Why Credit Goes Bad & CRM

8/20/2019 Why Credit Goes Bad & CRM

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Why Credit Goes Bad?Why Credit Goes Bad?

Segregation of Duties as aSegregation of Duties as a

tool of CRMtool of CRM

Golam Hafiz Ahmed

Addl. Managing Director

CC Ban! "imited



An overview of Industry#n Se$tem%er& '()'Total No. of Banks 47 * Branches – 8000 lusTotal No. of !"B. #0 * $eosits Tk. %0&'(0 "r. )rowth

'0.(8 * "redit Tk. 40'0(0 "r. )rowth &8.(8

+till %% of oulation left out of Bankin, syste-

*n )+,, it -as Total No. of Banks '# – Branches %4&#

$eosits Tk. &7/&&% "r

"redit Tk. &%/'#7 "r.

Total "aital of Banks Tk.%(/'0& "r. hich is &&.#&

Banks caital ,row &7# in 4 years since '008

But to &0 Borrowers holds &8 of total 1oans.If to # 2orrowers of a 2ank default the sector would fall into

crisis.



1oo-in, "lassified 1oans

3

/une.'()' 0!. '+&((( CR Which is 1.)12 of total loans.Se$tem%er.'()' 0!. 34&',' CR Which is ,.152 of total loans.

1&((( CR increase.

6 SCBs 0!. )5&5), CR

3( 7SBs 0!. )3&5,4 CR

6 SBs. 0!. 4&6'1 CR

+ 8CBs 0!. )&(14 CR9 Almost 112 i.e. ''&56' CR are Bad : "osses.

9 0!. 4&5(( CR income !e$t in interest sus$ense de$ri;ing the %an!s.

• 0!.'6&((( CR -rite off from the %oo!s of the %an!s so far.

• SCBs 0!.)(&'6+ CR& 7CBs 0!.)(&36) CR& SBs 0!.3&'3, CR& 8CBs0!.3)6 CR

*t -as only 0!.''&466 CR in Dec.'())*t -as only 0!.''&466 CR in Dec.'())



A !relude

"redit– Bank3s !ri-e !roduct

– An inte,ral !art of Basic Bankin,

"redit $eart-ents are evolvin,

– ro- 5underwri,ht and hold6

To 5underwri,ht to $istri2ute6

– To a new credit culture

– Ai- is to ,row loan 2ook in a way that-ai-ies shareholders wealth.



Segregation of Duties

Best Practices

To be designed a system of checks and

balances to decrease the likelihood of errors

and irregularities.The person who prepares documentation

should not be the same person to authorize

and execute the transaction Banks should aim

to segregate the following lending functions:Segregation of DutiesRelationship Management Marketing

!orporate Banking "nit

!redit #ppro$alRisk Management !RM!redit #dministration / NITSCredit Monitoring & RecoveryCredit/ Loan Auditing



8e- 7rinci$les of Cor$orate "ending

< A ris!=re-ard trade<off& must manage thoseris! -ell.

< >ncourages cor$s& to include hurt money@ as

first source of funding.

< 0he o;erarching 7rinci$les

< Safety < A%ility to re$ay the "oan

< Suita%ility < 7ur$ose and amount of"oan& hurt money& re$ayment Schedule.

< 7rofita%ility < Sufficient return of

*n;estment.



hy "redit ,oes 2ad9h y "redit ,oes 2ad9ron, 2orrower +election:

"heck the "haracter of "or.

;ow was "o-any set u and 2y who-9

<eutation of the "o-any and its -ana,e-ent.

<elationshi with Bankers and share holders.

Inaroriate client need assess-ent

ron, structurin, of the facilities. +ecurity or collateral shortfall.

eek internal cash ,eneration in the 2usiness leadin, torecurrin, ast dues.

1endin, on the 2asis of reutation of the 2orrower withoutlookin, into 2usiness funda-entals.





Dis%ursement under deferrals& a%sence of monitoringmay lead to $ending security $erfection for years.

Regular %enchmar!ing of the security ;alue ;is;isoutstanding should %e a $art of credit culture.

on com$liance of en;ironmental Standard=Regulatory

im$erati;es.

Death of !ey $ersons -ithout $ro$er successions.

onmonitoring of A$$ro;al co;enants.

hy "redit )oes 2ad9hy "redit )oes 2ad9

B d t i f f 7"B d t

i f f 7"



=Documentation deficiencyE o;er;aluation of collateralim$ro$er regd or time %arred& -rong schedule .etc.

="ac! of $ro$er su$er;ision& control& re;ie- on%usiness.

=Willful default <loan ta!en unscru$ulous -ay.

=ational=>conomic causes < ta& tariff& duty& $olicy&inflation& unem$loyment&$olitical unrest. >tc.

=Socio7olitical en;ironment changes.

=#;er finance=under financedue to lac! of !no-ledgein %usiness.

=Delay in ta!ing action to reco;er stuc!u$ ad;ances.

=nscientific determination of credit -ithout !no-ing$ur$oses& ca$acity of the %orro-er.

=Directed lending.

="egal o%stacle in enforcement of security.

Broad categories of causes of 7"Broad categories of causes of 7"



Asset Structure of CC Ban!Asset Structure of CC Ban!

= 1e,acy issues.

= Too -uch concentration on cash credit.

= <>) units are not ,ood erfor-ers.

= "aital -arket eosures.

= ?verfinance in workin, caital.= Increasin, trend in real estatefinancin,.

= Nonearnin,@1ow earnin, assets.



