Analysis of cash flow is to compare the outflow and inflow of funds from the borrower for the period corresponding to the usual term loan sought. When issuing a loan for a year cash flow analysis is done in the annual cut, up to 90 days – in the quarterly, etc.

Elements inflows for the period are:

• profits earned in that period;

• amortization accrued during the period;

• the release of funds from:

a) stocks;

b) accounts receivable;

c) The fixed assets;

d) other assets;

• Increase in accounts payable;

• Increase in other liabilities;

• increase the share capital;

• issuing new loans.

As elements of the outflow of funds can be identified:

• payment:

a) taxes;

b) interest;

c) dividends;

d) fines and penalties;

• Additional investments in:

a) stocks;

b) accounts receivable;

c) other assets;

d) Fixed Assets;

reduction in accounts payable;

decrease in other liabilities;

outflow of equity capital;

repayment of loans.

The difference between the inflow and outflow determines the overall cash flow. As can be seen from the above list of elements of inflow and outflow of funds, changing the size of inventories, receivables and payables, other assets and liabilities, fixed assets have different effects on the overall cash flow. To determine this effect compares balances Articles stocks, debtors, creditors, etc. at the beginning and end of the period. The growth of the balance of stocks, debtors and other assets during the period means the outflow of funds and shows the calculation with the sign “-”, and a decrease – the flow of funds and fixed with a “+” sign. Growth of creditors and other liabilities is considered as the flow of funds (”+”), decrease – as an outflow (”-”).

There are features in determining the inflow and outflow of funds due to changes in fixed assets. Take into account not only the increase or decrease the value of their balance for the period, but results of the fixed assets during the period. The excess of selling price over the carrying estimate is regarded as the flow of funds, and the opposite situation as the outflow of funds. Inflow (outflow) of funds in connection with the change in value of assets = value of fixed assets at the end of the period – The value of fixed assets at the beginning of period + The results of the implementation of fixed assets during the period.

Cash flow analysis model is based on the grouping of elements of the inflow and outflow of funds to areas of enterprise management. These spheres in the model analysis of cash flow (ADP) may correspond to the following units:

profit management company;

inventory management and estimates;

management of financial obligations;

management fees and investment;

management by equity and loans.

For the analysis of cash flow data are taken at least three of the past year. If the client had a steady inflow of the excess over the outflow of funds, it is evidence of its financial stability, creditworthiness. Fluctuations in the value of the total cash flow, as well as a brief rise of the outflow over inflow of funds indicates a lower rating of the client’s level of creditworthiness. Finally, the systematic excess of outflows over inflows characterizes the client as creditworthy. The current average positive value of the total cash flow (the excess of inflow over outflow) can be used as the limit of issuing new loans. Specified excess shows to what extent the client can repay the debt over the period. On the basis of the ratio of total cash flow and size of debt the client is determined by its class credit: normative levels of this relationship: I Class – 0,75: II – 0,30; III – 0,25; IV – 0,2; V – 0 , 2; VI – 0,15.

Analysis of cash flow allows us to conclude the weak field of enterprise management. For example, the outflows may be associated with inventory management, settlement (debtors and creditors), the financial payments (taxes, interest, dividends). Identifying the weaknesses of management is used to develop credit conditions, as reflected in the loan agreement. For example, if a major factor in the outflow of funds is unnecessary diversion of funds into the calculations, the “positive” condition of crediting the customer may maintain receivables turnover during the entire period of use of a loan at a certain level. With this factor of the outflow as insufficient value of equity as a condition of lending you can use the standard level of compliance with certain financial ratio leverage.

To resolve the question of the appropriateness and amount of loans on relatively long-term analysis of cash flow is not only on the basis of evidence in the intervening period, but on the basis of forecast data for the planning period. Evidence used to evaluate the predictive data. The basis of the forecast values of individual elements of the inflow and outflow of funds is their average value in the historical and projected rates of growth of sales revenue.

Stage I – establishment of reserves:

number of suppliers and their reliability;

capacity and quality of storage facilities;

appropriate means of transportation nature of the goods;

availability of raw material prices and transportation for the borrower;

number of intermediaries between buyers and manufacturers of raw materials and other tangible assets;

distance provider;

economic factors;

Fashion at the purchased raw materials and other valuables;

exchange rate risks;

risk of entry restrictions on exports and imports of imported raw materials.

Stage II – the stage production:

availability and qualifications of the workforce;

age and power equipment;

load of equipment;

state of industrial premises.

Stage III – the stage of marketing:

number of buyers and their ability to pay;

diversification of debtors;

degree of protection against non-payment buyers;

belonging to the borrower’s primary sector credited by the nature of the finished product;

the degree of competition in the industry;

impact on the price of finished goods credited social traditions and preferences, the political situation;

there is a problem of overproduction in the market of the product;

demographic factors;

exchange rate risks;

• Ability to provide restrictions on the export of and import into another country of production.

