Among the problems faced by most enterprises, lack of credit resources is one of the most acute. Radical changes in all spheres of public life of our country, including the transition to market regulation of economic relations, economic instability, the availability of sanctions necessitated an appropriate correction of the understanding of the essence of creditworthiness.
To the study of problems of credit was always greater attention from economic science. This is due to the fact that credit affects major aspects of economic activity, predetermining the process of economic growth in general. Today it can be the most priority means of ensuring the conditions out of the current crisis, the optimization of economic structural shifts, and technological advancement. The loan may help increase the quality indicators of economic activity at the micro and macro levels. Intensification of process of crediting can be the most effective mechanism of socio-economic transformation.
This issue is widely discussed in economic literature in works of such researchers as Bunge N. X., Kosinski N.V., Lavrushin O.I., Saifulin R.S, Sheremet A.D., Sakharova M.O., Yampolsky M. M., MamonovaI.D., Dementyeva, V. Batizi E., etc..
Features of the present stage of industrial development of Russia, associated with a weak legislative framework, with unstable financial condition of many enterprises, high degree of moral and physical wear of fixed assets etc., limit their credibility. These circumstances make it is undeniable that it is necessary to compile and analyze existing theoretical approaches to the essence and the concept of creditworthiness.
Creditworthiness is a key category of economic system. However, despite the increased attention of researchers to this most commonly used economic categories, scientists still have not developed a universal definition of creditworthiness, which would meet the needs of both theory and practice. The problem of assessing the creditworthiness of the borrower to the Bank customer also has not been developed fully. To begin we clarify the notion «creditworthiness», which is undoubtedly derived from the category of «credit».
The emergence of the concept of creditworthiness is determined to study the laws of development of credit relations in the economic system. Over time the concept of creditworthiness has gained a number of new values and began to be used in various fields. In domestic and foreign scientific literature there are several definitions of this notion. Here are some of these definitions, the most frequently used in economic science.
For the first time this concept appeared in the XVIII century in the works of such scholars as A. Smith, D. L. Sans, N. X. Bunge, N. V. Kosinski and others, who noted that the creditworthiness combines the ability of reproduction of capital required for debt repayment and further development, and certain moral qualities of the client (honesty, integrity in respect of their obligations).
If we analyze the interpretation of the notion «creditworthiness» in the domestic economic science in different periods of time, the historical development of the notion of credit in Russia can be summarized as follows:
In 20-ies of XX century under the creditworthiness understand:
— the borrower’s ability to earn money to repay the loan;
— the ability of a borrower to make timely repayment of the obtained loans;
— the ability of the borrower to commit credit transaction;
— the correct definition of the Bank limits the loan.
It should be noted that many scholars of this period focused on the moral character of the borrower. I. Adadurov wrote: «The first and most important condition for the loan is the need to identity seeking which have the possibility to borrow in their moral qualities did not inspire confidence». It was determined by the interaction of the factors a competent management, the ability to respond flexibly to macroeconomic changes, etc. with the moral foundations of credit transactions .
At the end of the XIX century N. X. Bunge in «The theory of credit» quotes a French banker Lo: «Providing confidence, we pay attention to them (customers) honesty — it assures us that we will not be deceived; for their art, it gives us hope that they are not deceived in the calculations; for their occupation — this is the hope of the percentage that we expect» .
At a later period S. G. Kara-Murza (1930) also draws attention to the personal qualities of the leaders of the enterprise-borrower’s creditworthiness and treats as a «face inherent skill that is the desire, coupled with the opportunity to justify the trust and properly perform accepted on debt, to repay the commitment» .
