Trade Finance BD · Original revision handnote · Edition 2026.1
COM — Credit Operations and Management
AIBB · Compulsory · 14 October 2026
Build a defensible credit proposal from cash flow, structure, security and ongoing control.
Use this revision pack with the full syllabus and official papers. Important topics are revision priorities, not a promise of future questions.
Contents
- A · Credit products and the credit cycle
- B · Borrower and industry appraisal
- C · Project and working-capital appraisal
- D · Credit-risk controls
- E · Security and documentation
- F · Monitoring, problem loans and recovery
- G · Leasing and hire purchase
- Worked example
- Applied case and model response
- Terminology
- Official syllabus and papers
Revision priorities
Appraisal, security and problem-loan management — Syllabus priority. Editorial judgement based on syllabus importance.
NPV, working capital and cash-flow interpretation — Syllabus priority. Editorial judgement based on syllabus importance.
Syllabus-mapped handnotes
Module A
Credit products and the credit cycle
Syllabus scope: Policies; proposals; branch/central processing; consumer; CMSME; agriculture; corporate; project; trade; offshore; syndication
The credit cycle runs from identification and appraisal through approval, documentation, disbursement, monitoring and recovery. Match the product and tenor to the purpose and cash-flow cycle. A working-capital facility should fund a recurring operating need; a term loan should fund a longer-term asset with a credible amortisation plan. Separate origination, approval and administration to reduce conflicts and errors. Syndication distributes commitments across lenders but needs clear agency and information arrangements. A facility name does not establish its risk: examine drawdown conditions, repayment, guarantees and contingent obligations.
Apply it in bankingDo not fund a five-year asset permanently through an uncommitted short-term overdraft. Explain the mismatch and propose appropriate amortisation.
Practice question: Explain the credit cycle and select suitable facilities for a growing manufacturer.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Module B
Borrower and industry appraisal
Syllabus scope: 5Cs; CAMPARI; CIB; ratings; ratios; ICRRS; exposure; industry; pricing; collateral
Character, capacity, capital, collateral and conditions organise assessment; capacity to repay is central. Validate statements, account activity, business model, management quality, industry pressures and credit information. Ratios require trend and peer comparisons plus asset-quality checks. Internal risk ratings support decisions and monitoring but cannot replace judgement about weak or misleading inputs. Aggregate connected exposures and assess concentration. Price for funding, expected loss, operating costs and capital, within applicable rules. Collateral is a secondary repayment source and may lose value exactly when the borrower fails.
Apply it in bankingA profitable borrower may not repay if sales remain uncollected. Challenge cash conversion, related-party transactions and off-balance-sheet liabilities.
Practice question: Appraise a borrower using the 5Cs and explain the limitations of collateral and ratios.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Module C
Project and working-capital appraisal
Syllabus scope: NPV; IRR; WACC; payback; CVP; working capital; operating cycle
Project appraisal compares incremental after-tax cash flows with the relevant cost of capital. NPV discounts cash flows and deducts the initial outlay; IRR is the discount rate giving zero NPV and can mislead with unusual cash flows or mutually exclusive projects. Payback shows recovery time but may ignore later benefits and time value unless discounted. Break-even connects fixed costs, selling price and variable cost. Working-capital needs arise from inventory and receivables less operating payables. Test demand, margins, delays and cost overruns through sensitivities and scenarios.
Apply it in bankingA positive base-case NPV is not enough if a small fall in volume eliminates debt-service capacity. Test the key assumptions and financing structure.
Practice question: Explain NPV, IRR and operating-cycle analysis in a project credit decision.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Module D
Credit-risk controls
Syllabus scope: Information asymmetry; CRM; risk matrix; approval; covenants; conditions
Credit controls address adverse selection before lending and moral hazard afterward. Independent appraisal challenges assumptions; approval limits allocate authority; conditions precedent ensure readiness before disbursement; covenants require specific ongoing behaviour or reporting. Conditions must be clear, feasible and monitorable. Risk grading, exceptions and covenant breaches need escalation and documented decisions. A covenant that nobody checks is not an effective control. Review the whole connected borrower exposure and avoid splitting a proposal to circumvent approval limits.
Apply it in bankingA debt-service covenant requires a defined formula, measurement period, reporting deadline and consequence. “Maintain a satisfactory ratio” is too vague.
