Credit Process Flashcards
It is the sequence of events involved in the creation of individual account relationship comprising a risk asset portfolio and the management of these assets to ultimate liquidation or recovery.
The Credit Process
What are the 4 process involving credit process risk:
- Identifying
- Measuring
- Controlling
- Mitigating
The Credit Process:
- Target Market Definition
- Credit Initiation
- Credit Evaluation
- Credit Risk Rating
- Facility Structuring
- Credit Approval
- Documentation & Release of Exam
- Implementation/ Loan Administration
- Remedial Management
- Acquired Assets
- Credit Review System
It is the process of defining/identifying a lending unit’s target markeet.
Target Market Definition.
In the process of doing target market definition, this aspect is reviewed annually by Management
Target Market Segment
True or False: Target Market Definition is the analysis of industry trend and risk concentration of the bank’s credit portfolio.
True
True or False: Marketing efforts focused on the bank’s risk appetite.
True
True or False: The importance of minimize wasted efforts as bank resources are utilized on accounts that are within target market.
True.
True or False: Latest Industry performance and market developments if carefully evaluated will increase risk exposure to bad accounts.
False. If will minimize risk.
If the existing accounts or exposures do not fall within the Bank’s Target Market what would the lending unit may propose?
- Retain exposure at existing levels
- Expand the relationship, if justified
- Scale down
It guides lending units in establishing their roadmap and strategies.
Target Market Definition
True or False: Target Market Definition objective is to reduce wasted marketing efforts and provides direction for existing exposures.
True
Target market definition aims to minimize risk of exposure to potential ___________________
Bad Accounts
It is the solicitation and pre-screening process.
Credit Initiation
What are the 2 key activities of Credit Initiation:
- Pre-client (Indirect Checking)
- Actual Visit (Direct Checking)
What is the primary objective of credit initiation?
KYC
What are the credit initiation pre-client call activities (indirect checking)?
- Background Check
- External Parties
What are the credit initiation client call activities (direct checking)?
- Mandatory requirement for call
- KYC
- Documents obtained
- Ocular checking
- Conducted prior to presentation
What are the Credit Evaluation Tools?
- FS Analysis
- Credit Investigation Report
- Appraisal Reports (if collaterized)
- Account Profitability Analysis
It’s objective is to assess repayment risk
Credit Evaluation
Credit Evaluation is based on 5 Cs of Credit:
- Character
- Capacity
- Condition
- Capital
- Collateral
It is the process of evaluation of data gather from client interviews, client calls/plans visits and assessment of credit reports and other documents.
Credit Evaluation
True or False: Identification/ Assessment of major risk and mitigating factors (if any) is part of the Credit Evaluation.
True
It is the method of measuring and interpreting historical and future financial capacity of a Borrower
Financial Statement Analysis
True or False: Term Loan proposals should be supported by projections for a certain term duration of the loan.
False. It should be the entire duration.
What are the different internal CI Reports?
- LIS
- NFIS/ CMAP
- DTI Verification
- SEC Verification
What are the different external CI Reports
- Residence Verification
- Business Verification
- Trade Verification
- Lease Verification
Security or collateral serves as fallback source of repayment, a second way-out.
Appraisal Reports
It must have established market and supported by sound valuation methodology.
Collateral
What are the preferred types of security that offer stable and clearly definable values
- Deposits
- Gov. Bonds & Securities
- Real Estate
- Machineries/equipment/motor vehicles
are required for all clean accommodations; acceptability of the surety is properly evaluated- at the point of account solicitation, a surety’s assets and liabilities must already be identified.
Sureties
True or False: Surety may be waived subject to approval and based on certain criteria.
True
Tool that measures over-all profitability of an account
Account Profitability Analysis
True or False: Credit Reports serve as the only tool to aid in credit evaluation.
False. It is also still the lending officer’s responsibility to do thorough assessment of the borrower.
_____________ serve only as tools made available for use of lending officers and credit approvers in arriving at ____________.
Credit Reports; credit decisions
Clean loan is for borrowers found to be _______________.
Highly credit-worthy
It is a tool for measuring, monitoring and controlling the quality of the individual credit exposure as well as the total credit portfolio of the Bank
Credit Risk Rating
What are the credit risk rating systems in place:
a.) ICRRS
b.) BCS
c.) Rating of FIs
d.) Sovereign Risk Rating
True or False: Rating is conducted upon credit granting, subject to semi annual review.
False. Annual review.
Ensure terms of credit facility are properly matched with the borrower’s needs and source of repayment to minimize risk.
Facility Structuring/ Proposal
What are need to consider for Facility Structuring/ Proposal
- Loan Purpose
- Loan Amount, Tenor & Type
True or False: Loans granted only in the amount and for the period of time essential for effective completion of the operation to be financed.
True
Short-term financing
Needs require short-term credit facilities.
Requires long-term credit facilities; funded by PN beyond one year tenor.
Long-term financing needs
Proposals to grant credit facility/ies shall be made through the _______________________ which should include salient information, including but not limited the request and its purpose, existing accommodations, background, results of checking, etc.
