24 Questions
What is the primary purpose of the CAMPARI model in credit risk assessment?
To guide credit officers in assessing consumer loan applications
What does the 'A' in the CAMPARI acronym stand for?
Amount
What is the primary concern of a lender when evaluating a borrower's character?
The borrower's attitude and sense of responsibility
What is the primary benefit of using the CAMPARI model in credit risk assessment?
It provides a framework for evaluating consumer loan applications
What is the primary focus of the CAMPARI model in credit risk assessment?
Evaluating consumer loan applications
What is the 'I' in the CAMPARI acronym?
Insurance
What is the primary goal of a lender when evaluating a borrower's ability to repay a loan?
To determine the borrower's ability to repay the loan within the stipulated time
What is the CAMPARI model based on?
Risk acceptance criteria pre-approved by the lender
What is a crucial aspect of evaluating insurance?
Evaluating the types of risk coverage
What is the primary purpose of the CAMPARI model?
To assess consumer loan applications
Which of the following is NOT a component of the CAMPARI model?
Insurance premium payments
What is the main advantage of using the CAMPARI model?
It is less complex than the 5Cs framework
What is the primary focus of the 5Cs framework?
Business lending
What is the purpose of evaluating the loan repayment structure?
To assess the debt servicing capacity
What is the primary difference between the CAMPARI model and the 5Cs framework?
Complexity
What is the purpose of using the CAMPARI model in consumer lending?
To assess consumer loan applications
What is the primary consideration when evaluating the amount of financing?
The borrower's need and capacity to repay
What is the purpose of requiring the borrower to show commitment towards the loan?
To reduce risk for both the borrower and the bank
What happens if the borrower requests a loan amount greater than the requirements listed in the purpose of the loan?
The borrower can provide additional security to justify the loan amount
What is the purpose of structuring the repayment of a loan?
To meet the borrower's needs and debt servicing ability, as well as the bank's requirement for risk reduction and loan safety
What is evaluated when considering the repayment structure of a loan?
The total length of time, repayment amount, and frequency of instalment payments
Why is insurance protection required in asset-based financing?
Because the underlying asset provides credit protection
What happens to the collateral value if the asset is damaged or destroyed by accident or fire?
The collateral value decreases
What is the purpose of ensuring the security is maintained in a good state?
To maintain the collateral value
Study Notes
The CAMPARI Credit Risk Assessment Framework
- The CAMPARI model is an alternative risk framework to evaluate consumer loan applications.
- It is less complex than the 5Cs framework used for business lending.
- The model ensures the lending bank of a portfolio of quality consumer loans.
Amount of Financing
- The amount of financing is evaluated based on the borrower's need and capacity to repay.
- The amount depends on the bank's requirement for the borrower to show commitment towards the loan.
- The bank reduces risk for both the borrower and the bank.
Repayment Structure
- The repayment of a loan can be structured in different ways to meet the borrower's needs and debt servicing ability.
- The repayment can be evaluated in terms of:
- Total length of time (tenor of the proposed loan)
- The repayment amount for each loan instalment and the number of instalments
- The frequency of instalment payments (e.g. weekly, monthly, or quarterly)
Insurance
- In asset-based financing, the underlying asset often becomes the security for the lending bank.
- The bank must ensure the security is maintained in a good state and continues to hold stable value.
- Adequate insurance protection is a requirement, evaluated in terms of:
- Appropriate insurance risk coverage (e.g. fire, accident, or theft)
- Appropriate amount of insurance cover
- Reputation of the insurance company
- Confirmation of insurance premium payments and annual renewal
Key Terms
- Margin of advance
- Asset-based financing
- Purpose of the loan
- Amount of financing
- Repayment of a loan
- Debt servicing capacity
This quiz assesses knowledge of the Campari Credit Risk Assessment Framework, focusing on evaluating the borrower's need and capacity to repay, and the bank's requirement for proportionate stake holding. It covers the principles of credit risk assessment and loan financing.
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