Moreover, risk factors at the stage of marketing can be combined with the factors of the first and second stage. Therefore, business risks at the stage of sales is higher than at the stage of establishing reserves or production.

In terms of economic instability analysis of business risk at the time the loan substantially complements the assessment of creditworthiness of the customer based on financial ratios that are calculated on the basis of secondary evidence of elapsed periods.

These factors of business risk must be taken into account in developing standard forms of bank loan applications, feasibility studies for the possibility of issuing a loan-

Assessment of business risk commercial bank could be formalized and carried out by a system of scoring, when every factor of the business risk is assessed in points (Table 9.3).

Table. Criteria of business risk

Points

I Number of suppliers

more than three

10

two

5

one

1

II. Reliability of suppliers

all suppliers have an excellent reputation

5

most reliable suppliers as business partners

3

bulk suppliers are unreliable

0

III. Cargo transportation

within the city limits, there is an insurance policy,

form of transportation conformity of the goods

10

provider remote from the buyer, there is an insurance policy,

Transportation conformity of the goods

8

provider remote from the buyer, transportation may

lead to a loss of product and reduce its quality

there is an insurance policy

6

supplier within the city, transportation does not meet the

cargo insurance policy is missing, etc.

4

IV. Storage of goods

the borrower has its own warehouse

satisfactory quality or warehouses

not required

5

warehouse leased

3

storage space required, but not at the moment

assessment of business risk

0

etc.

A similar model assessment of business risk and apply on the basis of other criteria. Points are tabulated for each criterion and summed. The greater the total score, the less risk and more likely the deal with the projected effect, allowing the borrower to repay term debt obligations.

The Medium of Exchange.

Money, the medium of exchange, is used in one-half of almost аll exchange. Workers exchange labour services for money. People buy and sell goods in exchange for money. We accept money not to consume it directly but because it can subsequently be used to pay things we do wish to consume. Money is the medium through, which people exchange goods and services.

To see that society benefits from a medium of exchange, imagine a barter economy.

A barter economy has no medium of exchange. Goods are traded directly or swapped for other goods.

In a barter economy, the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. In order to see a film, you must hand over in exchange a good or service that the cinema manager wants. There has to be a double coincidence of wants. You have to find a cinema where the manager wants what you have to offer in exchange.

Trading is very expensive in a barter economy. People must spend a tot of time and effort finding others with whom they can make mutually satisfactory swaps. Since time and effort are scarce resources, a barter economy is wasteful. The use of monеу – any commodity generally accepted in payment for goods, services, and debts – makes the trading process simpler and more efficient.

Other Functions of Моnеу.

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods and services. In this function money appears as the unit of account, is the unit in which prices are quoted and accounts are kept.

In Russia prices are quoted in roubles; in Britain, in pounds sterling; in the USA, in US dollars; in France, in French francs. It is usually convenient to use the units in which the medium of exchange is measured as the unit of account as well. However there are exceptions. During the rapid German inflation of 1922 – 1923 when prices in marks were changing very quickly, German shopkeepers found it more convenient to use dollars as the unit of account. Prices were quoted in dollars even though payment was made in marks, the German medium of exchange.

Money is a store of value because it can be used to make purchases in the future.

To be accepted in exchange, money has to be a store of value. Nobody would accept money as payment for goods supplied today if the money was going to be worthless when they tried to buy goods with it tomorrow. But money is neither the only nor necessarily the best store of value. Houses, stamp collections, and interest-bearing bank accounts all serve as stores of value. Since money pays no interest and its real purchasing power is eroded by inflation, there are almost certainly better ways to store value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in pounds sterling or in some other hard currency. Although convenient, this is not an essential function of money. UK citizens can get bank loans specifying in dollars the amount that must be repaid next year. Thus the key feature of money is its use as a medium of exchange. For this, it must act as a store of value as well. And it is usually, though not invariably, convenient to make money the unit of account and standard of deferred payment as well.

A token money is a means of payment whose value or purchasing power as money greatly exceeds its cost of production or value in uses other than as money.

A $10 note, is worth far more as money than as a 3 x 6 inch piece of high-quality paper. Similarly, the monetary value of most coins exceeds the amount you would get by melting them down and selling off the metals they contain. By collectively agreeing to use token money, society economizes on the scarce resources required to produce money as a medium of exchange. Since the manufacturing costs  are tiny, why doesn’t everyone make $10 notes?

The essential condition for the survival of token money is the restriction of the right to supply it. Private production is illegal:

Society enforces the use of token money by making it legal tender. The law says it must be accepted as a means of payment.

In modern economies, token money is supplemented by IOU money.

An IOU money is a medium of exchange based on the debt of a private firm or individual.

