Credit Management. Using CAMPARI

CREDIT MANAGEMENT & LENDING QUESTION ON CANONS OF GOOD LENDING James Mensah, aged 55. is the Managing Director of GCTU Food Processing Company and a Director of a major Public Company, Plastico Ghana Limited, which has business account at other branches of your bank Recently, the Company has expressed dissatisfaction with the Bank's services and had been threatening to move the account to a competitor bank James does not have a personal account with your bank but calls on you with a banking proposition. James has been advised by his Investment Advisors that a particular share of a manufacturing Company. Cocoa Products Limited, on a Ghana Stock Exchange has been performing very well in recent times and that this is expected to continue over the next five years They have advised him that he can reap significant capital gains if he secures some of these shares. The present share price is GHS 1.50 and he comes to you asking for a loan of GHS 30,000.00 to purchase 20,000 of these shares. In addition, he tells you that he urgently needs an overdraft facility of GBP 5,000.00 to pay his first child's first semester school fees at the University of London where he is undertaking a degree program in law. He is in the penultimate year. He tells you he would be able to clear the overdraft within a period of 3 months from his remuneration from Plastico Ghana Limited which amounts to about GHS 2.000 per month He has other children who are presently in Senior High School. You learn that current SHS school fees averages GHS 500.00 His wife, Paula, aged 53. is a nurse who took an carly retirement few years ago to take care of the family James account has shown unauthorized overdrafts over the past six months and he explains that this has arisen due to the expensive school fees he has had to pay for his first son and also due to the fact that his wife is no longer working James carns a salary of GHS 6,500.00 per month at GCTU Food Processing Co Itd. and his expenditure budget amounts to GHS4,500.00 per month, excluding school fees. He would like to repay the loan as follows: a)Interest payments only until the end of the term of the loan b) Capital repayment in full at the end of the term after he has sold the shares He would like the term of the loan to be 5 years while the interest payments will be paid of his regular income. He proposes that he would pay the Principal by selling off the shares after 5 years. He would offer no security, other than the shares themselves. He also asks for a favorable rate of interest, only2% below the bank base rate. How would you respond to his proposition? per term