7roacti;e A$$roach7roacti;e A$$roach

<e-edial >ana,e-ent for !ro2le- Accounts -ay 2eknown as +ecial Asset -ana,e-ent.

The re-edial Account >ana,er to learn how to 2ehave

when the ,rasses are not ,reener on the other side.

ee the ori,inal <> and "lient in ,ood hu-er.

<eview the eistin, security arran,e-ent/ try your

2est to restructure the loon 2y i-rovin, collateralosition.

>ake sure the reay-ent +chedule is in line withTrade@Business cycle.

And ,et into a new reay-ent a,ree-ent with client.

I-rove your knowled,e/ atients/ skill on <isk>ana,e-ent/ 1e,al -atters and interersonal



Monitoring 7rocess

The ri-e o2ective of the C"ell3 continuous monitoringthe $erformance of "oan A@c Dwhether the loan A@c isdeterioratin,E.

It covers all the "redit ortfolios ece$t defaulted

A=cFs.To re-ind 2ranches to monitor cash flo- visFvis stoc!

To identify the deterioratin, and irre,ular A@cGsH.

To classify the irregular "oan A=cFs in accordance with

their de,ree of defects.

To innovate device and strategies for regularizing the

defectives/ overdue 1oan A@cGsH.

To furnish action $lan for regularizing the defecti;e"oan A=cFs and to su,,est the Branch to furnish theiraction lan and to monitor the Branch to kee the credit



"ontinue regular follo- u$ and su$er;ision for findin,ways to recover Bank3s dues in accordance with sanctionter-s.

0o $oint out the defects and furnishin, the reuiredinformation to the Head of CRM.

To kee all the Branches under close -atch on all of its1oan J Advance A@cGsH ecet adversely classified to

ensure the timely action lan to 2e taken for adust-ent @re,ulariation @ ti-ely renewal.

To tell all the 2orrowers to find out early indication ofthe deteriorating financial health of the- and to take

action lan for net course of action 2y analyin, theinancial +tate-ent.

Monitoring 7rocess



To develo an *0 ena%led system to monitor and to take action lanto recover/ re,ularie ast dues/ rincial or interest ay-ent/ astdue trade 2ills/ account ecess and 2reach of loan covenants

To -onitor terms : conditions of "oan as a$$ro;ed are %eing

o%ser;ed.inancial state-ent is to 2e received on re,ular 2asis and co;enants&%reaches or ece$tion are referred to the Head of CRM and totake action lan to re,ularie the sa-e.

To -onitor if the 1oan Accounts are 2ein, Audited=re;ie-ed onaroriate 2asis.

Monthly return of the "oan : Ad;ances of the Branches -ust 2ecollected in ti-e and will review the sa-e to kee all the creditortfolio re,ular and even to check through 8lora BS to -onitor the

transaction in the A@c/ reay-ent install-ents/ oeration of A@cGsH aser ter-s of sanction.

+urrise checkin, even on site ;isit to 2ranches and clients.

Monitoring 7rocess



S$ecial "oan Monitoring Cell at CRMS$ecial "oan Monitoring Cell at CRM

As $irected 2y our "K? on >ay '0&' to have earlywarnin, si,nal a2out a deterioratin, Account a secial cellhas 2een for-ed at "<>.

?nce 1oan is aroved/ Branches infor-ed/ CAD deals-ith $ortfolios in !re and !ost dis2urse-ents

After assin, of ti-e a few loan A@" 2eco-e weak Jslow. ?nce classified these are sent to "M RD -hen recovery 2eco-es difficult.

But it is understood that while renewal and enhance-ent"<> $ivision can feel the ulse of the 2orrower A@" and

redict future trend of a articular A@".



"e;el of Monitoring"e;el of Monitoring

At Branch level 2y <>.

At "<> 2y +ecial >onitorin, "ell.

At "A$ 2y their tea- 2efore loadin, 1i-it.

To address all concerned includin, ;eadof "<> and <isks.



!rior lannin, should rovide strate,y to

uickly handle adverse credit events If re-edial actions fail/ aroriate

courses of action -ust 2e deter-ined

orkout +ituation "an alternatives lead to increased recovery such as chan,ereay-ent arran,e-ents/ eercise of liens over roerty/ etc9

riteoff outstandin, a-ounts

+hould the loan not erfor-+hould the loan not erfor-



Ad;ice from the 7astAd;ice from the 7ast

hat are so-e of the key lessons fro-eerienced credit -ana,ers9

Always try to work in a tea- for creditdecisions.Allow sufficient ti-e for reasoned decisionsLerify all facts and fi,ures+e,re,ate the sellin, and aroval of loansBe fir- with the client and don3t 2e into 2ad

decisions



Ad;ice from the $astAd;ice from the $ast

Never ro-ise what you cannot deliverAlways consider client3s uantitative and

ualitative asectsLolu-e is not necessarily rofit. The

client -ust also add to rofita2ility

The urose of the loan should alsoindicate the reay-ent a2ilityLisitin, client3s fir-s adds to your

understandin, and allows 2usinesscreation



Ad;ice from the 7astAd;ice from the 7ast<ecord all relevant facts as soon as

ossi2le/ and not fro- -e-ory/ as files-ay 2eco-e evidence

Try to confine client dealin,s to

rofessional -atters only

Ti-ely and careful ,atherin, ofinfor-ation

Be roactive/ not lay and reactiveAll loans should rovide at least two ways

out cashflows and security



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Why Credit Goes Bad & CRM