A bank deposit is IOU money because it is a debt of the bank. When you have a bank deposit the bank owes you money. You can write a cheque to yourself or a third party and the bank is obliged to pay whenever the cheque is presented. Bank deposits are a medium of exchange because they are generally accepted as payment.

People used gold, gold bullion, as money. Those were dangerous times, and people wanted a safe place to keep their gold. So they deposited it with goldsmiths, people who worked with gold for jewellery and so on and also had a guarded vault to keep it safe in. And when people wanted some of their gold to pay for things with, they went and fetched it from the goldsmith.

Two developments turned these goldsmiths into bankers. The first was that people found it a lot easier to give the seller a letter than it was to fetch some gold and then physically hand it over to him. This letter transferred some of the gold they bad at the goldsmith’s to the seller. This letter we would nowadays call a cheque. And, of course, once these letters or cheques, became acceptable as a way of paying for goods, people felt that the gold they had deposited with the goldsmith, was just as good as gold in their own pockets. And as letters or cheques, were easier to carry around than gold, and a lot less dangerous, people started to say that their money holdings were what they had with them plus their deposits. So a system of deposits was started. The second development was that goldsmiths realized they had a great deal of unused gold lying in their vaults doing nothing. This development was actually of greater importance than the first.

Now let’s turn to the first bank loan ever and see what happened. A firm asked a goldsmith for a loan. The goldsmith realized that some of the gold in his vault could be lent to the firm, and of course he asked the firm to pay it back later with a little interest. Of course, at that moment the goldsmith was short of gold, it wasn’t actually his gold, but he reckoned it was unlikely that everyone who had deposited gold with him would want it back at the same time, at any rate - not before the firm had repaid him his gold with a little interest. He thought it safe enough.

To understand what actually happened in this simple transaction let’s consider the following table.

Таbl. 6. Goldsmiths as bankers

The first row shows what the goldsmith did before he made this loan- He had a hundred dollars of gold, which he owed to the people who had deposited it with him, so his assets and liabilities were the same. But when he lent, say, $10 of gold to the firm, he actually had only $90 of gold in his vault plus the value of his loan. His assets still equalled his liabilities, but he was going to get some interest

It so happened that the firm, that took out the loan, didn’t really want to carry that $10 of gold around, so It asked me goldsmith if, instead of actually taking the gold, it could be given a deposit. The third row of Tabl. 6 shows what happened then. Although the goldsmith’s assets and liabilities were the same, but were then worth $110, not $100. When the firm wrote a cheque for $10, and that person came in to collect his $10 worth of gold, the goldsmith’s assets failed, but so did his liabilities (the fourth row of the table). The important point to notice here is that it made no difference to the goldsmith whether his initial loan was in actual gold or in a form of a deposit.

Now let’s turn to the question of reserves. Reserves are the amount of gold that is immediately available in the vault to meet depositors’ demands. People originally deposited $100 of gold with the goldsmith. The goldsmith lent $10, leaving himself with $90. As a banker he was relying on the fact that not everyone would want their gold back at the same time. If they had done, be couldn’t have paid out. His reserves of $90 were not enough.

The goldsmith in the table has a 100% reserve ratio. The reserve ratio is the ratio of reserves to deposits. Once he has made his loan, he has a 90% deposit ratio. This is a small risk with a small profit. How much dare he lend out in order to make a profit through his interest charges?  What are the risks involved? Suppose the goldsmith took too much of a risk. He lent 80% of the gold he had. This panicked people. They doubted he could pay them all back, he was bound to lose some of the gold he had lent, so they rushed to get their gold back before it was too late. That was what we would now call a run on the bank, a financial panic. And the financial panic leads to exactly what people fear: the bank cannot pay them, goes bankrupt, and they go bankrupt as well.

A financial intermediary is an institution that specializes in bringing lenders and borrowers together.

A commercial bank borrows money from the public, crediting them with a deposit. The deposit is a liability of the bank. It is money owed to depositors. In turn the bank lends money to firms, households or governments wishing to borrow.

Banks are not the only financial intermediaries. Insurance companies, pension funds, and building societies also take in money in order to relend it. The crucial feature of banks is that some of their liabilities are used as a means of payment, and are therefore part of the money stock.

Commercial banks are financial intermediaries with a government licence to make loans and issue deposits, including deposits against, which cheques can be written.

Let’s start by looking at the present-day UK banking system. Although the details vary from country to country, the general principle is much the same everywhere.

In the UK, the commercial banking system comprises about 600 registered banks, the National Girobank operating through post offices, and a dozen trustee saving banks. Much the most important single group is the London clearing banks. The clearing banks are so named because they have a central clearing house for handling payments by cheque.

A clearing system is a set of arrangements in which debts between banks are settled by adding up all the transactions in a given period and paying only the net amounts needed to balance inter-bank accounts.

