PART A · QUESTION 1
A paper headlines leverage of three times: debt of US$12m on EBITDA of US$4m. Its appendix shows a US$3m guarantee the borrower has given, and US$2m of add-backs inside that EBITDA.
// EXAM HALL25 QUESTIONS · 30 MINUTES
Credit Sanctioner Practice Test
Someone else's paper, read fast: where your authority stops, what the forecast rests on, and how to say no and keep the banker.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A credit sanctioner practice test asks whether you can read someone else's paper fast and answer it with a decision, a condition or a question. This paper has four parts: reading through a headline figure; a banker's paper set on an exhibit, with a connected exposure, a forecast and a valuation to test; a second file with no paper yet; and calls on delegated authority, declining well and pressure from above. Every question is original, and none comes from any bank's test. Sit it against a thirty-minute clock, or take it as practice.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// HOW TO SIT IT
Answer below as practice, and each read opens as you go. Or sit it as a test: 30 minutes, with every read held back until you finish.
PART A
The headline
What sits under a paper's first line. Work the sums before you look at the options.
PART A · QUESTION 2
A company asks to refinance. Its year in four numbers:
- EBITDA
- US$6m
- Capex + tax
- US$2m
- Interest
- US$1m
- Principal due
- US$2m
What is its debt service cover, on cash available after capital spending and tax?
PART A · QUESTION 3
A US$35m loan was sized on EBITDA of US$10m. Halfway through the year, management cuts its forecast to US$7m.
What changes?
PART A · QUESTION 4
Two borrowers each carry debt of three times EBITDA. One sells software on three-year contracts; the other builds new houses for sale.
Is three times the same risk for both?
PART A · QUESTION 5
A paper runs to 30 pages, nine of them on the company's history. Its risk section is one line: 'Risks are mitigated by the strength of the relationship.'
What do you send back?
PART B
The paper
One banker's paper, eight questions. Read the small print before the recommendation.
EXHIBIT AD · THE PAPER ON YOUR DESK
A relationship manager's credit paper, sent to you at 4pm for a decision by tomorrow. Money in US$m.
Your delegated authority is US$10m to any one borrower and those connected to it.
A family-owned regional cold-storage operator, banked for nine years and never late, wants a new 12-year term loan to build a second store. The paper's recommendation: “Approve. Strong relationship, strong security, cover of 1.4 times.”
| US$m | |
|---|---|
| Existing term loan | 4.0 |
| Existing overdraft limit | 1.0 |
| New term loan | 3.0 |
| Total | 8.0 |
| Last year | Forecast | |
|---|---|---|
| EBITDA | 1.8 | 2.8 |
| Tax | 0.2 | 0.4 |
| Capital spending | 0.2 | 0.3 |
| Cash available | 1.4 | 2.1 |
| Debt service, new loan in | 1.5 | 1.5 |
The forecast has the new store 90% full in its first year; the first store took three years to get there. Security is a first mortgage over both stores, valued at US$13.0m “as if complete”, in a valuation the borrower commissioned 14 months ago. A letter of intent from a food exporter “will be obtained after settlement”. The build is costed at US$4.0m, with US$1.0m from the family. On page 6: the owner's brother runs a transport company with US$2.5m of facilities from the bank, and the same family controls both.
PART B · QUESTION 6
From Exhibit AD.
What exposure do you measure against your US$10m?
PART B · QUESTION 7
On Exhibit AD, the banker says: 'Trim the new loan to US$2.5m, and it comes inside your authority. You can sign it tonight.'
What do you do?
PART B · QUESTION 8
Exhibit AD's paper shows cover of 1.4 times on its forecast.
What is cover on last year's actual earnings, with the new loan's debt service?
PART B · QUESTION 9
Exhibit AD's forecast adds US$1.0m of EBITDA from the new store, 90% full in its first year. The first store took three years to get there.
What do you ask first?
PART B · QUESTION 10
Exhibit AD works out at a loan to value of 62%, on a valuation of US$13.0m.
How much comfort do you take from that?
PART B · QUESTION 11
Exhibit AD asks for a 12-year term. The bank's policy stops at 10 years for this kind of loan, and the paper does not mention it.
Signal or noise?
PART B · QUESTION 12
Exhibit AD's paper says the letter of intent from a food exporter will be obtained after settlement. The forecast counts on that customer.
