Credit Risk ManagementEnhancing Your Bottom Line Ebrahim Shabudin Managing Director  Deloitte & Touche LLP Credit Background Thorough identification and accurate measurement of credit risk, supported by strong risk management can help improve the bottom line …..An uncertain and volatile economic 	environment significantly impacts this ability …..The desire to grow and turn in outstanding 	results has a tendency to put pressure on the 	checks and balances within businesses Value Proposition  Credit plays a critical role in “selling” products and services Expands revenue opportunities with creditworthy, incremental customers Utilizes innovative structures to support business relationships  Effective credit risk management limits credit losses and provides stable cash flows and earnings Marketplace rewards companies exhibiting earnings and cash flow stability with higher P/E multiples Marketplace penalizes credit induced volatility and “surprises” Raises questions about quality of management Corporate Credit Risk Companies are exposed to significant levels of credit risk emanating from different sources Accounts Receivables  Other Notes Receivables Buyer and Franchise Financing With Recourse Financing Project Finance Structured Transactions Leases with Recourse Derivatives Exposures  FX, Interest Rate Risk, Commodities etc. Collateral Risk Parent or Third Party Guarantees  Commercial and Standby Letters of Credit Note also that Critical Suppliers to the company may pose specific credit risk DSO Impact … an example Credit as a Facilitator Credit risk management is important  Credit is a facilitator of business growth and performance High business margins tend to attract lower quality clients and therefore higher risk profile to manage Clients (buyers) may be concentrated in selected industries and provide limited portfolio diversification opportunity Poor credit risk management resulting in negative impact to bottom-line is heavily penalized by markets Credit Strategy & Risk Tolerance Credit Risk Areas to Consider Credit Policy Credit Approval Authority Limit Setting Pricing Terms and Conditions Documentation: Contracts and  Covenants Collateral and Security Collections, Delinquencies and Workouts  Exposure Management Aggregation Control Periodic Account       Reviews Payments/Aging Credit Condition Compliance with Covenants, Terms Technology/Reports Transactions/ Bookings Risk-adjusted Return Credit Risk Management 	A complete and coherent risk management framework contains the following elements A New Paradigm A new business paradigm had evolved: causing a lack of reliance on good fundamental analysis The idea that stock market values would continue to go up indefinitely Increasingly competitive, complex and volatile market place Higher than expected actual debt burdens Extensive reliance on unrealistic future cash flows Failures in corporate governance Questionable personal and corporate ethics Implications for Corporate Governance Current organization structures to be revisited Clarity around roles and responsibilit

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