Suppose you bank with Barclays but visit a supermarket that banks with Lloyds. To pay for your shopping you write a cheque against your deposit at Barclays. The supermarket pays this cheque into its account at Lloyds. In turn, Lloyds presents the cheque to Barclays, which will credit Lloyds’ account at Barclays and debit your account at Barclays by an equivalent amount. Because you purchased goods from a supermarket using a different bank, a transfer of funds between the two banks is required. Crediting or debiting one bank’s account at another bank is the simplest way to achieve this.

However on the same day someone else is probably writing a cheque on a Lloyds’ deposit account to pay for some stereo equipment from a shop banking with Barclays. The stereo shop pays the cheque into its Barclays’ account, increasing its deposit. Barclays then pays the cheque into its account at Lloyds where this person’s account is simultaneously debited. Now the transfer flows from Lloyds to Barclays.

Although in both cases the cheque writer’s account is debited and the cheque recipient’s account is credited, it does not make sense for the two banks to make two separate inter-bank transactions between themselves. The clearing system calculates the net flows between the member clearing banks and these are the settlements that they make between themselves. Thus the system of clearing cheques represents another way society reduces the costs of making transactions.

The Balance Sheet of the London Clearing Banks.

Cash assets are notes and coin in the banks’ vaults. However, modem banks’ cash assets also include their cash reserves deposited with the Bank of England. The Bank of England (usually known as the Bank) is the central bank or banker to the commercial banks.

Apart from cash, the other entries on the asset side of the balance sheet show money that has been lent out or used to purchase interest-earning assets. The second item, bills and market loans, shows short-term lending in liquid assets.

Liquidity refers to the speed and the certainty with which an asset can be converted back into money, whenever the asset-holders desire. Money itself is thus the most liquid asset of all.

The third item, advances, shows lending to households and firms. A firm that has borrowed to see it through a sticky period may not be able to repay whenever the bank demands. Thus, although advances represent the major share of clearing bank lending, they are not very liquid forms of bank lending. The fourth item, securities, shows bank purchases of interest-bearing hug-term financial assets. These can be government bonds or industrial shares. Although these assets are traded daily on the stock exchange, so in principle these securities can be cashed in any time the bank wishes, their price fluctuates from day to day. Banks cannot be certain how much they will get when they sell out. Hence financial investment in securities is also illiquid.

The final two items on the asset side of the balance sheet show lending in foreign currencies and miscellaneous bank assets. Total assets of the London clearing banks were £200,1 billion. We now shall examine how the equivalent liabilities were made up.

Deposits are chiefly of two kinds: sight deposits and time deposits. Whereas sight deposits can be withdrawn on sight whenever the depositor wishes, a minimum period of notification must be given before time deposits can be withdrawn. Sight deposits are the bank accounts against, which we write cheques, thereby running down our deposits without giving the bank any prior warning. Whereas most banks do not pay interest on sight deposits or cheque (checking) accounts, they can afford to pay interest on time deposits. Since they have notification of any withdrawals, they have plenty of time to sell off some of their high- interest investments or call in some of their high-interest loans in order to have the money to pay out deposits.

Certificates of deposit (CDs) are an extreme form of time deposit where the bank borrows from the public for a specified period of time and knows exactly when the loan must be repaid. The final liability items in Таbl. 7 show deposits in foreign currencies, miscellaneous liabilities, such as cheques, in the process of clearing.

Accounting is the process of systematically collecting, an­alyzing, and reporting financial information. The basic prod­uct that an accounting firm sells is information needed for the cli­ents.

Many people confuse accounting with bookkeeping. Book­keeping is a necessary part of accounting. Bookkeepers are re­sponsible for recording (or keeping) the financial data that the ac­counting system processes.

The primary users of accounting information are managers. The firm’s accounting system provides the information dealing with revenues, costs, accounts receivables, amounts borrowed and owed, profits, return on investment, and the like. This infor­mation can be compiled for the entire firm; for each product; for each sales territory, store, or individual salesperson; for each divi­sion or department; and generally in any way that will help those who manage the organization. Accounting information helps managers plan and set goals, organize, motivate, and control. Lenders and suppliers need this accounting information to evaluate credit risks. Stockholders and potential investors need the information to evaluate soundness of investments, and government agencies need it to confirm tax liabilities, confirm payroll deductions, and approve new issues of stocks and bonds. The firm’s accounting system must be able to provide all this information, in the required form.

THE BASIS FOR THE ACCOUNTING PROCESS

The basis for the accounting process is the accounting equation. It shows the relationship among the firm’s assets, liabil­ities, and owner’s equity.

Assets are the items of value that a firm owns — cash, inven­tories, land, equipment, buildings, patents, and the like.

Liabilities are the firm’s debts and obligations — what it owes to others.

Owner’s equity is the difference between a firm’s assets and its liabilities — what would be left over for the firm’s owners if its assets were used to pay off its liabilities.

