CASE STUDY

Charles Monday is marketing director of a small public company which banks with you. He is 38 years old, married with two sons aged seven and nine. His current income is £40,000 per annum. When Monday took up his present job two years ago he moved his account to your branch. At that time he purchased a new house for £120,000 and, as an exceptional matter in view of the connection, you granted him a mortgage of £80,000 which included the consolidation of a £7,500 overdraft he had run up at his previous bank. You agreed this arrangement partly because he had received a large salary increase on starting the new job and on the basis that he kept his account in credit in future. Subsequently you agreed an overdraft limit of £2,000 to cover delays in receipt of his business expenses. Monday’s overdraft has been showing a steadily increasing trend and just before his last month’s salary was received it stood at £3,600. You now receive a status enquiry on Monday which appears to relate to a Gold Card overdraft limit at another bank, one of your competitors. You telephone Monday and ask him to call to see you to discuss matters. At your meeting Monday tells you he has applied for a £10,000 Gold Card overdraft limit at the other bank because he needs some leeway to meet school fees of £700 per term for his younger son who will shortly be joining his brother at a private school. In addition to this, Monday tells you that he and his wife have run up debts on various credit cards over the past two years totaling £3,000. His job is going well and he hopes to receive a 10% salary increase in the near future but, in view of his previous arrangement to keep his account in credit, he feels that you would be unsympathetic to a request for increased facilities. However, as he has banked with you for nearly two years, he would prefer to confine his borrowing to your bank. Monday therefore asks if you would be prepared to increase his overdraft to £10,000 although he would prefer to top up his mortgage, ideally by £15,000. He believes his house is now worth £180,000. Before the meeting, you carried out brief check on Monday’s account, which revealed: a) His net monthly salary is just over £2,000; b) Regular monthly payments: mortgage £835, community rates/tax £100; c) Overdraft interest for the last quarter amounted to £85.

REQUIRED: Set out, with reasons, your response to Monday’s request using the 5-c Model of credit analysis.