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Technical interview question about Loan Risk Assessment for Senior-Level Commercial Banking

How would you assess the risk of extending a loan to a manufacturing company in a declining industry?

Commercial Banking

Technical

Asked at

Santander Bank

Difficulty :

Hard

Explanation

This question evaluates your risk assessment capabilities, particularly in challenging industries. Recruiters are looking for your ability to identify risks, propose mitigation strategies, and ensure a balanced approach to decision-making. Common pitfalls include failing to acknowledge industry trends or not suggesting practical risk management solutions. A strong answer demonstrates a structured risk evaluation process, highlighting factors such as cash flow stability, collateral, and industry outlook. Preparation involves reviewing industry-specific risk analysis techniques.

Answer Example

I would start by analyzing the company’s financial health, focusing on cash flow stability and debt coverage ratios. Next, I would assess external risks, including declining demand and competitive pressures, and evaluate the quality of collateral offered. To mitigate risks, I would recommend measures such as structured loan terms, including covenants that ensure repayment priority. For example, I once reviewed a loan application for a textile manufacturer in a shrinking market and secured approval by focusing on asset-backed lending and revising repayment schedules to align with seasonal cash flows.

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