Credit Analysis

A bank has received an application for an INR 30 lakh home loan from an individual. Another bank has received an application for the issuance of a credit card. A non-banking lending institution has been approached by a firm for a loan of INR 1 crore for expansion purposes. A Credit Rating agency is deciding which of Country A and Country B is more credit worthy. 
What is common between all these? A Credit Analyst will be required to work on each of these cases to find out if it’s safe to lend / issue credit (cards) to these entities.

Credit Analysis entails researching and analyzing the debt profile and debt servicing abilities of individuals, companies or even sovereigns (i.e. countries). A Credit Analyst therefore, is someone who finds out the credit worthiness of an entity (either an individual or company or country) depending on the demands of the situation. In the case of issuing loans, companies / individual borrowers are appraised to see if they have the ability to service the debt and also if it is safe to give out the loan. In the case of a credit card application, income streams and previous defaults etc. will be analyzed. In the case of countries, although more complex to analyze, the end result is the same – an assessment of risk – also called a ‘Credit Rating’.  Below is a chart with rating categories used by 3 leading global Credit Rating agencies.

Credit Analysts are hired across several types of firms:

  1. Commercial Banks: These firms need to assess the risk involved in lending debt or issuing credit cards. They may check credit scores of borrowing individuals or scrutinize a company’s books to understand the credit risk 
  2. Credit Rating agencies: These firms are responsible for rating companies (or even countries) on the basis of their riskiness / credit worthiness. Investors and analysts all across depend on these ratings for debt related transactions
  3. PE firms and Investment Banks: These firms either invest / advise their clients on investing in debt instruments and hence often have their own Credit Analysis teams
  4. Non-banking financial institutions: These are non-banking lending firms and often they lend to a riskier band of customers. Hence, Credit Analysis for them is essential
  5. KPOs servicing the above companies: These firms are third party vendors providing Credit Analysis services to the companies mentioned above

Key skills for an entry-level role would be:

  1. Strong analytical and quantitative skills: Credit Analysis requires digging deep into financial statements and analyzing credit default risks using tools like ratio analysis in multiple scenarios. Hence it is important to have an analytical bent of mind 
  2. Knowledge of financial (and at times, risk) analysis: A Credit Analyst needs to know his/her way around financial statements, and develop a nose for finding items that may impact the company’s (or individual’s) debt paying abilities. Risk analysis is often part of the job profile and different scenarios may need to be analyzed
  3. Attention to detail and diligence: Needless to say, errors made while assessing an entity’s credit worthiness can prove costly for every stakeholder involved
  4. Communication skills: Credit Analysts (especially those working for rating agencies) are involved in preparing rating / financial standing reports. This calls for excellent report writing skills. Apart from this, they also have to interact with company management or clients regularly, to cull out information as well as to discuss issues. Such probing for information demands good people and oral communication skills
  5. Comfort with Financial/Statistical software: Credit analysis often includes risk analysis using statistical software. Hence knowledge and comfort with these would be an advantage
  6. Multitasking: Most Credit Analysts work on several companies’ data at a time or may be involved in processing more than one loan / credit card application. This underscores the importance of multitasking without compromising on accuracy

How to get in:

A Credit Analysis job is challenging and requires strong analytical skills
•  Chartered accountants and MBA graduates are most sought after for these jobs since they have a solid background in accounting and financial analysis
•  Graduates are often recruited as junior analysts / management trainees assisting analysts. However, to move up the ladder, one usually needs a Masters degree
•  A Chartered Financial Analyst (CFA) or Financial Risk Manager (FRM) certification is sought after in this field

At the entry level, candidates join as Analysts. They typically have MBAs in finance or are CAs

  • Credit Analysts receive new cases from teams within their own companies or from clients 
  • The key job is to assess the credit profile of the entity being analyzed. The Credit Analyst goes through all relevant data pertaining to the entity, including business plans, source of funding, risks as well as industry-wide data. In some cases, they may have to visit the site of the company to get operational data
  • After all the information is gathered, the analyst puts together the Credit Analysis Report and comes up with the recommendation on whether a loan can be given or the rating for the company.
  • These recommendations are then presented to seniors / rating boards / clients

Companies to target:

  • Rating Agencies: CRISIL, CARE, ICRA, Fitch Ratings (India), Brickwork Ratings
  • Banks and Financial Institutions: ICICI, HDFC, Kotak, IndusInd, Deutsche Bank, Credit Suisse, HSBC, Citi
  • Third party vendors (KPOs): Aranca, Genpact, Dun Bradstreet

A day in the life of a Credit Analyst (entry level):

  • A major chunk of time is spent at the desk researching, analyzing and reporting financial and operational data leading to credit assessment
  • Several cases are usually processed simultaneously, hence you maybe working on two or more separate analyses on any given day
  • Meetings with clients / internal teams / travelling to company sites take up a lot of time as well. Preparing materials like reports or notes needed for these meetings is also part of the analyst’s job
  • Analysts may also need to do some administrative tasks like arranging logistics for site visits or preparing internal memos etc. 
  • A Credit Analyst typically has better work hours compared to other financial analyst profiles (like in IB or ER). You don’t usually need to put in very long hours or all-nighters

Salary and perks:

  • The starting salary for Credit Analysts is around INR 5-7 Lakhs per annum. Bonuses may be available, but are not the norm 
  • Perks include traveling to client sites and exposure to rating boards that comprise the bigwigs of Credit Analysis

Interview with Kinjal Shah, who has a 6+ years of experience in a top Credit Rating firm

Proschool : Please tell us about your background and qualifications
Kinjal : I completed my BMS from Narsee Monjee and then went on to do my MBA (majoring in finance) from NMIMS, Mumbai

Proschool : Why did you decide to pursue this career and how did you get into this role?
Kinjal : I always knew that I wanted to do a core finance job. Among the many roles that were offered on our campus, this role seemed to do justice to both my interests and qualifications and so I applied for it and got through.

Proschool : A typical Day for a Credit Analyst?
Kinjal : At the entry level, you start off with assisting seniors in writing credit reports. Credit rating typically involves receiving rating mandates from companies, post which we have to gather information about them. Based on the information sent by the company, secondary research and meetings with all divisions in the firms operations etc., reports are made on the credit worthiness of the firm. The reports are then presented to a rating committee that takes the final call. As you grow senior, the report writing part reduces and there is more emphasis on attending meetings, checking reports etc. One may also be involved in contributing towards general research content.

Proschool : High points in your career so far?
Kinjal : Meeting the top management and directly interacting with big names in different industry sectors are definitely high points in my career

Proschool : Projects you have worked on?
Kinjal : I have worked on reports for several reputed names in the Media, Entertainment and Pharma sectors in India

Proschool : Challenges faced?
Kinjal : Sometimes we receive credit rating mandates with very short deadlines (3-4 days), which can be difficult to manage, given that we may be working on several other things at the same time

Proschool : Outlook for the industry?
Kinjal : The Indian debt market is not yet fully developed and hence opportunities to rate different types of instruments are still low. However, it is expected that the market will develop and with it bring a lot more scope for credit rating and analysis. Basel 3 has indicated that banks should have their own internal rating teams, in which case the structure of the industry may see changes 

Proschool : Career opportunities for aspirants in India (and elsewhere)?
Kinjal : Credit analysis will be much in demand when the Indian debt market scenario improves. Most credit analysts are picked via campus or lateral placements. Most firms do emphasize on hiring MBAs and CAs. 

Proschool : Word of advice for aspirants?
Kinjal : The knowledge gained in this field is immense. Interactions with top management and exposure to different sectors make the job very enriching