CC W10 PPT

Loan Packaging and Approval

Negotiation

• process of developing a customer need’s analysis and structuring the product for the customer

• involves discussions between the borrower and lender to agree on the terms of a loan

Importance

crucial part of the loan process, allowing borrowers to actively participate in shaping the terms of their loans and achieving favorable outcomes

Benefit

can lead to a loan package that is more tailored to the borrower's needs and financial situation

Maturity

length of the agreement upon its inception

Tenor

remaining time left until a financial instrument matures or is repaid

While tenor changes as time passes

maturity remains constant

Example of Maturity & Tenor

if a 2-year loan was obtained 2 years ago and a year is gone, the maturity would be 2 years while tenor is one year

Loan Covenants

• series of small, independent agreements made between a debtor and a creditor

• expressly outline behaviors that a borrower must or must not engage in

6 Types of Loan Covenants

1. Standard

2. Non-standard

3. Affirmative

4. Negative

5. Financial

6. Non-financial

Standard

generally outlined in a boilerplate template

Non-standard

designed based on particular characteristics or risks related to a credit request of a borrower

Affirmative

outlines what a borrower must do

Negative

stipulates actions that the borrower must not do

Financial

explicitly related to a borrowers’ financial metrics

Non-financial

expected behaviors that are not specific to the borrower’s financial measures

Loan Packaging

presentation of the credit facilities that will be granted to a client

Loan Packaging Presentation

1. terms and condition must be flexible

2. should be the account denied, a denied/disapproval notice shall likewise be sent

3. structure of credit package including the terms and conditions must be clearly stated

4. fund matching principle must be observed

5. every credit extension is supported by the required approval which are properly documented

6. client should be informed of the approval of his application

7. repayment mode and tenor must be based on the purpose of credit being applied for

8. deviations from the standard terms and conditions highlighted and justified in the proposal

Documents/Report in Credit Proposal

1. Executive Summary

2. Credit Proposal

3. Basic Business Information

4. Credit Investigation Report

5. Appraisal Report

6. Types and Valuation of Collaterals

Executive Summary

contains the highlights of the proposal

1. information on the client

2. project description

3. amount

4. major terms and conditions

5. recommendations

Credit Proposal

detailed information on the

1. applicant

2. project

3. results of evaluation

4. financial performance - historical and projected

5. results of credit investigation

Basic Business Information

brief background on the

1. applicant

2. project

3. products and services

4. market and affiliates

1st MR

• lender must have in place written guidelines on the credit approval process and the approval authorities of individuals or committees as well as the basis of those decisions

• approval authorities will cover new credit proposals, renewals of existing credits and changes in terms and conditions of previously approved credit particularly credit restructuring

2nd MR

• prudent credit practice requires that persons empowered with the credit approval authority should not also have the customer relationship responsibility

• depending on the nature and size of credit, it would be prudent to require approval of 2 officers on a credit application in accordance with the policy

3rd MR

• approval process should be based on a system of checks and balances

• all credit approvals should be based on established criteria

• credits to related parties should be closely analyzed and monitored so that no senior individual in the organization is able to override the established credit granting process

• related party transactions should be reviewed under due processes of good governance

4th MR

• officer’s initials or signature is uniquely his own, it’s his password and therefore care must be taken in its use

• initials/signature should never be placed on the credit transaction medium unless completely satisfied with all aspects of the transaction

• responsibility of having an approving authority carries with it the duty to effectively manage the portfolio being supervised