On the moral and psychological aspects as the main characteristics in addition to the borrower’s financial situation we pay attention to modern researchers. E. A. Burdakov proposes to consider the creditworthiness of both the level of financial and economic condition of the client, credit history, personal qualities of leadership, reputation, on which basis the credit expert makes a conclusion about the financial stability of the borrower, possibilities of an effective use of borrowed funds, its ability and willingness to return the funds in accordance with the terms of the credit agreement . Many researchers gave decisive importance to such factors as material to secure the loan, which is undoubtedly one of the most important aspects of creditworthiness. N. Bunge said: «The property is considered as the best guarantee» , thus he linked the highest creditworthiness with the greatest immobility of capital invested in real estate. You may disagree with this point of view, as it is more expedient to invest in the most liquid assets with the purpose of quickly releasing when needed to meet obligations.
The team of authors under the leadership of N.I. Valenceva in «The crediting and calculations in construction» notes: «considered Creditworthy company that can provide the Bank with a double guarantee: the successful, profitable operations and a material provision of the loan» .
The main group of the scholars of this period as a new factor when deciding on the loan was determined by the ability of the borrower income. I. Adadurov saw the relationship between the possibility of the borrower’s loan «with its higher feasibility, stability and profitability» .
So, we can conclude that mainly in determining the creditworthiness of the borrower, the researchers considered the following important characteristics:
— positive moral character (reputation);
— possession of a security of the loan material;
— the ability to earn income.
During the credit reforms (1930-1952), was radically changed economic relations in the country. However, the concept of creditworthiness is preserved in all the regulatory documents on the organization of lending activities, which have always been presented the notion of «profitability» and «solvency» of the company. An issue of sufficient security for the loan is separately addressed. In 1954, for the first time the company could be declared insolvent.
In the 80 years of XX century the economic literature has not affected the concept of creditworthiness. This is because there was no need to assess the creditworthiness of borrowers in the decision of questions on granting of loans. The reason for this was the high degree of centralization, therefore, was limited to the use of commodity-money relations for a long time and for the credit relationship was characterized not by economic but administrative methods of management. Credit relations in the Soviet economic model were developed in the form of direct Bank credit.
The highest rate of industrialization has caused significant structural changes in the financial position of the enterprises that determined not creditworthiness most of them. Long time credit mechanism has focused on credit capacity enterprises, reflecting the overall level of development of the credit mechanism of the country as a whole. What is happening in the modern economy, the changes have drawn attention to the need to ascertain the creditworthiness of enterprises.
Before the start of restructuring processes in the economy, loans were approved by higher authorities, i.e. credits decision-making method. The notion of creditworthiness in this period takes on a socialist character.
In the 90-ies of XX century the restructuring processes has made new changes in the economic model of the country. Many businesses have moved to a self-supporting system of doing business. Arose a network of commercial banks, specialized banks appeared. To directed lending policy at this stage is added and self-supporting lending. It is at this stage in the terminology of the banking practice there were such thing as a profitable and unprofitable enterprise, and for the first time banks began to assess the results of the company and analysis of potential loan providers – customers of the Bank.
The transition to two-tier banking system, a fundamental change in the system of interaction of banks and businesses determined the need to develop new methods of assessing the creditworthiness of borrowers. In this regard, began to conduct research to determine the creditworthiness of Bank customers. On this issue worked many domestic economists, such as B. M. Janiszewski, Sevruk V. T., Lukacher T. G., Yampolsky M. M., O. I. Lavrushin, Saifulin R.S, Sheremet A. D., I. D. Mamonova, V.S.Volynsky., O. I. Yefimova, Sakharova M. O. etc.
So, as a result of the review of the methodological approaches of the domestic and foreign researchers to the definition of a company’s creditworthiness is possible to allocate the most significant, in our view, its criteria are presented in table. 1.