The relationship among these three terms is the following:

Owners’ equity = assets – liabilities

(The owners’ equity is equal to the assets minus the liabilities)

For a sole proprietorship or partnership, the owners’ equity is shown as the difference between assets and liabilities. In a part­nership, each partner’s share of the ownership is reported sepa­rately by each owner’s name. For a corporation, the owners’ eq­uity is usually referred to as stockholders ‘ equity or sharehold­ers ‘ equity. It is shown as the total value of its stock, plus retained earnings that have accumulated to date.

By moving the above three terms algebraically, we obtain the standard form of the accounting equation:

Assets = liabilities + owners’ equity

(The assets are equal to the liabilities plus the owners’ equity)

A BALANCE SHEET

A balance sheet (or statement of financial position), is a summary of a firm’s assets, liabilities, and owners’ equity ac­counts at a particular time, showing the various money amounts that enter into the accounting equation. The balance sheet must demonstrate that the accounting equation does indeed balance. That is, it must show that the firm’s assets are equal to its liabilities plus its owners’ equity. The balance sheet is prepared at least once a year. Most firms also have balance sheets prepared semi-annually, quarterly, or monthly.

AN INCOME STATEMENT

An income statement is a summary of a firm’s revenues and expenses during a specified accounting period. The in­come statement is sometimes called the statement of income and expenses. It may be prepared monthly, quarterly, semiannually, or annually. An income statement covering the previous year must be included in a corporation’s annual report to its stockholders.

THE IMPORTANCE OF THE ABOVE TWO STATEMENTS

The information contained in these two financial statements becomes more important when it is compared with corresponding information for previous years, for competitors, and for the indus­try in which the firm operates. A number of financial ratios can also be computed from this information. These ratios provide a picture of the firm’s profitability, its short-term financial position, its activity in the area of accounts receivables and inventory, and its long-term debt financing. Like the information on the firm’s fi­nancial statements, the ratios can and should be compared with those of past accounting periods, those of competitors, and those representing the average of the industry as a whole.

Creditworthiness of the borrower, in contrast to its ability to pay does not fix the defaults in the intervening period or at any date, and predicts the ability to repay debt in the near future. The degree of insolvency in the past is one of the formal parameters, which are based on the assessment of customer credit quality. If the borrower is in arrears, and the balance of liquid and sufficient amount of equity capital, the single delay payments to the bank in the past do not justify a conclusion on the client’s insolvency. Creditworthy clients do not allow long-term non-payment to the bank, vendors, budget.

The level of creditworthiness of the client indicates the degree of an individual (private) bank risk associated with the issuance of a specific loan specific to the borrower.

World and domestic banking practice has separate criteria for creditworthiness of the customer: the nature of the client, the ability to borrow funds, the ability to earn money in the normal course of business to repay debt (financial capabilities), capital, collateral, conditions in which the credit transaction is made, control (the legislative framework the borrower with the nature of loans to bank standards and oversight bodies).

By the nature of the client understood his reputation as a legal entity and the reputation of managers, the degree of responsibility of the customer for debt repayment, the clarity of his presentation about the purpose of the loan, line of credit bank’s policy. Reputation of the client as a legal entity composed of the duration of its operation in this area, the relevant economic indicators averages from his credit history, reputation in the business world, its partners (suppliers, customers, creditors). Reputation management is evaluated on the basis of their professionalism (education, work experience), integrity, personal and family financial position, results of the relationship led their structures with the bank. Even with a clear understanding of client objectives sought the return of the loan is risky, if it is contrary to the approved cross policy (for example, violates the approved limits of individual segments of the loan portfolio).

The ability to borrow means that there is a client of the right to file an application for a loan, signature loan agreement or negotiation, ie the presence of certain powers of the representative of the company or companies coming of age, or other signs of capacity of the borrower – a natural person. Signing of the contract by an unauthorized or incompetent person means a greater likelihood of losses for the bank.

One of the main criteria of creditworthiness of the customer is his ability to earn money for debt repayment during the current activity. Known and the other position, as set out in the economic literature when creditworthiness is associated with the degree of capital investment in real estate. The latter is a form of protection against the risk of impairment of assets in an inflationary environment, it can not be a major feature of the borrower’s creditworthiness. The fact that the release of funds from an estate takes time. Investing in real estate associated with the risk of impairment. Therefore it is expedient to focus on balance sheet liquidity, efficiency (profitability) of the borrower, its cash flows.

Clients’ capital is not less important criterion in customer credit quality. It is important to these two aspects of its assessment: 1) it is sufficient, which is analyzed based on the established requirements for the minimum level of charter capital (equity) and the coefficients of financial leverage, and 2) the degree of equity investments credited to the operation, which indicates that the allocation of risk between bank and the borrower. The greater the investment of equity capital, the more interest the borrower to closely monitor credit risk factors.

