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Credit Documentation & Review (Drafting Credit proposal (Name of…
Credit Documentation & Review
Credit Info maintained in a borrower's credit file
Required to maintain credit files on all its borrowers (
MAS 612)
laid down by
MAS
. -In English, Info should be adequate and timely
a. FOR PROPER & EFFECTIVE SUPERVISION
Bank to conduct
periodic review
on the credit-worthiness of the borrowers & for easy
follow -up
by cr. officer servicing the loan
b. FOR MAS & EXTERNAL AUDITORS' REVIEW
To have
immediate & complete factual information
from which they can form an
objective appraisal
on the quality of the loans and advances
c. As evidence for investing/ managing problem loan
In event of problem loan, cr. info docs maintained by bank become good source of
evidence
& point of ref. for
investigating
& establishing
action plans
to manage/recover loan
Drafting Credit proposal
Name of borrower
Purpose of Loan
Details of facility
Details of Security
Total Exposure to the borrower & its related companies
Background of borrower
Industry in which the borrower is operating
Discuss the risks & mitigates of lending
Make a recommendation for the loan
Sources of Cr. Info Available
PUBLIC
1)
Audited Reports
(Qualitative & Quantitative); Sole proprietor, Partnerships & LLP
DO NOT
have to produce
QUALIFIED
- Uncertainties. Greater degree of qualification, more cautious attitude
UNQUALIFIED
- CLEAN, bank have high degree of confidence
What do you look out for? a.
Financial Statements
b.
Auditors Report
c.
Chairman's Statement
d.
Directors' Report
2)
Memorandum & Articles of Association
- set of OBJECTIVES & rules and regulations
What do you look out for? a.
Scope of activities
b.
Borrowing power of company
c.
Borrowing power of directors
3)
Search at the Registry of Titles & Deeds
- details of
ownership
of property &
changes
to ownership must be lodged at the registry
What do you look out for? a.
Details of ownership of property
b.
Check if property is encumbered
(if so, details?) c.
Lodge a caveat on the property
5)
Cr. Agency & Bureau
- Cr. info, Ratings & Comments
CREDIT BUREAU: 1) Provide
CENTRAL DATABASE
(positive & negative cr. related info); 2) Access info for
REVIEW
& turn arnd loan appl. faster; 3) Check
FINANCIAL STANDING
of cust. & suppliers
What do you look out for? Cr. Report for
BIZ
a.
Repayment History
b.
Default History
c.
Bankruptcy filed by Members
Cr. Report for
Individual
a.
Basic personal profile details
b.
Record of all credit checks made on cust.
c.
Default History
d.
Bankruptcy filed by members
4)
Newspaper
- Up-to-date info
What do you look out for? a.
Info about general economic climate
b.
Industry specific info
c.
Company on Stock Exchange?
(Details of current market price, dividend payment?) d.
Court Proceedings
NON-PUBLIC
1)
Bankers' Opinions
(Status reports- informal exchange of customers' credit info among banks) Place disclaimer clause on their opinion
What do you look out for? a.
Date a/c is opened
b.
Info about management
c.
Types of facilities granted & used
2)
Interviewing client
What do you look out for? a.
Info gathering
b.
Testing the info gathered
c.
Building banking relationship
Problems Arise:
COMMUNICATION PROBLEMS
(Diff. putting ideas into words, jump to conclusions, unsuitable environment, misinterpretation),
PERCEPTION PROBLEMS
(Stereotype, Halo Effect, Perceptual Defence, Projection)
3)
Visiting Client's premise
What do you look out for? a.
Goodwill Visit
b.
Confirmation of the original interview
c.
Assessing the level of security & comfort
d.
Prospect vis
its
4)
Minutes of Directors' Meeting
What do you look out for? a.
Review info of future buz
b. Ensure B.O.D have
agreed to the borrowing , legality of borrowing