Practice question: Design approval conditions and covenants for a medium-sized corporate borrower.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Module E
Security and documentation
Syllabus scope: Primary/collateral; insurance; pledge; hypothecation; mortgage; lien; assignment; set-off; pari passu
Pledge generally involves possession/control of movable goods under the legal arrangement; hypothecation generally leaves possession with the borrower; a mortgage concerns an interest in immovable property. Assignment transfers relevant rights; lien and set-off have distinct conditions. Security must be legally created, appropriately perfected and continuously monitored. Check title, prior claims, valuation, insurance, enforceability and ranking. Pari passu arrangements require clear sharing and documentation. The existence of a security document cannot replace evidence that it was validly executed and registered where required.
Apply it in bankingFor stock finance, monitor quantity, value, insurance and prior charges. A valuation at approval may be stale by the time the bank seeks recovery.
Practice question: Compare security forms and prepare a documentation and monitoring checklist.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Module F
Monitoring, problem loans and recovery
Syllabus scope: Early warning; classification/provision; restructuring; rescheduling; write-off; legal/non-legal recovery
Monitor repayment, turnover, financial trends, covenant compliance, security and market developments. Early warnings include persistent excesses, cheque returns, delayed statements, declining margins and unexplained management changes. Classification and provision require current definitions and rates. Restructuring should address a viable cash-flow problem rather than conceal default; assess repayment capacity and required approvals. Write-off is an accounting action and does not necessarily extinguish the borrower’s liability. Recovery strategy considers negotiation, enforceable security, litigation cost and expected recoveries, with fair treatment and complete records.
Apply it in bankingA renewed facility does not become healthy merely because overdue interest is capitalised. Analyze cash repayment and viability before recommending restructuring.
Practice question: Explain early warning indicators and propose a viable problem-loan resolution.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Module G
Leasing and hire purchase
Syllabus scope: Structures; ownership; rentals; payment schedules; risk and appraisal
Leasing finances use of an asset under agreed terms; hire-purchase structures generally link instalments and an eventual ownership transfer under the contract. Compare who owns the asset, who maintains and insures it, default remedies and residual-value risk. Evaluate the lessee’s cash flow and asset utility, not only resale value. Accounting classification depends on applicable standards and contractual terms rather than product marketing. A well-matched asset and tenor can support productive finance, but obsolete equipment and weak legal recovery create risks.
Apply it in bankingFor specialised machinery, resale may be difficult. Assess service support, technological life and cash generation before relying on repossession.
Practice question: Compare leasing and hire purchase and identify their main credit risks.
Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.
Worked example
NPV and the credit judgement
A project costs BDT 1,000,000 now and generates BDT 600,000 at the end of each of two years. Discount at 10%, ignoring tax and residual value. Calculate NPV.
- PV year 1 = 600,000/1.10 = BDT 545,454.55.
- PV year 2 = 600,000/1.10² = BDT 495,867.77.
- NPV = 545,454.545… + 495,867.769… − 1,000,000 = BDT 41,322.31 (round only at the final step).
- Positive NPV supports the stated investment assumptions; debt-service timing and downside scenarios still need separate analysis.
Common mistake: NPV is not accounting profit, and a positive NPV does not by itself establish creditworthiness.
Case clinic
Sales growth but repayment stress
A distributor’s revenue rises 25%, receivable days rise from 45 to 90, and it asks to double its overdraft. Recommend a credit response.
Model response
Analyze why collections slowed: customer concentration, disputed sales, extended terms or inflated revenue. Reconcile sales, bank turnover and subsequent receipts.
Quantify the operating-cycle need and downside debt service. Assess stock, connected exposures, management capacity and existing limit use. Collateral alone does not justify doubling the limit.
If viable, structure a controlled facility linked to eligible receivables and stock, with reporting, collections routing and escalation triggers. If not viable, pursue an orderly recovery or an approved restructuring supported by realistic cash flow.
Practice marking guide · 20 marks- Cash-flow diagnosis (6)
- Appraisal and quantification (4)
- Facility and monitoring controls (6)
- Balanced decision (4)
Terminology and comparisons
| Pledge / hypothecation | Compare possession, control and security rights under the applicable arrangement. |
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| Restructuring / write-off | Changing approved repayment arrangements versus accounting removal, without assuming release of liability. |
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| NPV / IRR | Value at a stated discount rate versus the rate giving zero NPV. |
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| Primary / secondary repayment | Operating cash flow versus fallback recovery from security or other sources. |
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Official references
Official papers are linked for comparison; their full text and official model answers are not reproduced. This pack’s explanations, examples and cases are original. Numerical examples are practice assumptions. Current law, instructions and subsequent amendments must be checked for regulatory answers.