Under the provision of credit means the assets of the borrower and a particular secondary source of repayment of the debt (mortgage, guarantee, surety, insurance), provided in the loan agreement. If the ratio of assets and liabilities is important for the loan of the bank in case of declaration of bankruptcy of the borrower, the quality of a particular secondary source guarantees the fulfillment of its obligations on time in financial difficulties. As collateral security guarantor, the guarantor and the insured are especially important when there is insufficient cash flow from the customer’s bank, problems with liquidity of its balance sheet and capital adequacy.

K conditions. which is committed credit operations are ongoing or forecast the economic situation in the country, region and industry, political factors. These conditions determine the degree of external risk of the bank and taken into account when deciding on the bank’s standards for evaluating cash flow, balance sheet liquidity, sufficient capital and management level of the borrower.

The latter criterion – control over the legislative framework of the borrower and the bank’s compliance with its standards zeroing banker to provide answers to the following questions: whether the legislative and regulatory framework for the functioning of the borrower and the implementation of the financed activities such as impact on the performance of the borrower’s expected change in legislation (eg tax ) how information about the borrower and the loan contained in a credit application, meet the standards of the bank, as recorded in the instrument of credit policy and the standards of banking supervision, controlling the quality of loans.

Set out criteria for assessing the creditworthiness of the bank’s customer and define the contents of ways to assess it. These methods include:

assessment of business risk;

assessment management;

assessing the financial stability of the client on the basis of financial ratios;

analysis of cash flow;

collecting customer information;

oversee the work of the client by entering the place.

Despite the unity of the criteria and methods of evaluation, there is specificity in analyzing the creditworthiness of businesses and individuals, large, medium and small clients. This specificity is a combination of methods of assessment used, as well as their content.

Deposit called the operations of banks to attract funds from legal entities and individuals in deposits, or on certain dates or on demand. The share deposit transactions usually account for the bulk of their liabilities.

As subjects of the deposit operations may be:

state enterprises and organizations;

government agencies;

cooperatives;

joint-stock companies;

mixed enterprises with foreign capital;

Party and public organizations and foundations;

financial and insurance companies;

investment and trust companies and funds;

certain individuals and associations;

Banks and other lending institutions.

The objects of deposit transactions are deposits – amount of money that agents deposit transactions made by the bank for a certain time deposits on bank accounts in the applicable order of carrying out banking operations.

According to terms of deposits made to divide into two groups:

demand deposits;

time deposits (with their variety – of deposit and savings certificates).

Demand deposits – are the means for the current settlement, cost and other accounts relating to the commission calculations or intended use, as well as fixed deposits.

Due to the frequency of operations according to the accounts of operating expenses for them are usually higher than on term deposits, but because of those accounts, banks typically pay a low interest rate or not pay interest (if customers can be given various incentives), these resources for the bank’s relatively cheap. At the same time it is – the least stable part of the resources, the banks must have on them a higher operating reserve to maintain liquidity. Therefore, the best is the share of these funds in the resource bank to 30-36%.

When you open a bank account requires the client to provide certain information to protect against various types of fraud. In recent years, banks are increasingly guided by the rule of “know your customer”. Particularly clearly to the selection of clients include large, internationally known banks that provide their clients with maximum service capabilities. Standard approach to verifying the customer in the world does not exist, the verification procedure is largely dependent on the country where the bank operates, and partly from the bank itself.

Usually, the account opening application form is applied, which includes questions about the company’s name and address for the last three years or more of the types of business, there may be questions about the company’s partners and their addresses, the origin of the initial capital and sources of its owners, the company’s financial condition, expected future turnover or the average account balance.

Obtained from the questionnaire data validated by the bank. In many countries, information about clients with banking history can be gleaned from publicly available databases.

Most often, for opening a corporate account with a foreign bank from the customer is required to provide references from clients of the bank, or from a known bank counsel, either from another bank.

A number of banks requires the client to get into the registry of the country of registration and the provision of a certificate of good character (certificate of good standing). Some banks set a large enough minimum balance in the account.

The Civil Code provides that the bank is obliged to conclude a contract of bank account with a client who has addressed a proposal to open an account on the pledges bank accounts for this type of environment.

The Bank shall not be entitled to refuse to open accounts except where such failure is caused by lack of opportunities to take on banking or permitted by law or other regulations. Customers are entitled to open the necessary number of settlement and other accounts in any currency.

In the agreement the bank account specified value of banking services and their due dates, processing times of payments, the liability for breach of contractual obligations, including the timing of payments, and order its dissolution, and other material terms of the contract.

