Credit analyst

Corporate credit analysts

Within the world’s biggest banks (like Crédit Agricole and Société Générale), credit analysts typically work in either retail banking (offering loans to SMEs and individuals) or investment banking (offering loans to major global brands, including FTSE100 and Dow Jones companies).

In order to be sure of a company’s ability to repay the loans issued to them, credit analysts will draft credit ratings with several different components, including the following:

• A market analysis, including:
  • Analysing the sector in which the company operates. Credit analysts will evaluate the size of the sector, how dynamic it is and its potential for growth;
  • Analysing the competition. They’ll look at how the company positions itself in relation to its competitors, in particular by evaluating its market share;
  • Analysing the company’s clients.
• A financial analysis, researching a number of different ratios, including:
  • Assessing income statements by thoroughly analysing the company’s balance sheet. Example ratios include:
    • Sales margin = gross margin = sale of goods - cost of goods sold;
    • Gross operating surplus/turnover;
    • Net income/turnover;
    • Etc.
  • Investigating financial ratios to assess:
    • The company’s ability to fund its operations (cashflow), which represents the resources a company has left over once all their expenses have been paid;
    • The company’s working capital and working capital requirements;
    • Debt (by assessing the company’s balance sheet) using ratios that are able to measure the level of debt the company faces;
    • Once all these ratios have been measured, credit analysts will verify that they all fall well within the ranges set by the bank. For example, a company with a debt to asset ratio of more than 80% will usually be ruled out for having too much debt.

Credit analysts then send their credit ratings to bank managers. They don’t usually have direct decision-making powers themselves, but rather simply provide their expert opinion.

Private credit analysts

When borrowers are private individuals rather than big companies, credit analysts will need to assess their level of solvency, including looking at their sources of income and, obviously, their jobs.

Once their creditworthiness has been established, analysts will set the terms of contract, namely the size of the loan, interest rates and finally their monthly repayments.