I don’t even know what the 5Cs are. I only learned about it when looking up what people were posting on about credit analyst interviews and looking at how people were offering advice and prep for risk management interviews.
This is coming from someone that worked at the most prestigious investment bank in the world as a credit analyst. I would put my knowledge and expertise up against anyones.
If I asked you what is important for you to focus on as a credit analyst and you recited 5 words that started with C, I would know all you did was try to memorize an answer and not really know how to conduct credit analysis.
Do yourself a favor and focus on what credit analysis is and what makes a borrower credit worthy or a risky counterpart rather than focusing on some 123 ABC type answer. I’d rather someone actually tell me what they would look at, as a credit analyst, reviewing a company or individual that wants a loan to feel comfortable with making a recommendation.
The thing is, you don’t have to answer the question that someone ask you. You can rephrase it, reframe it, control it, and answer it how you want to.
Someone wants to know what you should focus on as a credit analyst in a credit analyst interview?
Tell them this instead of the 5C’s.
“As a credit analyst, my job is to make sure that I’m making a recommendation based on my assessment of the credit worthiness of a borrower. I want to know whether or not they are generating cash flow, if they have enough liquid assets on hand cover interest charges, and I want to figure out whether I would be comfortable lending to them if there were changes in the work or operating environment. Would they still be able to do business? Cover their expenses? Pay off their debt? I want to know where my debt stands in the capital structure and get an estimate of the enterprise value. What would a default look like and what the asset coverage would look like in a distressed scenario.
For me, I would not only assess the borrower, but I would look at the overall industry. Where they are positioned. Do they have any competitive advantages or are they in a competitive industry where their profits fluctuate greatly and they don’t really have a lot of control over that? How are they maintaining their business, how have they operated in the past. What does their management team look like and how have they adapted to different economic and credit environments? I would ask better questions rather than just focus on certain ratios. I want to know how strong their balance sheet is. What other obligations do they have and how do they management their working capital. I would assess their financial statements to see if there is anything unordinary or any extraordinary write downs or questionable accounting going on.
To answer your question, I would really need to do research and understand more about the counterpart. What I would not want to do is make a recommendation if a borrower is too risky or overextend them with credit making it too difficult for them to pay off if the interest expense becomes too high. Also, I want to know what type of covenants would be in place to protect me as a lender. Would we get any collateral, would there be change of controls or events of default? Would they be able to add more debt that is pari passu or senior to ours?
These are all important questions.”
You see. The 5Cs show nothing about your analytical skills. Give the interviewer a real answer. One that shows you really understand what credit analysis looks like. One that shows you really are the right person for the credit analyst role.
This is how you prep for a credit analyst interview.