W10-W12 Credit and Collection Procedure

Things to consider in constructing the terms and conditions of a credit transaction

• Fund matching principle

• Terms and conditions should be flexible and responsive to the situation of the client

• Common sense and good judgment

• Structure of the package, including the terms and conditions, must be clearly stated

• The repayment mode and tenor shall be structured based on the purpose of credit

• All deviations from the terms and conditions shall be highlighted and justified

• Every credit extension is supported by required approvals that shall be properly documented

• The client should be informed of approval and should state the ff: type of facility, amount approved, basic terms and conditions, other pre-release conditions

• If denied, the notice shall also be sent

Documents/reports that every proposal should have

• Credit Proposal Executive Summary

• Credit Proposal

• Basic Business Information

• Credit Investigation Report

• Appraisal Report

• Types and valuation of collaterals

Credit Proposal Executive Summary

contains the highlights of the proposal such as: information on the client/applicant, the project description, the type, amount, major terms and conditions, recommendation and justification

Credit Proposal

contains the detailed information on the: applicant, the project, the results of evaluation of the financial performance/ historical financial statements, projected financial statements, results of credit investigation, marketing aspects on the project, plans and prospects

Basic Business Information

contains a brief background on the applicant, the project, the products and services, the market and the affiliates

Credit Investigation Report

the results of the credit investigation conducted

Appraisal Report

covers the results of the appraisal conducted on the collaterals offered

The information that should be clearly stated upon informing the client that their application has been approved

• type of facility

• amount approved

• basic terms and conditions

• other pre-release conditions

all necessary legal documents

must be secured prior to the initial release/restructuring or availment

account officers

witnesses to the signing of all legal documents and should verify the signatures of borrowers to ascertain authenticity. Names of all signatories should be printed.

specimen signatures of all signatories

must be maintained and updated

standard loan and collateral documents

should be used as evidences of indebtedness or to provide support to credit extensions

principal lending documents

• Loan/Line Agreement

• Receivables Financing/Discounting Line/Agreement

• Restructuring Agreement

Loan/Line Agreement

Contract between the lender and the client covering the grant of loan by the former to the latter under certain terms and conditions. Generally, it stipulates the loan type and purpose, amount, interest rate, penalties and charges, manner of repayment, availment, events of default, representations, warranties, covenants, and other stipulations or provisions not generally covered by the Promissory Note or collateral document securing the obligation.

Receivables Financing/Discounting Line/Agreement

Core document covering the terms and conditions whereby the proceeds of the credit facility are to be used for financing receivables.

Restructuring Agreement

This is used to document new terms and conditions affecting loan transactions in instances where borrower fails to meet his maturing obligations and/or by way of payment arrangement.

availment documents

• Promissory Note

• Disclosure Statement

Promissory Note

An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. It is a principal evidence of indebtedness and is to be considered along with the loan/line agreement.

Disclosure Statement

A document disclosing to the client the details of the loans to be released

collateral/security documents

• Real Estate Mortgage

• Chattel Mortgage

• Mortgage Trust Indenture

• Assignment of Receivables

• Join and Several Signatures/Comprehensive Surety Agreement

Real Estate Mortgage

A contract by which a client or third- party mortgagor

secures in favor of the lender the fulfillment of principal obligation subjecting as security

immovable (real) properties or real rights over them in the event the principal obligation is not fulfilled at the time stipulated.

Mortgage Trust Indenture

A type of mortgage given to a trustee for the purpose of

securing numerous creditors

Chattel Mortgage

Similar to REM except that the subject is chattel or personal

property

Assignment of Receivables

bilateral contract whereby one person transmits to another his rights, title, interests and actions against a third person either by way of payment or as a security.

Joint and Several Signatures (JSS)/Comprehensive Surety Agreement

Binds the key officers and management solidarily or severally with the principal borrower making them liable in case of default/non-payment due to misappropriation, fraud, mismanagement,

collateral or security documents

executed to accompany loan agreements.

