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Cr. Admin & Control: TOPIC 1 (Successful Cr. risk Mgmt (Embracing…
Cr. Admin & Control: TOPIC 1
Approaches to lending adopted by the bank
Going concern
Potential Borrower as a viable entity
Future cash generating abilities
Not concerned w/ liquidation value
(stable companies)
May institute some form of security
Gone Concern
'Liquidity' approach
Concerned w/ the value of assets
Conservative approach
(start-up companies)
Types of Credit facilities
Overdraft
offered on Current a/c, up to an
agreed limit
; Even when funds have been exhausted
Flexible & convenient S/T financing
Interest calculated daily
[MAS 635] Unsecured credit facilities set at $20,000
Unsecured overdraft line = 'CLEAN' overdraft
does not meet income requirement, PLEDGE SECURITY
Term Loan
Secured/ Unsecured
Personal Loan
Specific purposes eg, Wedding/ Holiday,
no security/ collateral, arrange for PERSONAL GUARANTOR
Housing Loan
Loan duration 30 yrs
[MAS 632] shall not grant housing loan exceeding relevant amt
Amt of financing: -LTV% = 80% (LTV% x V ) OR [100% - Cash% x V] - CPF
Bridging Loans
[MAS 633]
Open-ended
No firm buyer
Close-ended
Buyer found w/ sales & purchase agreement
Parties invovled
Borrowers
Personal borrower
Businesses (Sole proprietors, partnerships, companies LLP)
Non-profit organisations (clubs, associations, societies)
Government
Lenders
Loan sharks
Pawnshops
Money Lenders
Finance Companies
Banks
Credit Risk Mgmt Process
Foundation process; Granting credit = principal activities
Loss arise from counter-party failure to make payment
DOES NOT occur in isolation
Banks/Institution failure/ takeovers were caused by deterioration of their loan &/ asset portfolio
Parties responsible
ACCOUNT OFFICER
Reports to LINE Management
Marketing responsibilities
Responsible for the credit quality of customers & collection of funds lent out
Maintains primary contact w customers
Structures & Negotiates w credit facilities
Prepares & recommend credit proposals
Monitors & Evaluates customer's performance
GOAL KEEPER (between bank & customer)
LINE MANAGEMENT
Assign customers to A/C officers
Supervises & Review of credit recommendation
Manages line portfolio's return & risk
Directs the development & training of A/C officers
CREDIT DEPARTMENT
1. CREDIT COMMITTEE
Evaluates & approves credit applications
Establish credit policy and procedures
Monitors & Manages the entire bank's portfolio mix
Establish risk rating system & monitors
Establishes & Monitors cross-boarder country liimts
Oversees credit training programs for the bank
2. CREDIT SUPPORT
Structures credit facilities w A/C officers
Prepare credit applications collab w A/C officers
Maintains credit files & loan doc
Monitors credit perf. through financial & industry analysis
Track compliance w/ T&C
Monitors repayment history & a/c conduct
Alert if any deterioration/ breach
Compile pertinent Cr. info for periodic portfolio reviews
3. NON-PERFORMING LOAN MGMT
Negotiate credit rescheduling, workouts, liquidations
Take over the role of a/c officers for the problem asset portfolio assigned
Manage problem asset recovery & collections
Successful Cr. risk Mgmt
Embracing strong culture
Senior Mgmt leadership & support for the credit porcess & culture
Clear Business line
accountability
for credit risk & portfolio results
Clear & well- communicated credit policies
Presence of a well-defined loan risk rating compliance system
Regular & independent review of the overall credit risk mgmt process