LO 17.2: Describe common tasks performed by a banking credit analyst.

LO 17.2: Describe common tasks performed by a banking credit analyst.
There are three main types of banking credit analysts: (1) counterparty credit analyst, (2) fixed-income analyst, and (3) equity analyst. Common tasks for each type of analyst are described in the following.
Counterparty credit analysts perform risk evaluations (reports) for a given entity. The triggering event to perform such evaluations may be an annual review of the entity or an intent to engage in an upcoming transaction with that entity. The tasks might be limited to simply covering certain counterparties or even only certain transactions or might be expanded to include decision making, recommendations on credit limits, and presenting to the credit committee.
Should the duties extend into the decision-making process, responsibilities would include the following: (1) authorizing the allocation of credit limits, (2) approving credit risk mitigants (i.e., guarantees, collateral), (3) approving excesses or exceptions over established credit limits, and (4) liaising with the legal department regarding transaction documentation.
Some analysts may be required to review and propose amendments to the banks existing credit policies. With the implementation of the extensive regulatory requirements of Basel II and Basel III, credit analysts are now responsible for a wider range of regulatory compliance tasks.
Finally, counterparty credit analysts must understand the risks inherent with specific financial products and transactions. Therefore, it is necessary to obtain knowledge of the banks products to supplement their credit decisions.
In an effort to make profits for the entity, fixed-income analysts provide recommendations regarding the decision to buy, sell, or hold debt securities. Therefore, they must ascertain the relative value to determine whether the security is undervalued, overvalued, or correctly valued. Both fundamental and technical analyses are generally performed in arriving at investment decisions. Fundamental analysis focuses on default risk while technical analysis focuses on market timing and pricing patterns. In making an investment decision, fixed- income analysts consider the ratings for specific debt securities issued by the rating agencies. The ratings provide reliable input in computing the relative value of securities.
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Topic 17 Cross Reference to GARP Assigned Reading – Golin and Delhaise, Chapter 2
Equity analysts analyze publicly traded financial institutions to help in determining whether an investor should buy, sell, or hold the shares of a given financial institution. When performing valuations, there is an emphasis on using return on equity (ROE). ROE takes into account both profitability and leverage. Other types of analysts would look at a wider range of financial ratios dealing with a banks asset quality, capital strength, and liquidity. Equity analysts usually perform company valuations based on unaudited projections (while other analysts usually use audited historical data). Similar to fixed-income analysts, there are two general approaches to equity analysis. Analysts could choose to perform fundamental analysis, technical analysis, or a combination of the two.
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