Question 1

Chicks Sdn. Bhd. is a manufacturing company that produces frozen food products including chicken pop-corn, nugget, chicken wings and chicken fingers with Chicks brand. It started operation as a home-based product in the year 2014 and due to high demand, business owner decides to expand their business by opening medium sized factory with custom made machines to increase their production capacity. The business is a family-based business and the ownership and management structure are as follows: -

No	Names	Age	Shares (%)	Position	Assets
1	En. Nazmi	35	50%	CEO/ Director	(a) Owns General Investment Account of RM 350,000.00 maintained with Bank Muamalat Malaysia Bhd. (b) Owns one unit of a bungalow house located in Kajang with a market value of RM 750, 000 as at June 2018.
2	Pn. Alice	30	20%	Director	Owns Public Listed Company Shares in KLSE of RM 270,000.00 as at 10 June 2018
3	Hajah Aishah	59	30%	-	Owns ASB unit trust of RM 200 000
	Total	-	100%	-

En Nazmi is the son of Hajah Aishah and he is the key person who is responsible for the production and daily operations of the business. Pn. Alice is En. Nazmis wife, responsible for the financial management of the business. Both of them are holders of Food Production Certificate from Kolej Komuniti Mara. Hajah Aishah is the owner of the recipe who has wide experiences in producing various types of frozen food on small scale.

The company submits a financing application to the bank and you are responsible to evaluate the viability of the business. In performing the credit evaluation, you are guided by the 5Cs of credit technique.

(a) Explain with examples, the meanings of capital and conditions evaluation under the 5Cs of credit technique.

(6 marks)

(b) Explain THREE (3) differences between the Central Credit Reference Information System (CCRIS) Report and CTOS Report.

(9 marks)

(c) Explain how CCRIS report and CTOS report can assist you in evaluating the character of the financing applicant.

(9 marks)

(d) Explain THREE (3) techniques that can be exercised to mitigate credit risk in this financing.

(9 marks)

(e) Assume that the bank has approved the following financing to Chicks Sdn. Bhd. and full disbursement was made on 10 July 2016: -

No	Type of Financing	Purchase Price	Market Value	Financing Amount (RM)	Tenure	Financing Rate (%)
1.	Land	-	2,000,000.00	1,500,000.00	15 years	3.0%
2.	Factory building	-	1,000,000.00	800,000.00	15 years	3.5%
3.	Machineries	550,000.00	-	500,000.00	7 years	3.5%
4.	Vehicle	400,000.00	-	300,000.00	9 years	4.0 %
	Total	950,000.00	3,000,000.00	3,100,000.00

The company started its operations at the factory with new machineries at the end of January 2015 and recorded a 70% increase in sales for financial year ended 31 December 2015. The performance remains consistent in year 2016 and the company has been prompted in servicing monthly instalment.

6. Suggest ONE (1) type of collateral can be taken by the bank to secure each of the above financing. Calculate collateral value for each of the financing.

(16 marks)

However, the financial performance starts deteriorating in the second quarter of year 2017. Even though the company recorded consistent sales during the financial year ended 31 December 2017, the company suffered a significant reduction of 60% in their net profit. Based on your analysis, the raw materials cost significantly increase due to the high exchange rate of Ringgit Malaysia, while the selling price remained the same. The company experienced very tight cash flow to oblige the financing monthly instalment.

7. Based on the above, evaluate the companys condition and formulate the suitable recovery plan. Support your recovery plan with THREE (3) justifications.

(15 marks)

In the fourth quarter of the year 2017, the bank officer detected few warning signals during the credit review. The CEO of the company is uncontactable. At the same time, the company has submitted three (3) requests to change the financing terms. As of November 2017, the company failed to submit its audited accounts for financial year ended 31 December 2016 despite several reminders sent by the bank to the company. As at 31 November 2017, the company has not paid monthly instalment for the factory and machineries for four (4) months. The site visit was conducted and it was found that the factory was not in operation. Based on the conversation with the workers of the next door factory, the factory has been closed for almost one month.

Based on the above: -

8. Suggest how the bank can get the fastest recovery from all the collateral taken to secure the financing in question (f) above.

(4 marks)

1. Assume that the collateral value in (h) is not sufficient to cover the outstanding balance of the financing. Advise the suitable credit recovery plan in this situation.

(4 marks)

10. Identify and explain all important documents needed in credit recovery plan suggested in (i) above

(8 marks)