Loan Packaging and Approval

In structuring the terms and conditions of a credit transaction, the following should be considered.

  • Fund matching should be considered

    • Short-term facilities shall be proposed for short-term credit requirements

    • Term facilities should be considered for medium or long-term credit requirements.

  • Terms and conditions should be flexible and responsible to the specific situation of the client, the changes in the particular industry/sector of the client, the changing economic environment, and the market trends in the financing industry.

  • Common sense and good judgment are a must in structuring a credit package.

    • Credit decisions cannot be based entirely on a static set of credit guidelines or analytical techniques.

    • A proactive stance is a must.

  • The structure of a credit package, including terms and conditions should be clearly stated.

  • The repayment mode and tenor shall be structured based on the purpose of the credit being applied for.

  • All the deviations from the standard terms and conditions shall be highlighted and justified in the proposal.

  • Every proposal shall have the following documents:

    • Credit Proposal Executive Summary - CPES

      • 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 - CP

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

    • Basic Business Information - BBI

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

    • Credit Investigation Report - CIR

      • contains the result of the credit investigation conducted.

    • Appraisal Report - AR

      • covers the result of the appraisal conducted on the collaterals offered.

    • Types and valuation of collaterals - TAVOC

  • Ensure that every credit extension is supported by the required approvals that shall be properly documented.

  • The client should be informed of the approval of his application.

    • the advice shall clearly state the type of facility, amount approved, basic terms and conditions, and other pre-release conditions.

  • Should the account be denied, a denial/disapproval notice shall likewise be sent.

Credit Documentation, Availments, and Disbursements

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

  • Account officers should serve as 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 should be maintained and updated.

  • Standard loan and collateral documents should be used as evidence of indebtedness or to provide support to credit extensions.

Credit Documentation

3 Principal Documents:

  • Loan Agreement (LA) - 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 types 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.

  • Discounting Agreement (DA) - Core document covering the terms and conditions whereby the proceeds of the credit facility are to be used for financing receivables.

  • Restructuring Agreement (RA) - This is used to document new terms and conditions affecting loan transactions in instances where the borrower fails to meet his maturing obligations and/or by way of payment arrangement.

2 Availment Documents:

  • Promissory Notes (PN) - An unconditional promise in writing made in 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 (DS) - A document disclosing to the client the details of the loans to be released.

5 Collateral/ Security Documents:

  • are executed to accompany loan agreements.

  • these are accessory contracts that cannot exist or stand along without the principal lending documents.

  • Real Estate Mortgage (REM) - 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.

  • Mortgage Trust Indenture (MTI) - a type of mortgage given to a trustee for the purpose of securing numerous creditors.

  • Chattel Mortgage (CM) - similar to REM except that the subject is chattel or personal property.

  • Assignment of Receivables (AOR) - a 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) - Binds the key officers and management solidarity or severally with the principal borrower making them liable in case of default/non-repayment due to misappropriation, fraud, mismanagement, etc.

MANNER OF AVAILMENT

  • Availment or Release - should be in accordance with the approved terms and conditions and subject to completion of all necessary and appropriate legal documents.

  • Prior to the release or availment, the following conditions should be met:

    • All pre-release requirements and conditions have been compiled

      • proper legal documentation has been completed including the registration of mortgage documents with appropriate registrars.

    • The credit line has not expired or has not been exceeded.

    • Borrower has no past due availment.

    • Amount to be released will not exceed the approved credit limit or in accordance with the approved schedule of releases.

    • All availment documents have been signed by the borrower and signed by the account officer as witness and other documents duly authenticated.

    • All PNs with Deed of Agreement should be accomplished and execute by the borrower and signed by the account officer as witness.

  • Release should pass through different authorized signatories.

    • No one person or division can singularly approve or effect a release.

  • Releases may be made in the following manner:

    • One time or lump sum release

    • Partial release

RECEIPT AND MAINTENANCE OF CREDIT DOCUMENTS

  • All documents related to each availment should be reviewed and maintained.

  • Exceptions, deviations or deferrals from standard terms and conditions should be subject to approval.

RELEASE OF COLLATERALS AND PREPARATION OF DOCUMENTS RELATED THERETO

  • Cancellation of mortgages and release of collateral are allowed upon full payment of the loan, including other attendant obligation such as insurance, real estate taxes and etc.

  • Release of mortgage, guarantees, and other documents after the full payment of the loan should be consistent with the provisions.

ACCOUNT MONITORING AND CREDIT ADMINISTRATION

ACCOUNT MONITORING AND CREDIT ADMINISTRATION refers to the 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 or good credit administration.

  • 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 transactions.

  • Past due obligations should be promptly handled.

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

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

    • 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.

  • Industry and market developments should be regularly monitored.

    • the impact of any development in the industry on the credit account should 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.

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

Major Areas of Account Monitoring

  • Compliance to Terms and Conditions - Availments under the approved credit facilities should conform to the terms and conditions stipulated in the approved credit proposal.

  • Collection of Loan Amortization:

    • Prompt Payment of Accounts - 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 transactions.

    • Collection of Past Due Obligations - past due obligations for collection should be properly handled. Remedial actions should be promptly instituted to keep the account in current status.

    • Compliance with Key Covenants - Loans must be monitored periodically to ensure compliance with key covenants, 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 period 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 collaterals must be done to validate the conditions/existence and adequacy of collateral vis-a-vis the outstanding risk.

Credit File Maintenance

Credit Files - refers to all 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.

  • A credit folder must be set up and maintained for each borrower for the immediate reference and guide.

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

  • Photocopied documents 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.

  • The 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 folder must be treated as confidential and only authorized personnel may have access to these files.

  • The documents in the credit folders must be reviewed and maintained in good order.