To contract the client is obliged to the bank to submit the following documents:

a) notarized copies of or registration authority:

decisions of the founders (founder) on the establishment of the company and the appointment (election) of his head;

memorandum and articles of association (in cases where their presence is required by law for enterprises in the organizational-legal form);

certificate of registration;

license (if its availability to the enterprise is required);

cards with specimen signatures of persons entitled to the first and second signature and seal (state and municipal unitary enterprises can assure her of the parent organization);

b) The original:

• a certificate of registration with the tax authorities, information from the pension fund and medical insurance.

Additionally, you may submit copies of the order appointing the chief accountant (if it is not assigned a decision of the founders) and other persons entitled to the first and second signature, and some banks also require the information note on open accounts with other banks.

Branches and representative enterprises are certified copies of all the constituent documents of the parent company, a copy of the bylaws of a branch (representative office), a copy of the proxy manager of the branch (representative office), a copy of the minutes of the meeting of the founders (or order) the appointment of persons enjoying the right of first and second signature.

Non-residents to open a bank account should submit the documents, determining their legal status in accordance with the laws of the location and a copy of the authority of a national of a foreign bank. All documents must be translated into local language, legalized by the relevant embassy (consulate) and notarized.

To open a bank account an individual present a passport, foreign banks require the presentation of an identity document with a photograph, and some – the recommendation of two persons, one from an employer.

Account Agreement shall be terminated at the request of the client at any time, at the request of the bank – in two cases (only on the court).

Firstly, when the amount of funds in the account is below the minimum amount of bank regulations, or treaties, and will not be restored within a month from the date of the bank’s warning about this.

Secondly, if transactions in this account during the year, unless otherwise stipulated in the contract.

Rescission is the reason for the closure of the customer’s account. Balance in the account given to a client (transferred to another account) no later than seven days after receipt of a written application from the customer.

For demand deposits also include credit balances on correspondent accounts and demand deposits of other banks in the bank.

Term bank deposits – it funds deposited in the bank for a fixed term of the contract. According to him the owners are usually paid a higher percentage than on demand deposits and, as a rule, there are restrictions on early withdrawal, and in some cases and to replenish the deposit.

In accordance with the Civil Code, legal persons are not entitled to transfer to deposit funds to other parties (these funds to the escrow account may only be directed to the account), bank deposit agreement, in which investor-citizen, recognizes a public contract, and the condition of the contract refusal citizen the right to receive input on the first requirement is negligible.

Operating expenses of banks for term deposits, as well as reserve requirements, are generally lower than on demand deposits, but interest payments is much higher, so banks are not always beneficial. But banks are interested in attracting term deposits because they can be used for long-term investments.

Term bank deposits are divided into conventional (the deposit is kept until the onset of an event), with advance notice of withdrawal of funds (when a customer within a predetermined timeframe should apply for exemption) and the actual deposit.

Actual deposit of shelf life are divided on deposits with maturity:

30 days

from 31 to 90 days

from 91 to 180 days

181 days to 1 year

from 1 to 3 years

over 3 years.

Bank certificates. Time deposits may be made of the instrument of the bank, as well as deposit and savings certificates.

To issue savings certificates granted by banks under the following conditions:

banking activities at least two years;

publication of annual reports, confirmed by the audit firm;

compliance with banking laws and regulations of the Central Bank;

compliance with mandatory economic standards;

the presence of a reserve fund in an amount not less than 15% of the actual paid-up equity capital;

compliance with mandatory reserve requirements.

Bank certificate must be expeditious, produced as a one-off procedure, as well as a series, to be registered or bearer, their owners can be both residents and nonresidents. The certificate can not be a settlement or a means of payment for goods sold or services rendered.

Forms of certificates can be printed only on the printing companies that are licensed by the Ministry of Finance. On the form must contain the following mandatory details (the absence of any of them makes the certificate invalid):

the name of “Savings (or deposit) certificates;

number and series of certificate;

date of making the contribution or deposit;

size of deposit or deposit, issue of certificates (in words and figures);

unconditional obligation of the bank to return the amount paid and to pay the interest due;

date of demand the amount of the certificate;

rate of interest for the use of deposit or contribution;

amount of interest due (in words and figures);

interest rate during the early presentation of a certificate for payment;

name, address and the correspondent bank account opened in the Central Bank;

for a personal certificate: name and address of the depositor – a legal entity; Name and passport details of investor – an individual;

signatures of two persons authorized by the bank to sign the sort of commitment with the seal of the bank.

The Bank is entitled to place savings (deposit) certificates only after conditions of release and circulation of certificates in the territorial office of the Central Bank.

Savings deposits are beneficial to banks because they generally are long-lasting, and therefore may serve as a source of long-term investments. Their disadvantages for banks are as follows: 1. The necessity to pay higher interest on deposits and thus reduce the margin (the difference between the percentage of active and passive credit transactions). 2. Exposure to quiet contribution of different factors (political, economic, psychological), which increases the risk of rapid outflow of funds from these accounts and the loss of the bank’s liquidity. 3. Bank Failure to renew these resources on an ongoing basis.

