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The Curious Loan Approval

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Krishna is a trainee at National Bank who was promoted to work as a financial analyst for Sudha Ryan, one of the bank's top commercial loan officers. Krishna has begun to question a loan approval for Mitchell Foods due to its high leverage from operating leases. Sudha dismissed Krishna's concerns and had him destroy his memo about it. Krishna later discovered that Sudha recently received very favorable personal mortgage terms from Bay Street Savings, whose president is also the chairman of Mitchell Foods. Krishna wonders if Sudha's approval of the Mitchell Foods loan was compromised due to her relationship with Bay Street Savings.

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The Curious Loan Approval

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sundaramlearning
47 views2 pages
Krishna is a trainee at National Bank who was promoted to work as a financial analyst for Sudha Ryan, one of the bank's top commercial loan officers. Krishna has begun to question a loan approval for Mitchell Foods due to its high leverage from operating leases. Sudha dismissed Krishna's concerns and had him destroy his memo about it. Krishna later discovered that Sudha recently received very favorable personal mortgage terms from Bay Street Savings, whose president is also the chairman of Mitchell Foods. Krishna wonders if Sudha's approval of the Mitchell Foods loan was compromised due to her relationship with Bay Street Savings.

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Krishna is a trainee at National Bank who was promoted to work as a financial analyst for Sudha Ryan, one of the bank's top commercial loan officers. Krishna has begun to question a loan approval for Mitchell Foods due to its high leverage from operating leases. Sudha dismissed Krishna's concerns and had him destroy his memo about it. Krishna later discovered that Sudha recently received very favorable personal mortgage terms from Bay Street Savings, whose president is also the chairman of Mitchell Foods. Krishna wonders if Sudha's approval of the Mitchell Foods loan was compromised due to her relationship with Bay Street Savings.

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47 views2 pages

The Curious Loan Approval

Uploaded by

sundaramlearning
Krishna is a trainee at National Bank who was promoted to work as a financial analyst for Sudha Ryan, one of the bank's top commercial loan officers. Krishna has begun to question a loan approval for Mitchell Foods due to its high leverage from operating leases. Sudha dismissed Krishna's concerns and had him destroy his memo about it. Krishna later discovered that Sudha recently received very favorable personal mortgage terms from Bay Street Savings, whose president is also the chairman of Mitchell Foods. Krishna wonders if Sudha's approval of the Mitchell Foods loan was compromised due to her relationship with Bay Street Savings.

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The Curious Loan Approval

Topic: Commercial Bank Management (Loan Evaluation)


Characters: Krishna, Financial Analyst at National Bank
Sudha Ryan, Commercial Loan Officer at National and Krishna's boss

As a commercial loan officer-trainee at National Bank, Krishna’s future looked

very bright. He had recently completed a series of credit analysis exams, earning

the highest score in his training group and capturing the attention of the bank’s

senior commercial loan

officers. In the second phase of his training program, Krishna was promoted to a

financial analyst’s position and assigned to work for Sudha Ryan, one of the bank’s

most productive commercial loan officers. Like Krishna, Sudha had earned the

highest score on the analysis exams among her training group five years ago, and

she and Krishna quickly became a team to be reckoned with inside the bank’s

corporate banking division.

In the first few months of his new assignment, Krishna quickly grew to admire his

new boss.

In most cases, when he evaluated the creditworthiness of a new customer for

Sudha, she readily agreed with his analysis and praised his attention to detail.

However, one recent loan application left Krishna totally confused. Evaluating a

request from Mitchell Foods, Inc., for a $5 million short-term loan to finance

inventory expansion, Krishna noted that the firm was dangerously overleveraged.

Mitchell Foods represented a retail grocery chain with 35 stores located in the

greater metropolitan area served by National, and the firm was

financing its retail outlets with operating leases. Unlike financial leases, operating

leases only appear in the notes accompanying the firm’s financial statements, and

Mitchell Foods’ current balance sheet gave the appearance of far less leverage

than the firm actually carried.


Krishna promptly noted this fact in a memorandum of concern that he forwarded

to Sudha for inclusion in the Mitchell Foods credit file. Much to his surprise, Sudha

discounted the problem and told Krishna to destroy the memo. After the bank’s

senior credit committee approved the Mitchell Foods loan request, Sudha defended

her position by telling Krishna that the issue of operating lease leverage never

surfaced during the credit committee meeting.

In spite of Sudha’s reassurances, Krishna knew from his days in credit school that

Mitchell Foods’ operating lease liability was handled improperly. While pondering

this problem over coffee in the employee cafeteria, Krishna overheard Sudha

talking excitedly among a group of young commercial lenders. It seems she had

just received word that her personal mortgage loan application at Bay Street

Savings and Loan had been approved, and the terms of this loan were most

attractive. The savings and loan willingly waived its normal down payment

requirement and gave Sudha 100 percent, fixed-rate financing of 25 years at 2

percent below the going rate of interest on fixed-rate mortgage loans.

Given his recent credit analysis, Krishna recalled that the president of Mitchell

Foods was also Chairman of the Board at Bay Street Savings.

He began to wonder whether Sudha’s actions as a commercial loan officer had

been compromised by her personal financial affairs, or whether he was simply

thinking too much. After all, Sudha was an outstanding commercial loan officer,

and she was his mentor. What should Krishna do next?

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