What do you do with that condition?
PART B · QUESTION 13
Exhibit AD's banker rings at 5pm: 'Another bank has offered. Without an answer by tomorrow, we lose a nine-year client.'
What do you say?
PART C
The second file
The next morning, a different borrower, four questions. The banker's paper is one page, so you read the numbers yourself.
EXHIBIT A · THE BORROWER
A family-owned maker of stainless-steel equipment for commercial kitchens. Figures in US$000.
It asks to raise its revolving line from US$4.0m to US$6.0m “to fund growth”. It has never missed a payment, and every covenant passes.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | 20,000 | 23,000 | 27,000 |
| Cost of sales | 14,000 | 16,330 | 19,710 |
| Gross profit | 6,000 | 6,670 | 7,290 |
| Overheads | 3,800 | 4,270 | 4,890 |
| EBITDA | 2,200 | 2,400 | 2,400 |
| Depreciation | 500 | 550 | 600 |
| Interest | 300 | 360 | 480 |
| Tax | 392 | 417 | 370 |
| Net profit | 1,008 | 1,073 | 950 |
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Debtors | 3,300 | 4,400 | 6,200 |
| Stock | 2,300 | 3,100 | 4,500 |
| Fixed assets | 4,000 | 4,050 | 4,150 |
| Creditors | 1,700 | 2,100 | 2,900 |
| Revolving line (limit 4,000) | 350 | 1,627 | 3,977 |
| Term loan | 3,000 | 2,500 | 2,000 |
| Equity | 4,550 | 5,323 | 5,973 |
| Year 2 | Year 3 | |
|---|---|---|
| Capital expenditure | 600 | 700 |
| Dividend | 300 | 300 |
| Term loan repaid | 500 | 500 |
No cash balance at any year end. Debtor days are on revenue; stock and creditor days on cost of sales. An aged debtors list and a stock list have been asked for.
PART C · QUESTION 14
From Exhibit A, Year 3. Take cash available for debt service as EBITDA less tax and capital expenditure.
What is debt service cover?
PART C · QUESTION 15
From Exhibit A: debt service cover is 1.4 times on paper, yet operating cash flow in Year 3 was minus 850.
What actually paid the debt service?
PART C · QUESTION 16
From Exhibit A: revenue up 35% in two years, gross margin down from 30% to 27%, debtor days up from 60 to 84, stock days up from 60 to 83.
What does the pattern suggest first?
PART C · QUESTION 17
From Exhibit A: the banker's one-page paper says: 'Approve US$6.0m. Profitable, never late, every covenant passes.'
What is your decision?
PART D
The calls
The authority is personal. So is the pressure.
PART D · QUESTION 18
You decline a file. The banker who spent two months on it says: 'Tell me what you want it to say, and I will write it.'
What do you tell them?
PART D · QUESTION 19
A file reads well. The numbers hold, and the banker is good. Something about it bothers you, and you cannot say what. The decision is due today.
What do you do?
PART D · QUESTION 20
Of the last 24 files one banker has sent you, 19 arrive just under your authority.
Signal or noise?
PART D · QUESTION 21
It has been a strong year with no losses. The regional head says: 'Your decline rate is up. With numbers like these, you can afford to relax.'
What is your answer?
PART D · QUESTION 22
The chief executive forwards a file with a note: 'Old friend of the chairman. Please look after this one.' It is inside your authority, and the numbers are marginal.
What do you do?
PART D · QUESTION 23
A loan you signed 18 months ago has gone bad. Re-reading your approval, you find a warning in the paper that you read past. A review panel asks what happened.
What do you tell them?
PART D · QUESTION 24
A renewal from a banker whose papers you trust. The business has not changed, cover and security are comfortable, and conduct is clean. A colleague suggests adding a quarterly debtors report, just in case.
What do you do?
PART D · QUESTION 25
Your partner is a director of a company that has just applied to your bank for a loan, and the file has been assigned to you.
Your move?
0 OF 25 ANSWERED · 0 WITH THE SENIOR READ · 0 STANDS UP · 0 OFF THE LINE
// THE REST OF THE ROUND
Every question here is original; none is any bank's real test. Written for: Credit sanctioner.
- Credit sanctioner: the interview questions, against a two-minute clock.
- Situational judgement, for any seat.
- The assessment centre: a whole case in forty-five minutes.
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