1.Lending Products
a. Categories of borrowers i. Corporate Borrowers
• Type of products
o Short-term Lending- Working Capital Financing
Running Finance- Advanced Merchandise/Demand Finance Receivable Financing- Factoring, Invoice Discounting
Inventory Financing Trade Finance (L/c)
o Long-term Lending Term Loan
Trade Finance (L/c)
• Purpose of borrowing
o Working capital- financing of business cycle-receivables, inventory
o New ventures and business expansion
• Classification
o Secured, unsecured/clean, asset-backed
o Funded and non-funded facilities/direct and contingent
o Size-Corporate, Commercial, SME ii. Individuals/Consumers
• Type of products
o Overdrafts, loans, revolving credit
o Credit Cards
o Leasing
o Mortgage
• Purpose of borrowing
o Personal use- running finance
o Property
o Automobile
• Classification
o Secured, unsecured/clean, asset-backed
b. Regulations and Practices
• Relevant SBP laws for lending including: lending limits, exposure calculation, disclosure and reporting requirements
• Prevalent market practices and bank policies with respect to lending products
c. Pricing
i. Calculation of pool rates and internal cost of funds
ii. Structuring floating mark-up rates and their impact during change of interest rates
iii. The basis for floating mark-up rates using:
• Karachi Inter-bank Offer Rates (KIBOR),
• SBP Discount Rate and
• PIB Rates matching the facility tenor
iv. Bank’s spread over cost of deposits relating to customer and transaction risks
v. Methods and frequency of mark-up recovery and their impact on income recognition
2. Lending Risk Assessment and Management
a. Overview
• Fundamental concept of Risk Management
• Risk and the economic environment
• Corporate governance and organizational structure
• External reporting
b. Sources of lending risk
• Obligor Risk
• Obligor Business and industry risk – cycles, price trends of raw materials, price trends of competition products
• Transaction failure risk
• Other risks – political, economic, market, liquidity, foreign exchange, interest rate risk
c. Risk Assessment
• Financial analysis
• Market check
• Market research
• Compliance with regulation requirement
• Customer Integrity and capability
d. Risk Management
• Credit Policy
• Delinquency portfolio – trends and control measures
• Collection and Recovery – strategies and methods
e. Types of collateral
• Stated and implied lien over customer’s assets
• Hypothecation
• Assignment of receivables
• Pledge of paper securities
• Pledge of goods
• Mortgage of immovable assets
3. Documentation and Collateral
a. Different types of financing agreements
• Project financing
• Account receivable financing
• Lease financing
b. Types of collateral documentation
• Hypothecation agreement
• Lien agreement
• Pledge agreement
• Standby letter of credit
c. Safe-keeping of borrower/customer documentation
• In-house arrangements and its modus operandi
• Ex-house arrangements and its modus operandi
• Arrangements for storage of documents and the system for recording
• Procedures to be followed for depositing and retrieving documents
d. Bank’s risk under various types of collateral
e. Monitoring of charge/margin
• Appointment and role of Muccudums
• Obligations of the custodial services under the arrangement
• Monitoring Guarantees- issuer’s status, guarantee validity, conditions for claims
• Monitoring of Insurance Policies- issuer’s status, policy validity, conditions for claims
• Monitoring of Immovable Assets
• Monitoring of stock reports and valuation
• Proper system and credible sources for monitoring prices of financed assets and collateral
4. Management of Credit
a. Facility account monitoring
• Frequency of peak/low facility utilization, swing in account balances
• Frequency of irregularities in facility accounts
• Difficulties in operating within present limits
• Meeting facility turnover requirement and quantum of business booked
b. Facility monitoring systems
• Significance and use of reports on activity in facility account
• Due date diaries for retrieval of due amounts or settlement of facilities
5. Past Due Accounts
a. Classification
• Basis for classification/classification triggers
• Action steps based on classification level
b. Past-due account management
• Activating remedial action
• Customer contact modes depending on severity of failure in meeting commitments
• Determining net exposure and status of financed assets and collateral
• Reporting defaults for in-house remedial action i.e. fulfillment of any inter-bank commitments that cannot be met any longer from borrower’s repayment
c. Rescheduling and restructuring of borrower accounts
d. Loan loss provisioning
