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1) Write off

Banks prefer to never have to write off bad debt since their loan portfolios are their primary
assets and source of future revenue. However, toxic loans, or loans that cannot be collected
or are unreasonably difficult to collect, reflect very poorly on a bank's financial
statements and can divert resources from more productive activity. Banks use write-offs,
which are sometimes called "charge-offs," to remove loans from their balance sheets and
reduce their overall tax liability.

For example, a firm that makes $100,000 in loans might have an allowance for 5%, or
$5,000, in bad debts. Once the loans are made, this $5,000 is immediately taken as an
expense as the bank does not wait until an actual default occurs. The remaining $95,000 is
recorded as net assets on the balance sheet.

If it turns out more borrowers default than expected, the bank writes off the receivables and
takes the additional expense. If the aforementioned lender actually has $8,000 worth of
loans default, it writes off the entire amount and takes an additional $3,000 as an expense.

When a nonperforming loan is written off, the lender receives a tax deduction from the loan
value. Not only do banks get a deduction, but they are still allowed to pursue the debts and
generate revenue from them. Another common option is for banks to sell off bad debts
to third-party collection agencies.
2) CAPEX

Capital expenditure, or CapEx, are funds used by a company to acquire or


upgrade physical assets such as property, industrial buildings or equipment.

These expenditures can include everything from repairing a roof to building, to


purchasing a piece of equipment, or building a brand new factory.
Capital expenditure or capital expense ("capex") is an expense where the benefit continues over a
long period, rather than being exhausted in a short period. Such expenditure is of a non-recurring
nature and results in acquisition of permanent assets. It is thus distinct from a recurring expense.
In accounting, a capital expenditure is added to an asset account, thus increasing the asset's basis
(the cost or value of an asset adjusted for tax purposes). CAPEX is commonly found on the cash
flow statement under "Investment in Plant, Property, and Equipment" or something similar in the
Investing subsection.

3) OPEX
An operating expense, operating expenditure, operational expense, operational
expenditure or Opex is an ongoing cost for running a product, business, or system.[1] Its
counterpart, a capital expenditure (Capex), is the cost of developing or providing non-consumable
parts for the product or system. For example, the purchase of a photocopier involves Capex, and the
annual paper, toner, power and maintenance costs represents Opex.[2] For larger systems like
businesses, Opex may also include the cost of workers and facility expenses such as rent and
utilities.
On an income statement, "operating expenses" is the sum of a business's operating expenses for a
period of time, such as a month or year.
Operating expenses include:

 accounting expenses
 license fees
 maintenance and repairs, such as snow removal, trash removal, janitorial service, pest control,
and lawn care
 advertising
 office expenses
 supplies
 attorney fees and legal fees
 utilities, such as telephone
 insurance
 property management, including a resident manager
 property taxes
 travel and vehicle expenses

4) Facilitate de credit garantată prin TVA de primit de la stat

Beneficiari: întreprinderi care urmează să obţină rambursări de TVA de la Ministerul de Finanţe

5) Debt-for-equity swap
In a debt-for-equity swap, a company's creditors generally agree to cancel some or all of the debt in
exchange for equity in the company.
Debt for equity deals often occur when large companies run into serious financial trouble, and often
result in these companies being taken over by their principal creditors. This is because both the debt
and the remaining assets in these companies are so large that there is no advantage for the
creditors to drive the company into bankruptcy.

6) IG transactions = inside group transactions

IG receivables = inside group receivables

7) LGD (Loss Given Default) – is the share of an asset that is lost if a borrower defaults (or
magnitude of likely loss on the exposure)
8) Expected Loss (EL) = LGD * PD * EAD
9) The recovery rate = 1 – LGD

Ex.: If a client defaults with an outstanding debt of 200.000 lei and the bank is able to sell the security
for a net price of 160.000 lei, then the LGD is 20% (LGD = 40.000/200.000).

10) Probability of default (PD) describes the likelihood of a default over a particular time
horizon.
11) Exposure at default (EAD) is the gross exposure under a facility upon default of an
obligor (amount to which the bank was exposed to the borrower at the time of
default, measured in currency).
12) Loan to value (LTV) – the ratio of a loan to the value of an asset purchased. Ex.: If
someone borrows 130.000 lei to purchase a house worth 150.000 lei, the LTV ratio is
130.000/150.000 = 87%. The remaining 13% represents the lender’s haircut, adding up
to 100% and being covered from the borrower’s equity. The higher the LTV ratio, the
riskier the loan is for a lender.
13) An overdraft occurs when money is withdrawn from a bank account and the available
balance goes below zero. In this situation, the account is said to be ,,overdrawn”.
14) Home equity line of credit (HELOC) = a loan in which the lender agrees to lend a
maximum amount within an agreed period, where the collateral is the borrower’s
equity in his/her house (akin to a second mortgage).
15) Classification of clients’ status:
- Standard: business as usual;
- Pre-workout: financial difficulties, an action plan is needed;
- Workout: to be transferred to DRRC (Departamentul de Restructurare si Recuperare Creante)
16) Types of provisions:
- ILLP (Individual Loan Loss Provision) is computed for default clients (with a rating of 10A, 6.5
or D). The non-default clients and default clients with a null ILLP are included in the PLLP
computation (Portfolio Loan Loss Provision); ILLP = exposure value – net present value of the
exposure (liquidation value or future from cash flows generated by entity)
- PLLP = (Gross exposure – discounted WCV) * HDR, where HDR is the Historical Default Rate.
17) Asset’s carrying amount – actual exposure in loan (principal, interest, discounts, etc).
18) DSCR = EBITDA/Debt Service, where Debt Service = Short term debts/5 + long term
debts. In the short term debts we find overdrafts, working capital, etc.
19) Analythical review, variations: pentru P&L, este obligatoriu sa comparam perioade
similar (de ex. Octombrie 2015 cu octombrie 2016), nu perioade diferite cum ar fi
octombrie 2016 cu decembrie 2015. Insa, la BS putem compara si perioade diferite.
20) The effective interest rate, effective annual interest rate, annual equivalent
rate (AER) or simply effective rate is the interest rate on a loan or financial product
restated from the nominal interest rate as an interest rate with annual compound
interest payable in arrears.
21) (EIR) The effective annual interest rate is the interest rate that is actually earned
or paid on an investment, loan or other financial product due to the result
of compounding over a given time period. It is also called the effective interest
rate, the effective rate or the annual equivalent rate. Calculated as:
A repurchase agreement (repo) is a form of short-term borrowing
for dealers in government securities. The dealer sells the government securities
to investors, usually on an overnight basis, and buys them back the following day.

For the party selling the security and agreeing to repurchase it in the future, it is a repo;
for the party on the other end of the transaction, buying the security and agreeing to sell
in the future, it is a reverse repurchase agreement.

Repos are typically used to raise short-term capital.

ALM department (asset and liability management department)

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