system which, with the use of several variables, can estimate a reasonable margin of hits, what customers tend to become non-performing (behavior points).

Source: Consulting Risk and Credit

C

Several authors are unanimous when affirming that the \"capacity\" regards the ability of individuals in managing their business, in order to make profit and pay their obligations.

Gitman (1997, p. 696) defines capacity as the customer's potential to liquidate credit received, that is, the capacity of payment of the individual or company.

The factor \"capacity\" must not only regard the payment capacity. Such dimension is much wider, as it mentioned competence, competition and technical aspects of the business to be financed.

Capital is an important factor mentioned in bibliographies and it regards the customer's financial health, in what concerns the net equity available to liquidate his/her obligations.

Blatt (1999, p. 42) refers to capital as \"the source of the customer's revenue and income, that is, the origins of funds, frequency and consistency\".

Berni (1999, p. 104) recommends loans not above 1/3 of the customer's funds (Capital + Reserves + Profits).

As we can verify, the Capital is a valuable information for the determination of the customer payment. It is an important factor to subsidize the analyst in the credit decision.

According to Blatt (1999, p. 42), nature refers to the moral risk, or better, the intention of the customer of paying the undertaken compromises or not. The first factor is the customer selection.

According to Silva (1997, p. 77), the customer's score in the payment is his/her obligations is a relevant factor in the verification of the customer's nature and it can be identified by means of internal registrations of the bank or by use of so called business and banking information.

It is a difficult task to evaluate the customer nature: there can be cases in which the payment delay does not mean the person or company intends to pay the debits. However, it is important to collect information in the market before making a decision concerning the customer's concept.

Activities that have credit policies creation, received proposals processing, information management, scoring systems, collection and credit loss recognition.

The authors define \"conditions\" as economic and sector factors can increase or decrease the customer's risk. Usually, they are based on the government politics, international scene, competition, region facts and natural events.

Gitman (1997, p. 697) states the entrepreneurial and economic politics, as well as, peculiarities of the negotiation, affect any of the parties involved in the transaction.

The score system of the demographic and registration data of an offeror to the credit. Based on this system, proposals are approved/rejected or recommended/not recommended, depending on the cut-off point of the model implemented and credit score role in relation to the autonomy of the credit jurisdiction holder.

P

We call products, some of the credit operations carried out by banks, financial companies, credit card companies, leasing companies, factoring companies etc. Each product displayed here has its own characteristics to accomplish requirements of legislation and/or due to market necessity.

The person in charge of the credit decision has to pay attention to each detail of the credit operation itself and also in the nuances of each product.

In most of the institutions there is the image of the product manager, who creates, develops and perfects the credit product. This professional needs the collaboration of several areas of the institution for a product to be launched in the market.

In order for every credit product to exist, more resources must be made available for the applicant. That is, in order to borrow or finance, the money to be granted must exist. The treasury is in charge of the availability of these resources. It informs for how much money it will be sold. This taking into account the money cost. There are other factors that also influence the launch of a product.

R

According to Gitman (1997, page 202), risk can be defined as possibility of loss or as variability of returns expected regarding an asset; uncertainty would be another term formally used with the same sense of risk.

Silva (1997, page 175) defines risk as a probability based on historic data estimating different results. It is up to the decision maker to judge the acceptability of the estimative. For that author, uncertainty would be to make decisions based on a personal sensitivity.

The risk and uncertainty cannot be considered as synonym, as the risk is measured based on history data or past experiences, whereas uncertainty refers to thefeeling of the decision makers, and it is not mathematically proved.

According to Gitman (1997, page 203), a return is considered the total of profits gained or losses resulting from an investment during a certain period of time.

The risk-return relationship is implicit in any credit operation and the administration of credit risk is the essence of the banking theory, which intends to protect the bank's capital and the stockholders' funds.

S

Difference between acquisition cost and value lent/applied; profit margin. Credit, Financing and Investment. (Source: Banco Central do Brasil).