Credit Recommendation Memorandum (CRM)
In the facility structuring/ proposal, all proposal should be duly approved by the the appropriate credit as outlined in ____________________, prior to extension of credit.
Bank’s Approval Authority Grid or Escalation of Approval Policy
Providing credit terms suitable to the borrower’s purpose and source of repayment reduce credit risk.
Facility Structuring/ Proposal
Proposals for granting credit shall be presented using the ___________________.
CRM
the deliberation process required for credit granting, as well as for other proposals for amendment of terms and conditions, policy deviations, documentary deficiencies, etc
Credit Approval
True or False: Recommending lending offers does not necessary need to attest the completeness and accuracy of information in the CRM.
False. It must be attested by the recommending lending officer and his/her signature must be affixed in the proposal or attachments.
True or False. Approval limits are based on total credit exposure of the borrower.
True
A Client Group or a group of related accounts is taken as a
Single Borrower
Relationship is determined based on presence of
Controlling Interest
True or False: Approvals obtained relieve the originating unit of the responsibility and accountability for the recommended account.
False. Does not relieve the originating unit.
True or False: Deviations to policy requirements must be disclosed in the CRM and approved.
True
Credit proposals involving parties related to the Bank like DOSRI and subsidiaries, etc., require what type of approval?
Board of Directors Approval
Overall responsibility for the account remains with the
Originating Unit
Related accounts shall be treated as a
Single Borrower
Process involving the combined efforts of the documentation review units and Legal & Collection Group.
Documentation/ Release of Loan
handles the collation and facilitates the compliance of documentary requirement
Lending Unit
provides legal review on the completeness, sufficiency
and enforceability of the documents submitted to them by the Lending Unit; legal opinion and / or drafting of non standard documents; registration and notarial services.
Legal and Collection Group
validates if appropriate approval has been obtained for the credit proposal, including policy deviations, and checks if required documents have been submitted and properly executed.
Document Review Unit
Lacking documents must have ______________
Approval for deferral or waiver.
declares credit facility is operative- whether in part or in full, or subject to conditions– or is inoperative using the
Documentation Review Slip (DRS)
Release of loan proceeds, as a rule, will be via __________________.
Credit to the Borrower’s account
ensures that the credit arrangement is properly documented
Documentation/ Release of Loan
Documentation/ Release of Loan is the joint undertaking of what Unit and group?
Lending Unit along with Legal & Collection Group
validation conducted by document review unit to ascertain if credit facility is
Operative or Inoperative
process where existing loan portfolio is evaluated on a continuing basis, as long as banking relationship exists
Implementation/ Loan Administration
is primarily responsible for
continuous monitoring and evaluation of the quality
of his/her credit portfolio, and for seeing to it that
credit ratings or classifications are up to date
Lending Officer
Implementation/ Loan Administration ensures that:
- Adequate management action
- Adequate loss reserves are set up
- Adequate provisions for estimated future loss
True or False: Interest shall be accrued for Past Due or NPLs accounts; it will be taken up only when actual payments are made
False. Interest shall NOT be accrued
for credit products to allow borrowers to catch up on their late payment without being considered as past due.
Cure Periods. (Max of 30 days)
True or False: Past due accounts shall not be granted any additional facility/loan except upon the approval of appropriate authority.
True
True or False: Account is considered past due when principal and/or interest or instalment due, or portions thereof, are not paid at their contractual due date.
True
True pr False: Account is considered as non-performing if principal/interest are past due and unpaid for more than 60 days or interest accrued for more than 30 days have been capitalized, refinanced, or delayed by agreement
False. Unpaid for 90 days; more than 90 days have been capitalized
True or False: In determining whether a loan is considered NPL or not, reference to the pertinent MORB guideline is a must.
True
existing loan portfolio is evaluated on ___________________ conducted during the term / life of the facility
Continuing basis
is an opportunity to revisit
the portfolio and review compliance to requirements under the credit facility.
Annual Review/ Renewal
process where special handling of potential or existing problem accounts is required to avoid or minimize financial losses to the Bank.
Remedial Management
True or False: When cash collection is not possible, the alternative is asset recovery for eventual conversion back to cash.
True
It is the voluntary payment of assets.
Dacion en pago / dation in payment
True or False: Should remedial efforts fail, account may be referred to LCG for appropriate legal action.
True
Choice of remedial strategy should be based on
circumstances related to the account and should be
that which will result in _______________ for the bank within _____________________.
Highest Recovery; Shortest Possible Time
Proposals for restructuring require approval by the
Board of Directors, Excom, or Crecom at a limit of:
Php 20 Mn.
DOSRI and other parties related to the Bank must be approved by
Board of the Directors
Assets (which may or may not be existing collaterals) may be acquired by the Bank in settlement of loans through foreclosure or dation in payment
Acquired Assets
process where all credit exposures are periodically reviewed, validated, monitored.
Credit Review System
Possible Remedial action plans or strategies
- Collection of Payment
- Negotiated Settlement
- Work-out (Rescheduling/ Restructuring)
- Sale of loan to 3rd parties
True or False: Loan restructuring requires approval from either the Board, the Excom, or Crecom
True