Criteria for the creditworthiness of the company
|Criteria||The content of the criterion|
|The nature of the client||The reputation of the client|
The degree of responsibility for the repayment of the debt
Clarity of presentation of the client about the purpose of the loan; and its compliance with the Bank’s credit policy
|The ability to borrow|
|The client has the right to apply for a loan|
The client has the right of signature of the loan agreement or negotiation
The presence of certain powers in the company
The age of majority or other signs of legal capacity of the borrower
|Capital, loan collateral (credit security)||Capital adequacy|
The degree of equity investments credited to the operation
The value of the assets of the borrower and a concrete secondary source of repayment (pledge, guarantee, surety, insurance) provided for in the loan agreement
|The conditions in which the credit transaction takes place||Current or forecast economic situation in the country, the region and the industry|
The conditions that determine the degree of risk of the Bank and taken into account when deciding the rating of cash flow, liquidity balance, capital adequacy, level of management of the borrower
|Control (a legislative basis of activity of the borrower; the nature of the loan standards of the Bank and its credit policy)||The existence of a legal and regulatory framework for the operation of the borrower and implementing the financed activities|
The degree of influence on the performance of the borrower expected changes in the legislation
The degree of reliability of the information about the borrower and the loan feasibility study
In Russian literature credit worthiness of the borrower and its methods of evaluation devoted a number of works. The peak activity of research in this area falls on the first decade of the twentieth century (until around 1930) and the beginning of 90-ies
The most common becomes a definition of creditworthiness (the ability of a person to fully and timely pay its debt obligations), which makes it indistinguishable from other concepts of «solvency».
Yanishevskaya V. M. Sevruk V. T., Lukacher T.G. in the work «Analysis of the solvency of enterprises and organizations: a practical guide for state and other enterprises» is determined creditworthiness as a rating by the Bank to the borrower from the point of view of the possibility and advisability of granting him a loan, which determines the probability of timely repayment of loans and payment of percents on them in the future. However, the authors add that the repayment of the loan together with due percent on it — a special case of payments is, therefore, creditworthiness is a special case of solvency .
Almost the same view is held by A. D. Sheremet, E. V. Negashev and Saifullin R. S. in the work «Methods of financial analysis of the enterprise.» They determine the creditworthiness of the enterprise as «its ability to timely and fully pay all its obligations,» [82, 83]; it actually replaces the term «solvency», a similar definition is given in the work of Bakanov M. I. and Sheremet A. D. «The theory of economic analysis» and in the book of A. D. Sheremet and Saifullin R. S. «Methods of financial analysis» .
In 1993 Sevruk V. T. in his work «Credit risk analysis» clarifies this position: «Solvency is the ability to timely and fully meet its payment obligations arising from trade, credit and other operations of monetary character; the creditworthiness — the prerequisites for the loan, the ability to return it (that is a narrower concept than solvency)» .
Modern researchers, in particular, Lavrushin O. I., show the differences in terms of creditworthiness and solvency. «The creditworthiness of borrower unlike its solvency does not fix the defaults in the intervening period or on any date, and predicts its solvency in the near future» .
So, we have considered the authors who understand the creditworthiness of the borrower as a purely financial characteristics, and, therefore, believes that the creditworthiness of the borrower can be assessed solely or principally with the methods of analysis of financial statements.
Another group of authors considers a somewhat broader concept of creditworthiness. Many Russian and foreign authors interpret the solvency as the ability and ready to return the requested loan in accordance with the terms of the loan agreement. This is the most common definition, which can be found in most textbooks on the subjects of «Banking», «Money, credit, banks», etc.
In the 20-ies show an understanding of the credit as economic ability of the borrower to repay the loan, for example, in his work Yakubov S. A. said: «The creditworthiness is such business and financial condition of the enterprise, which gives confidence that the loan capital in a timely and appropriate will be reproduced» .
This view is shared by American researchers — Koter, Reed etc. The authors of the textbook «Banking» under the editorship of Lavrushin O. I. write: «The borrower’s creditworthiness means the ability of a legal entity fully and timely pay its obligations. The creditworthiness of the borrower … expects its solvency in the near future. It is estimated on the basis of a system of indicators that reflect the location and sources of working capital, the results of financial-economic activity of the borrower» .
Intermediate position is occupied by a group of authors under the direction of Maidanchik B. I. («The Analysis and justification of economic decisions»): «… creditworthiness — ability to repay the loan or make timely payment. The main data source is the balance, but also required information about perspectives of development of the enterprise, the reasons for which it had need a loan, personal and business qualities of its leaders» .
