1
Case Study 2: Chin Consult
(Source: Case Studies in Retail Lending by Stephen Louis Silva, Asian Institute of Chartered
Bankers, 2014)
Background
Chin Min Huat, aged 41 is the sole proprietor of Chin Consult, a firm specializing in structural
engineering. Chin has a Bachelor of Engineering degree in civil engineering from Liverpool
University and a Master’s degree in structural engineering from the University of Aberdeen. He
is member of the Institute of Structural Engineers (UK) and is registered as a Professional
Engineer with the Malaysian Board of Engineers.
Chin Consult is registered under the Engineer’s Act 2007. Clients of Chin Consult are developers
of high- rise buildings and townships. Revenue is from consultancy fees charged to clients.
Financial Lease Facility Proposal
Chin Consult is in the process of upgrading the computers used for designing work which is
expected to cost RM150,000. Chin is considering obtaining either a term loan or a financial lease
for the new computers from Southside Bank Berhad (SBB).
Financial Performance
Chin Consult’s financial performance for 2011 and 2012 are as follows:
Details
2011 (amount in RM)
2012 (amount in RM)
Revenue
1,143,215
1,251,920
Pretax profit
342,965
375,576
Assets and Liabilities
Chin Consult owns the following assets:
Asset
Book value as at 31-12-2012
(Amount in RM)
Office lot
400,000
Office equipment, furniture and fittings
201,325
Technical books
110,500
Toyota Hilux car
81,500
Computers
275,000
Total
1,068,325
Currently Chin Consult has the following loans:
i) Term loan of RM320,000 (outstanding of RM298,000) from SBB to finance the
purchase of the office lot where the office is located, The loan is repayable by 180
monthly installment of RM3,058.73
2
ii) Hire purchase of RM65,000 (outstanding RM62,200) to finance the purchase of a
Toyota Hilux for site visits. Monthly installment for the 5 years hire purchase loan is
RM1.408.33
Chin owns some personal assets as follows:
Assets
Estimated value as at 31–12–
2012 (Amount in RM)
House in Kepong
380,000
House in Subang Jaya
510,000
Share investments
425,000
Car – Toyota Camry
95,000
Total
1,410,000
Chin’s Liabilities are the following loans:
i) Housing loan of RM460,000 (outstanding as at 31–12–2012 is RM445,310) for his Subang
Jaya house with monthly installment of RM3,705.73
ii) Hire purchase loan of RM130,000 (outstanding as at 31-12-2012 is RM104,000) for hos
Toyota Camry car with monthly installment of RM2,600
CCRIS Report
Conduct of accounts for last 12 months 2012
Loan
Type
Dec
Nov
Oct
Sept
Aug
July
June
May
April
Mar
Feb
Jan
Term
Loan
0
0
0
0
0
1
0
0
0
0
0
0
Hire
Purchase1
0
0
0
0
0
0
0
0
0
0
0
0
HL
0
1
0
0
0
0
0
0
0
0
0
0
Hire
Purchase2
0
0
0
0
0
1
0
0
0
0
0
0
Application for Credit facilities
Loan Type
–
–
–
–
–
–
–
–
–
–
–
–
Note
Loan
type
date
capacity
faciilty
O/S
balance
in RM
Date
balance
updated
Limit
(RM)
Principal
repayment
terms
Term
loan
3-3-2013
own
TL
298,000
15-1-
2013
320,000
mth
Hire
Purchase
1
9-9-2013
own
HP
62,200
15-1-
2013
65,000
mth
Housing
Loan
12-9-
2006
own
HL
445,310
15-1-
2013
460,000
mth
Hire
Purchase
2
5-2-2013
own
HP
104,000
15-1-
2013
130,000
mth
Income
In 2012, Chin received investment income as follow:
• Rental of RM18,000 from a house inherited from his parents
• Dividends from share investment amounting to RM34,000
Chin’s income tax in 2012 was RM86,320.
Questions
1. Discuss THREE (3) risk factors that a credit officer will need to monitor in Chin Consult
account should the loan be approved.
(6 marks)
I. Credit risk
Credit risk is the risk of loss as a result of the non-performance by clients and other
counterparties of their payment obligations to the Group. Credit risk concerns loans and
advances, credit commitments and guarantees as well as market values of derivatives and any
