Credit analysis is a very particular area revolving around a firm’s financial risk analysis. The procedure involves evaluating the risks that businesses involved in loan financing are likely to experience by initiating background research on the retail or commercial customer. In other words, a financier must perform due diligence on rating the credit of the borrower.
A credit analyst is responsible for several tasks, which include providing guidance on credit risks related to lending programs that involve massive amounts of money. A bank, for example, will hire a credit analyst to help assess the different firms and individuals it can offer loans to and, thus, generate a return on their cash assets.
Information Used by a Credit Analyst
The following are just a few types of documents that credit analysts take information from:
Profit and loss statements
Additional market data reports
Additional Components of Credit Analysis
Other critical components in credit analysis, aside from the direct analysis of company performance, are:
Developing models, both mathematical and statistical ones that directly relate to the risk being measured
Credit Analyst Job Description – Typical Credentials of a Credit Analyst
A credit analyst usually has at least a bachelor’s degree, with a background in finance, accounting or other related fields. A solid financial background is important for acquainting credit analysts with ratio analysis, financial statement analysis, risk assessment, and economics. Naturally, a working knowledge of accounting principles and financial techniques also comes in handy.
Unlike accounting and finance, where there are specific certifications – such as CPA – for the field, there is no specific charter for a credit analyst. However, some banks or institutions may prefer applicants with a Master of Business Administration (MBA) degree or practical designations such as the Commercial Banking & Credit Analyst (CBCA)™ program, which covers topics that are relevant to credit analysis such as the interest coverage ratio and the creation and analysis of a debt schedule.
This credit analyst job description is taken from responsibilities outlined by companies such as HSBC, JPMorgan Chase, and Wells Fargo.