Question:

You are an employee of Pay4Day Bank, a major financial institution. Currently employed in Pay4day Bank's corporate banking division you are part of a small team responsible for managing the bank's relationships with major corporations. Such relationships can include providing lending facilities, trade finance, money market and foreign exchange services, transaction facilities including payroll and electronic banking services for the corporation's client relationships. From interest income and fees for service the institutional banking division is able to generate a healthy contribution to Pay4Day Bank's annual profit. Pay4Day Bank is keen to expand its presence in the corporate banking sector of the financial system, and has been actively seeking new corporate clients. While it seeks to win new business, Pay4Day Bank executives have determined that its traditional conservative approach to accepting risk will not be compromised. Accordingly, any facility approved outside Pay4Day Bank lending policy must contain a clear rationale for acceptance of the business including all aspects outlined in Section B. Approval for such facilities can only be given by the Pay4Day Bank Credit Committee, comprising the Chairman and 3 other non-executive board members.

Corporate Lending Teams at Pay4Day Bank have been given responsibility for reviewing and assessing the new lending applications recently received. Recently, your team has been asked to provide the lending submission for your chosen company. Your recommendations in the written lending submission will go to the Directors Credit Committee for approval or rejection. Pay4Day Bank uses a standard format for the lending submissions (see below)

Annual Report: http://bonia.listedcompany.com/misc/quarterly_report_20201231.pdf

Identification of the key credit issues that come out of the existing security structure:

Bonia's carrying amount for property, plant, and equipment at the end of the reporting periods were assessed for impairments when events or changes in circumstances indicated that these carrying amounts were possibly not recoverable (Bonia 2020). This information indicates that the Pay4Day Bank could face difficulties when valuing PPE because there is a chance that the property, plant and/or equipment are placed as collateral for a loan. For example, if the property was placed as a collateral and the market price of property fell at the time Pay4Day sells it. We would not be able to recover the loan given out because the price of property was too low.

The inventories include the cost of consumables, raw materials, transportation, and condition of the materials (Bonia 2020). Thus, if the raw materials value drops or inventories were in a better condition when they were purchased than when sold. We, at Pay4Day Bank could have problems selling the inventories to try and recover the loans in the event there is a default.

Bonia saw a decrease in cash and cash equivalents in their statement of cash flows during 2019 - 2020 as shown below (Bonia 2020). It implies there is a significant amount of risk for the Pay4Day Bank to use cash and cash equivalent as a security because it is not certain if this reduction will continue in the future.

For the purpose of statements of cash ows, cash and cash equivalents comprise the following as at the end of each reporting period: Group Company 2020 2019 2020 2019 \"\"000 RM'000 RM'000 \"\"000 Cash and bank balances 69,104 T3345 1,004 1,3?1' Deposits with licensed banks (not more than three (3} months) 8,605 10,324 - - 27,709 89, 169 1,004 1,37? Less: Bank overdras included in borrowings (Note 21) - (I ,479) - - Less: Deposit pledged to a licensed bank {65) (63) - - Cash and cash equivalents included in the statements of cash ows 17,644 8162? 1,004 1,3?7