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ADMINISTRATION OF LOAN (COMPREHENSIVE RISK MEASUREMENT & EVALUATION…

- - - - maintain sound credit-granting standards
      - monitor and control credit risk
      - properly evaluate new business opportunities
      - identify and administer problem credits
  - - - the composition of the loan portfolio
      - Standards for an individual credit decision
      - Evaluation approach
      - Delineation of lines of authority and responsibilities
      - Procedures governing compliance with loan policies and regulation.
  - - - The value of the collateral
      - The ease of disposal of the collateral
      - The aggregate size of the particular collateral that the banking institution holds
- - - - Sound credit culture is corporate value
      - Management is fully capabilities in managing an activities on credit management
      - Mechanisms approval and reviewing activities for credit risk
      - Appropriate an organization structure
      - Credit risk exposure and review portfolio composition
      - Reviews credit risk management policies
      - Competent team of audit personnel is available to verify the effectiveness of procedures, controls an compliance with aspects of credit
- - - - economic and industry downturn
      - market risk event
      - liquidity condition
- - - - :red_flag: Careful analysis - by credit analyst commensurate with the size and complexity of the transaction
      - :red_flag: Specialist credit groups - analyze and approve credits relating to significant product line, types of credit facilities, industry or geographic sectors
      - :red_flag: Standard documented formats for appraisal and standard approach in analysis should be in place
      - :red_flag: Include a thorough understanding of the borrower, purpose and structure of credit and its source of repayment.
      - :red_flag: Establish minimum requirements for the information on which the analysis is to be based and minimum financial performance standards or benchmarks in appraising loans for each product or type of industry
      - :red_flag: Written policies in place regarding the information and documentation needed to approve new credits, renew existing credits and/or change the terms and conditions of previously approved credits
    - - 🔸 Should be made in accordance of the written
        guidelines and granted by appropriate level of management
      - 🔸 A formal underwriting standard document which lays down the risk acceptance criteria
        should be established as a foundation for which the whole credit approval processes is based
        
        underwriting standard
        
        guidelines established to ensure that safe and secure loan are issued and maintained
        
        help to set benchmarks for how much debt may be issued to a person according to the terms of loan
      - 🔸 The credit approval process should establish accountability for decisions taken and designated who has the authority to approve credits or changes in credt term in what the authorized limit would be
        
        what is authorized limit ?
        
        eg - you have credit card with a bank, and authorization will depend on whether your payment card is a debit or credit and the issuing banks policies
      - 🔸 There should be a clear audit trail documenting that all aspects of the approval process was complied with an identifying the individuals or committees providing input as well as making the credit decision
        
        audit trail documenting
        
        documented history of transactions enables examiners to trace financial from general ledger
        
        eg - when an invoice is issued by a vendor, audit trail helps to track the invoice through account payable all the way through issuance of payments
      - 🔸 Approval authorities should commensurate with the expertise of the individuals involved. The BOD may however, continue to approve “policy loans” and loans which are required by statute to be approved by the Board, provided that the initial filter of approval is conducted by the full-time executive credit personnel
    - - :lock: The factors to be considered and documented in approving credits must include:
        
        the purpose of the credit and source of repayment;
        
        the integrity and reputation of the borrower;
        
        the current risk profile (including the nature and aggregate amounts of exposure) of the borrower and its sensitivity to economic and market developments;
        
        the borrower’s repayment history and current capacity to repay, based on historical financial trends and cash flow projections;
- - - - Individual credit limits
        
        Limit can be based on the
        internal risk rating
        assigned to borrower
        
        Aggregate in a comparable and
        meaningful manner
        
        Establish sub-limits arising from
        credit exposure
        
        Limits should be generally binding
        and not according to customer
        demand
      - Portfolio concentration
        
        Concentration risk can be defined any single exposure and group exposure with the potential to produce losses large enough to threaten an institution's ability to its core business
        
        Signifant exposures to groups
        
        Individual exposures
      - Breaches in limits
        
        Conduct monitoring to actual
        exposures against limits
        
        If limits are exceeded, it should
        be made known to management
        
        Committee should also be
        informed of frequent breaches
        for corrective actions
  - - - Able to provide information on
        
        The composition of portfolio
        
        Concentrations on credit risk
        
        Quality of various portfolios
        
        Rehabilitated and watch list accounts both on an entity
      - To ensure that exposures
        approaching credit limits are
        brought to the attention of
        management
      - Adequacy of scope of information should
        be reviewed on a periodic basis
        by management