Module 2 Week 1 DQ - Some factors to consider regarding the...

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Some factors to consider regarding the creditworthiness of a firm are: Capacity for debt repayment. Lenders need assurance that a firm has capacity to repay loan. Some pointers to capacity include profitability, cash flows, credit history, current debt level, performance and financial ratios and industry evaluation. Quality of Management The quality and competence of the management is a big factor in assessing the creditworthiness of a firm. The quality of management is assessed by, their track record, their personal and individual character, their educational qualification and experience and their perception in the public. Business climate of the sector of operation This refers to overall business climate and industrial outlook of the sector of operation. Currently in Nigeria, most commercial banks have foreclosed lending to oil companies. This is largely due to the low crude oil prices. Crude oil prices are trading at six year low. This has made most business models in the sector to become unprofitable. There are also sectorial lending limits imposed by the Central Bank of Nigeria (“CBN”). In a bid to ensure that every sector of the Nigerian economy are adequately attended to, the CBN set out lending limits to commercial banks especial for Oil and Gas sector. The Oil and Gas sector has in the past been the favorites for commercial banks. The sectorial limit, coupled with the low oil price has led to the dearth of lending to oil and gas businesses in Nigeria.
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