General questions concerning knowledge of the credit culture and formal credit

documents:

i. Apart from the credit policy, what other formal document(s) related to credit and credit
risk management has the bank published?
Usually all banks published a credit policy so as to have a proper approach to make the
systems and controls effective for management of credit, market and operational risks.
Apart from the Credit risk policy the bank should follow the BOM guidelines.

ii. What is your opinion of the current credit policy? How effective is it with regards to
credit risk management/
 The credit risk policy is an important document which sets up guidelines for
everyone working at the bank to follow. The policy establishes a commonality of
approach regarding the credit basics, appraisal skills, documentation standards and
awareness of institutional concerns and strategies while leaving enough room for
flexibility and innovation. It recognizes the fundamentals obligation of knowing the
customers/ borrowers, their activity purpose of credit the security the return on
exposure and the source of repayment before making any commitment. It aims at an
on going review of security, monitoring of the overall composition and quality of
credit portfolio, recovery of loans including NPA’S.

 The policy also defines the roles and responsibilities of various levels of authority.

 It also provides s flexibility in the setting out of optimum exposures levels to

different sectors in order to ensure growth of assets in an orderly manner and to
control concentration risk.

iii. Do you think that the credit policy gives a true picture of how the credit organization and
credit culture is? Should there be any update?
The credit policy is only a guideline and keeps on evolving and it should be reviewed once
in a year so as to update or amend the policy accordingly.

1. What are the processes and techniques that Maubank can apply to minimize credit
risk at its inception itself? Please answer the questions which follow.

i. Please describe the process currently in place with regards to the credit analysis and the
decision making process prior to a facility being extended
  The Relationship manager gives the application and all the related documents to the
credit analyst. Important documents like MCIB and mortgage search is duly
scrutinized as a first step. If the borrower has arrears or seizures on its assets we
need to ask for explanation and eventually may decline the application.
 Then we have also in place RAM (risk assessment model) adopted by the bank for
commercial /retail advances where the risk level is measured for the borrowers.
The rating level reflects the risk involved in the facility /borrower and would be an
evaluation of the borrower’s intrinsic strength. The rating requires to be reviewed
periodically whenever the renewal/enhancement/reduction in credit facilities are
undertaken. The RAM models take into account the various risks categorized
broadly into financial, business, industrial and management risks.
 Credit Risk Measurement: The objective of credit portfolio is to achieve a well-
diversified portfolio across dimensions such as companies, group companies,
industries collateral type etc.

ii. Are the procedures and guidelines outlines in the credit policy strictly adhered to? What
about the BOM guidelines?
Even though we should adhre to the bank credit policy guidelines , we should also follow the
BOM guidelines our local regulatory

BOM guidelines which we need to follow includes the following :

 Guidelines on credit risk management.
 Guidelines on related party transactions
 Guidelines on credit concentration limits
 Guidelines on credit impairment measurement and income
 Guidelines on corporate governance
 Guidelines on country risk management
 The borrower protection act.
iii. Is there any categorization of clients and what are the characteristics of the categories?

iv. Please elaborate of Maubank’s internal credit rating(RAM) and how is it applied in credit
appraisal.
The RAM models take into account the various risks categorized broadly into
financial,business, industrial and management risks. Th credit risk rating will be worked
out as soons as the audited balances sheet of the company is received.The rating requires
to be reviewed periodally whenever the renewal/enhancement/reduction in credit facilities
are undertaken.
 v. What weight does it carry in the eyes of the sanctioning authority relative to the
comments of the credit manager?
The ratings is very important in the assessment so as to understand the risk profile of the
customer. However this is not the only factor. We need to assess the financial, the borrower
profile, security aspect etc before we can take a decision. Usually the higher the risk the higher
the price.

vi. Is any consideration given as to how effectively can the potential borrower and the usage
of its facilities be monitored prior to even granting the request?
Close follow up and monitoring should be made to customers which have a bad rating

2. How can the bank oversee and manage the credit risk during the life cycle of the
credit facility? Please answer the questions which follow.

i. How does the Bank monitor borrowers during the life cycle of the credit?
 Review all accounts(loans) once a year and same should be reported to teh
sanctioning authorityannually
 Periodical financial sattemnts should be obtained and carefully scrutinized.
 Reporting of irregularity. Every day excess/arrears report should de retrived and
examined and any excesses should be follow up and report accordingly.
 List of NPA accounst and review of NA position.

ii. If signs of weaknesses are spotted, what is usually done to remediate the situation?
Raise up a questionnaire and borrower is watch listed and need be report to sanctioning authority
and downgrade the borrower to NPA

iii. Do the officers actively look for trigger signs?

iv. Are there any specific processes detailed in the credit policy or any other formal credit
document with regards to monitoring and control?
yes

v. Are there any controls in place to ensure that proper monitoring is in progress?
Yes
 vi. Has there been instances when monitoring has been neglected for one reason or another?

vii. After gathering the information of the performance of the loan, how is the information
communicated to the relevant parties?
If need be reminder letter or letter for repayment plan should be send to customer.

viii. What information specifically is communicated? ( only the risks or the risk management
as well)

3. What are the methods available to mitigate the credit risk of non-performing loans
and impaired credits? Please answer the questions which follow.

i. Which department is in charge of dealing with non-performing loans?

SAM

ii. What policies/procedures are there in place to incentivize the borrowers to repay?
Need to meet the customer and find out what are the problems. Usually customer will pay
when their residential property is at risk. They may come with repayment plan or ask for
a restructure of their loan.

iii. Are there any other subdivisions for non-performing loans? If so how are they
subdivided?

iv. Please elaborate on the process of carving out of accounts. Do you think this is a credit
management technique? If so, why? If not, how would you categorize it?

v. In your opinion, what types of customers are the most likely to default on their
obligations.
There are various reasons why a customer can default and one cannot be sure that a customer is
risk free. All customers are good customers except when their business is affected either wrong
business model, wrong partners in business etc. The reasons are various but it also includes the
sectors where they are evolving which may have an impact on their business.

vi. Is there any profiling based on past data? A feedback loop?

vii. What type of approach would you say Maubank has in place with respect to Non-
performing loans; Is the focus on reducing the occurrences of Non-performing loans or is
the focus on turning the Non performing loans into performing ones?
The approach is to identify loans which may become non performing loans and may close
follow up. The focus is on both reducing the occurrences of Non-performing loans and also
sometimes turning the Non performing loans into performing ones

4. What would you recommend to improve the credit risk management currently in
place at Maubank?