CAD

Instances where the bank did not ensure that loans were utilized for the stated purpose. In violation of BPD circular no. 14 of 2006
& PR R-5 for Corporate & Commercial Banking.

CSME
Instances where the bank did not obtain copy of an audited financial statements relating to the business of the borrower for
analysis and record. In violation of PR R-3 for Corporate & Commercial Banking

Instances noted where gross nature irregularities were observed in receivable statements provided by the customers. It was
noted that incorrect receivable details were provided by the customers on number of occasions as details mentioned in
receivable statements were mismatched with details mentioned in customer's Audited financial statements. In few cases
monthly receivable statements were also not found on record. Ref Annexure-B5 for detail.

Instances where discrepancies in ‘Obligors Risk Rating Score Card’ prepared by RMs were observed. It was also noted
that company performance was shown as increasing whereas, in actual same was declining. Ref Annexure-B6 for detail.

Due Weightage Not Given To Cash Flow Statements

Cash Flow Statements is an integral part of the accounts held in record. SBP has also emphasized upon review of cash
flows especially in case of small & medium enterprises. However, it was observed that detailed analysis of cash flow was
not being made in SCM nor did aspect of generation of cash flow from operations, financing and investing activities was
considered in analysis made by RM’s. Expected future cash flows of borrower were also not given due consideration.

2.1.3 Quarterly Reviews of Accounts Not in Practice

In terms of Credit Policy (para 23.11), it is the responsibility of the Business Units to review, on periodic basis, each of the
accounts within their portfolios in order to assess financial and business health of the borrower, debt servicing position,
status of exceptions and other outstanding issues, if any, sector / industry review, performance and recommendation
dealing with the account going forward. These periodic review reports were required to be submitted to Credit Division.
However, no such record was being maintained with RM’s.

Additionally, RMD is also required to issue from time to time and at least on quarterly basis review and other material
information on sectors in which the Bank has 5% or more of the total loan and advances exposure (funded and non-
funded). No such record was available with CAD.

2.1.5 Relationship Managers (RMs) Efforts Regarding Monthly Exceptions Report (MER)

Relationship Managers were not in practice of making serious efforts for resolution of exceptions pending in Monthly
Exception Report (MER) pertaining to them and various exceptions were not resolved despite lapse of considerable time.

RMs should review MER on regular interval for its correct updation and make up serious efforts for resolutions of
exceptions pending in MER.

2.1.6 Risk Rating Scorecard Not in Line with Credit Procedural Manual

Risk Rating Score Card (ORR Sheet) that is mandatory as per SBP guidelines, though prepared by RMs but
indicators/factors & score used for evaluation were found different from factors given in Credit Procedural Manual (Page
37 section J).
Factors such as Revenue/Sales Turnover, Cash Conversion Cycle, Current Ration, Net Profit Margin etc were found in
prepared ORR Sheet whereas no such factors were explained in Credit Procedural Manual.

Different aggregate score for rating scale was being used by Relationship Managers (RMs). Some were assigning Rating
Scale of ‘1’ in case of aggregate score of ‘90 & above’ whereas others were allocating Rating Scale of ‘1’ in case of aggregate
score of ‘160 & above’.

03. Limitations in hPLUS

Following limitations were observed in hPLUS system related to Credit functions:

a. Securities lien against third party account not reflected in the main loan account because of which it was difficult to
ascertain the nature and amount kept as securities.
b. Borrower’s total exposure in different branches cannot be identified due to which total exposure given by the bank
against any single borrower cannot be ascertained.

04. Incorrect Classification Status in MIS Reports

System generated fund based report available in MIS portal was not showing correct status of classification as many
customers classified as loss were not found marked as FAP Account / Loss in MIS report.