These are, in effect, accessory contracts that cannot exist or stand along without the principal lending documents

release or availment

should be in accordance with the approved terms and conditions

and subject to completion of all necessary and appropriate legal documents

Conditions to meet prior the release or availment

• ALL pre-release reqs and conditions have been complied with and there’s been proper legal documentation, including the registration of mortgage documents with appropriate registrars

• credit line has not expired or exceeded

• borrower has no past due availment

• amount to be release do not exceed the approved credit limit or follows the approved schedule of releases

• all availment documents have been signed by borrower, account officer as witness, and other documents duly authenticated

• all PNs with Deed of Assignment should be accomplished and executed by the borrower, signed by account officer as witness

• releases should pass through different authorized signatories. NO ONE person or division can singularly approve a release

• may be made in lump sum or partial release

all original documents

that are related to each availment must be reviewed and maintained

any exceptions, deviations or deferrals from the standard terms and conditions should be subject to approval

cancellation of mortgages and release of collateral

they are allowed, however you first have to pay full payment for the loan, including other attendant obligations like insurance, real estate taxes, etc

note: Release of mortgages, guarantees, and other documents after the full payment of the loan should be consistent with the provisions

account monitoring and credit administration

the proper provision of credit support, control systems, and other practices that are necessary in managing outstanding risk assets.

a good indicator of a good ___ is timely repayment of obligation by a client

ALL outstanding credit obligations

should be closely monitored to ensure prompt payment at the prescribed due date of the loan, interest and other changes or expenses associated with the transaxtion

past due obligations

these should be promptly handled. remedial action must be promptly done, to keep the account in current status

all credit facilities

these must be periodically monitored, to ensure compliance with key covenants, repayment schedule, and other terms and conditions governing the facility. client calls should be conducted

client calls

conducted to get all information that are necessary in properly evaluating the status of the client, which should be captured in the call reports

industry and market developments

should be regularly monitored and the impact of any development in the industry on the credit account should be evaluated.

what to do when industry development signals a potential problem

a client call to discuss the issue with the borrower should be conducted as soon as possible.

borrowers with outstanding credit facilities or availments

should submit the documents required on a periodic basis, as stipulated in the loan agreement

major areas of account monitoring

1. compliance to terms and conditions

2. collection of loan amortization

compliance to terms and conditions

Availments under the approved credit facilities should conform to the _______ stipulated in the approved credit proposal.

prompt payment of accounts

All outstanding loans must be monitored closely to ensure prompt payment at maturity of the amortization and any other charges or expenses associated with the transaction

collection of past due obligations

should be properly handled. Remedial actions should be promptly instituted to keep the account in current status

Compliance to Key Covenants

Loans must be monitored periodically to ensure compliance with __, repayment schedule, and other terms and conditions governing the loan

Periodic Submission of Requirements

Borrowers with outstanding credit facilities should submit the documents that are required on a __ basis as stipulated in the loan agreement.

Monitoring of Industry Situation

Industry and market developments should be regularly monitored and the impact of any development in the industry on the loan account be evaluated. If the industry development signals a potential problem, a client call to discuss the issue with the borrower should be conducted as soon as possible.

Appraisal/Inspection of Collateral

Periodic inspection and appraisal of supporting this must be done to validate the conditions/existence and adequacy of collateral vis-à-vis the outstanding risk

credit files

refer to all the documents that are related to the account.

These shall include, but not limited to, records of past experience with the client, the financial statement furnished by the borrower, the credit proposal, financial projections, business background information, CIR, appraisal report, inspection report, business registration and other permits, real estate tax receipts.

credit file

must be set up and maintained for each borrower for the immediate reference and guide

all photocopied documents submitted

should be stamped “certified true copy” upon presentation of the original copy and authenticated by the account officer

photocopied documents including amendments sourced from govt agency/s or office/s

must be authenticated by the authorized officer from the source government agency/s or office/s

credit file

provides credit officers a convenient reference about the basic information on the subject, and a history of the credit relationship with the borrower

credit folders

must be treated as confidential and only authorized personnel may have access to these files

documents in the credit folders

must be reviewed and maintained in good order