The concept of creditworthiness Sakharov M. O. defines as «the qualitative characteristics of the borrower, reflecting its capabilities from the point of view of timely repayment of a loan» and considers «the ability to participate in the credit transaction».
In the work of Olkhova R. G., Sakharova M. O., Sokolinskaya N. E. «Bank and control» the creditworthiness is understood in the following way: «Under creditworthiness of Bank clients should understand that the financial state of the enterprise or organization, which gives confidence in the effective use of borrowed funds, the ability and willingness of the borrower to repay the loan in accordance with the terms of the contract. The study of banks factors which can lead to nonpayment of the loans or, alternatively, ensure their timely return, is the content of Bank credit analysis. By monitoring the creditworthiness, the Bank must decide the following questions: can the borrower meet its obligation on time, ready to perform…Willingness to repay the loan in time is determined by examining the capacity of the borrower, prospects of development of business qualities of the head» .
The importance of the subjective qualities of the borrower identified as the Tashkent collective of authors «Assessment of the credit status of the enterprises in market conditions», where it is noted that the repayment of the loan is based, on the one hand, and the legal right of ownership of the creditor, on the other — on the ability of the borrower to restore the credit absorbed in its activities, Creditworthiness they define as the qualitative characteristics of the borrower, is the subject of the credit relationship, which consists of the ability to repay loans (economic factors) and willingness to return (legal and moral factors)».
As can be seen from the results of the analysis in determining creditworthiness, the scientists as opposed to foreign, particularly American researchers, in most cases do not take into account the legal ability of the borrower, or its ability to bear the legal responsibility on the loan agreement. In this aspect, one of the determining factors is the legal ability of the borrower.
A study of the legal aspects of creditworthiness among domestic researchers engaged in Kirichuk G. S. and Lyakhovsky V.S. In the work «The Bank’s assessment of the creditworthiness of the borrower,» they draw attention to the fact that when considering the creditworthiness of the borrower is necessary to consider the change form of ownership of the enterprise. «Frequent change of forms of legal existence of the borrowers at origination and liquidation of enterprises, merger, or formation of subsidiary companies, the corporatization of state enterprises possible in a market economy, increase the importance of this element of creditworthiness».
According to Trotsenko, I. A., Karpov M. V., etc. the return of the lent value is possible only in case of conclusion of the credit transaction legally with a legal entity or a legally capable physical. Lavrushin O. I. under the credit-worthiness of the clients understands their legal status and the economic-financial status that give confidence in the ability and willingness of the borrower to repay the loan in accordance with the terms of the contract. Kirichuk, G. M. and Lyakhovsky, V. S. determine the creditworthiness as of the actual existing legal and economic-financial situation of the borrower, based on which the Bank decides on early (development) or termination of the credit relationship with the borrower.
So, it can be concluded that many works have not formed a common understanding of creditworthiness. All the researchers demonstrate the idea of creditworthiness as a set of characteristics of the enterprise — the potential borrower, designed to assess the probability of repayment of the loan. However, the combination of the main essential aspects and characteristics reflected in the concept of creditworthiness, represented by different groups of authors, varies considerably. Based on the analysis of literary sources we were allocated 3 dimension of the enterprise, which are reflected in the concept of its creditworthiness: production-psychological, financial and economic, legal.
In the result of the analysis, we have identified a group of opinions from the point of view of practical credit analysis, which reduces the creditworthiness of the borrower for purely financial indicators, which seems not quite right. First of all, not resolved the question of how solvency in this sense fits into the overall system of financial indicators. In this case, the concept of creditworthiness, in our view, completely identified with the concept of solvency and loses its meaning as an independent economic category, requiring further analysis and evaluation.