In countries with developed market relations in the recent sharp boundaries between different types of deposits are blurred, there are bills that combine the quality of demand accounts and time deposits. In the U.S. one of these new forms of accounts are NAU accounts, deposit accounts that pay market rate of interest and at the same time, they can write a draft settlement, similar to checks, ie, use these accounts for payment.

Commercial banks in a competitive market of credit resources to constantly worry about how quantitative and qualitative improvement of their deposits. They use different methods for this (interest rates, a variety of services and facilities to investors). The order of deposit operations are regulated by internal documents of the bank. In this case, all banks comply with some basic principles of organization of deposit operations. They are as follows:

deposit operations should contribute to profit or to create conditions for a profit in the future;

deposit operations should be varied and maintained with various stakeholders;

emphasis in the organization of deposit operations should be given time deposits;

should be provided interconnection and coordination between the operations of deposit and credit transactions on the timing and amounts of deposits and loan investments;

organizing the deposit and credit transactions, the bank should seek to minimize their free resources;

bank should take measures to develop banking services, helping to attract deposits.

For passive operations, particularly on deposits, banks are obliged to create the required reserves.

According to the settlement, current and deposit accounts (excluding deposits from other banks), accounts of the budgets of various levels and extra-budgetary funds are established norms of mandatory reserves deposited at the Central Bank.

Reserve requirements are established in order to limit banks’ lending capacity and to maintain the level of money supply in circulation.

Initially, contributions to the central fund conducted by foreign banks on a voluntary basis as an insurance reserve. Since 30-ies of XX century. reserve requirements were set in an official manner and used as liquid reserves for liabilities of commercial banks on deposits of their customers, as well as a tool used by the Central Bank to control money supply in the country.

Currently, all credit institutions are required to have minimum reserves either in the form of cash to banks, either in the form of deposits at the central bank, or other highly liquid forms, defined by the central bank reserve requirement ratio is set by law or by the central bank a percentage of the amount required reserves for the balance of the passive accounts (or their increments) or on active accounts (depending on credit investments). The ratio can be set as the total of obligations or loans the bank and to a certain part thereof, may be differentiated depending on the timing of attracting resources, types of banks, the share of long-term loans in the loan portfolio and other grounds.

In most countries, compulsory and voluntary (the workers) reserves commercial banks hold at the central bank on the same non-interest bearing account – basically correspondent or reserve. In some countries, commercial banks are allowed to temporarily use a portion of these reserves for credit and other active operations.

Stable balances on reserve (correspondent) accounts are used by central banks for refinancing credit institutions and other active operations.

Many Western economists recommend that central banks pay interest on required reserves of commercial banks to encourage the last time and in due measure to meet their reserve requirements. Although this increases the operating costs of central banks in some countries (Sweden, Spain, Italy, Finland) on the part of the reserves accrued interest.

Obligation to fulfill reserve requirements arise from the receipt of the license of the Central Bank the right to perform the relevant banking and is a prerequisite for their implementation. Mandatory reserves deposited at the respective reserve accounts at the Central Bank, the interest on them are not charged.

Reserve requirement to be deposited, is regulated by banks on a monthly basis (as at 1 st of the month following the reporting period) by checking the amounts actually paid and payable to the basis of the balances of funds (calculated by the formula of average chronological reporting month) and current regulations reserve requirements.

Calculation of the amount of funds to be attributed to the 1 st of each month, and other necessary documents to the bank represents a territorial office (RCC) of the Central Bank, together with balance. When the bank makes funds not fully paid payment receipt from your correspondent account, and when overpaid – RCC returns to the correspondent bank account amount overpaid on the basis of the relevant order.

For non-deposit sources of resource mobilization include: borrowing on the interbank market, a sale of securities and repurchase, discounting bills and obtaining loans from central bank sales of bankers’ acceptances, commercial paper issuance, borrowing on the Eurodollar market, the production of capital notes and bonds .

Under the conditions of formation of the banking system much of non-deposit sources of resource mobilization has not received its development.

Banks from these sources are mainly used interbank loans and securities. In the interbank market traded funds on correspondent accounts with CBR (debit balances on these accounts).

The value of interbank credit market is that redistributing the excess to some of the banks resources, the market increases the efficiency of the use of credit resources of the banking system as a whole. Furthermore, the presence of a developed market of interbank credits allows smaller funds to keep operational reserves of banks to maintain their liquidity.

Great prospects for the banks has a non-deposit source of resources, such as issuing bonds. Banks may issue bonds in an amount not more than 25% of the share capital after the full payment of all previously issued shares. Bonds may be either registered or bearer. Repay the loan by a net profit of the bank or at its shortcomings, from the contingency fund. To affect the bond rate the bank can buy or sell them on the exchange.

In the 90th of XX century became widespread conduct repo transactions in government securities.