CC W11-W12 PPT

Loan Documentation and Disbursement

Documentation

• establishes the relationship between the lender and the borrower and forms the basis for any legal action on a court of law

• essential part of the credit process and is required for each phase of the credit cycle, including credit application, credit analysis, credit approval, credit monitoring, collateral evaluation, impairment recognition, foreclosure of impaired loan and realization of security.

Purpose

1. To set into a written form of the agreement between the lender and the borrower

2. To clearly define the respective rights and obligations of the parties

3. To provide the lender a clear course of action in the event of default

4. To serve as evidence in the event of litigation

Importance

1. Legal Protection

2. Risk Assessment

3. Transparency

4. Compliance

Lender should

ensure that contractual agreements with their borrowers are vetted by their legal advisers

Basic Principles in Documentation

There is no binding contract unless the parties have the legal capacity to enter the contract and have given their consent to be bound under the terms and conditions of the contract

5 MR

1. All necessary legal documents prior to the initial release/ restructuring or availment should be secured

2. Standard loan and collateral documents

   should be used as evidences of

   indebtedness or to provide support to

   credit extensions

3. Specimen signatures of all signatories 

   should be maintained and updated

4. Account officers should serve as witness

   to the signing of all legal documents and should verify the signatures of borrowers to ascertain authenticity

5. Names of all signatories should be printed

2 MR

1. lender must establish policies on information to be documented at each stage of the credit cycle

2. lender should maintain a checklist that can show that all their policies and procedures ranging from receiving applications to the disbursement of funds have been complied with

3. checklist should also include the identity of individuals and/or committees involved in the decision-making process

Credit Files

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

Format of Credit Files

must be standardized, and files neatly maintained with an appropriate system of cross indexing to facilitate review and follow up

Separate Credit File

should be maintained for each customer and if a subsidiary file is created, it should be properly cross-indexed to the main credit file

Photocopied Documents

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

• including the amendments thereto sourced from the government agency/s or office/s must be authenticated by the authorized officer from the source government agency/s or office/s

Credit Files

• should also be stored in fireproof cabinets and should not be removed from the lender’s premises

• 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

Loan Administration

• proper provision of credit support, control systems and other practices necessary to manage outstanding risk assets

• Timely repayment of obligation by a client is an indicator of good credit administration

1 LA

all outstanding credit obligations should be monitored closely to ensure prompt payment at the prescribed due date of the loan, interest and any other charges or expenses associated with the transaction

2 LA

• past due obligations should be promptly handled

• remedial action should be promptly instituted to keep the account in current status

3 LA

all credit facilities must be monitored periodically to ensure compliance with key covenants, repayment schedule, and other terms and conditions governing the facility

4 LA

• client calls should be conducted and results documented through call reports

• information necessary to properly evaluate the status of the client should be captured in the call reports

5 LA

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

6 LA

borrowers with outstanding credit facilities or availments should submit the documents that are required on a periodic basis, as stipulated in the loan agreement