Thus, under the identification of the two concepts creditworthiness boils down to the solvency calculated on certain dates in the future according to the forecasts of payments and future balances. In practice, such kind of calculations is rarely used because of sufficiently complex forecasting calculations, which give results of questionable reliability. In theoretical works like the interpretation of creditworthiness is not well developed, and often under credit rating refers general analysis of the financial condition of the company.
In turn, the analysis of creditworthiness is necessary to accord attention to the factors that affect solvency, as in the case of their negative impact on the solvency, they will directly reduce the level of creditworthiness of the borrower .
Prerequisites for the reduction of a company’s creditworthiness are the results of interplay of many factors, both external and internal nature. The internal factors include:
— the deficit of working capital as a result of inefficient production and commercial activities or inefficient investment policy;
— attraction of borrowed funds in the company on unfavorable terms, which leads to increased costs, reduced profitability of economic activity and capacity for self-financing;
— low level of equipment, technology and organization of production;
— reducing the efficiency of utilization of production resources of the enterprise, its production capacity, resulting in high cost, losses, «eating away» its own capital;
— establishment of excess balances of unfinished production, inventories, finished products, in connection with which is a slowdown in the turnover of capital and formed its deficit;
low profit margin due to the low level of organization of marketing activities, the lack of studying the markets, undeveloped pricing policy;
— borrowings in the company’s turnover on unfavorable terms, which leads to increased costs, reduced profitability of economic activity and capacity for self-financing;
— rapid and uncontrolled expansion of economic activity resulting in inventory costs and accounts receivable grow faster than sales, so there is the need to attract short-term borrowed funds, which exceeds the working capital. As a result, the company falls under the control of banks and other lenders.
To external factors which lower the creditworthiness include:
— economic: crisis state of the economy, the general decline in production, inflation, instability of the financial system, rising prices for resources, changing market conditions, insolvency and bankruptcy of partners, wrong fiscal policy of the state (the high level of taxation can be overwhelming for enterprise);
— political: political instability of society, especially the foreign policy of the state, the gap of economic ties, loss of markets, change of conditions of export and import, the imperfect legislation in the field of commercial law, antimonopoly policy, business and other manifestations of regulatory functions of the state;
— demographic: population size, population structure, the level of welfare of the people, the culture of the society that determine the size and structure of needs and effective demand of the population for certain types of goods and services.
The definitions have a common drawback, which consists in the fact that most of them are not demarcated the terms «creditworthiness» and «solvency.» The latter term implies the ability of the organization to pay all obligations, and the term «creditworthiness» — the ability to pay only for the credit obligations, taking into account the forecast of capacity for the future. This is especially important due to the fact that enterprises seek medium-and long-term loans. In this case, the financial condition of the enterprise and its ability to return the loan on the date specified at the conclusion of the credit agreement, has no significance. From our point of view, the creditworthiness and solvency depending on the goals of analysis must be regarded as different concepts.
Библиографический список1. Zernova L.E., Sagan S.I. Methodical approach to the definition of a company's creditworthiness. News of higher educational institutions. Technology of textile industry. 2010. No. 3. pp. 3-6.
2. Zernova L.E., Titarenko K.A. THE METHODOLOGICAL APPROACHES TO DEFINITION OF CREDITWORTHINESS OF ENTERPRISE. Materials of XI international scientific-practical conference, SIC "Academic". 2017. p. 176-179.
3. Zernova L.E., Guseva D.S. EVALUATION OF CREDIT CUSTOMERS OF A COMMERCIAL BANK AS A FACTOR IN REDUCING CREDIT RISK Proceedings of the VI International youth scientific conference: Youth and XXI century - 2016 . 2016. pp. 173-176.
4. Zernova L.E., Guseva D.S. THE PROCEDURE OF ASSESSING THE CREDITWORTHINESS OF CUSTOMERS AS AN INTEGRAL PART OF THE BANK'S CREDIT POLICY. Collection of articles of International scientific-practical conference: NEW INFORMATION TECHNOLOGIES IN SCIENCE . 2016. pp. 39-42.