Credit and

Collection

2019-2020
 CREDIT AND COLLECTION
UNIT 3: CREDIT MANAGEMENT

• Concepts and Objectives

• Processes
• Who may apply for a loan or credit line?
• Types of Borrowers
• Basic Considerations in Bank Lending
• Origination of the Transaction
• Documentary Requirements
• Credit Bank Authorities

2
 UNIT 3: CREDIT MANAGEMENT
CONCEPTS AND OBJECTIVES

• Steps:
1. Formulation of Credit Policy

2. Credit Initiation

3. Credit Evaluation and Risk Assessment

4. Credit Monitoring and Controls

• Goals:
1. Assess and manage credit risk

2. Achieve target cashflows

3
 UNIT 3: CREDIT MANAGEMENT
PROCESSES

• Credit processing/appraisal (value of credit to be granted)

• Credit approval/sanction (approve/disapprove)

• Credit documentation (contract and purpose)

• Credit administration

• Disbursement (release of loans)

• Monitoring and control of individual results

• Monitoring overall credit portfolio

• Credit classification (segregation)

• Managing problem credits/recovery

4
 UNIT 3: CREDIT MANAGEMENT
WHO MAY APPLY?

• Individuals/institutions seeking to finance its:

a. Working capital requirements (maintain)

b. Expansion projects (growth)

c. Leasehold improvements

d. Acquisition of capital assets

5
 UNIT 3: CREDIT MANAGEMENT
TYPES OF BORROWERS

• Individuals or Entrepreneurs with small businesses (SME’s)

• Business Organizations registered with the SEC (Partnership and Corporation)

6
 UNIT 3: CREDIT MANAGEMENT
BASIC CONSIDERATIONS

• In loan processing, banks usually consider the following:

a. A company that has been operating profitably for the last 3 years (track record)

b. Religious sector, charitable institutions, and educational institutions (dealt with

caution)

c. Lawyers, men in uniform, and politicians (PEP – politically exposed persons)

d. Real estate sector (real estate bubble)

e. Borrowers with connection to high ranking members of the bank (character

loans)

7
 UNIT 3: CREDIT MANAGEMENT
ORIGINATION OF TRANSACTION

• Thru the initiative of the borrower (loan application)

• Thru the initiative of the lender (aggressive marketing)

8
 UNIT 3: CREDIT MANAGEMENT
DOCUMENTARY REQUIREMENTS

• Company profile (if commercial)

a. Background/introduction
b. Purpose of the loan (should be explained)
c. Ownership structure/Percentage distribution
d. Management team/Board of Directors and Executive Officers
e. Affiliates and other related companies
f. Company Business Operations

• Security or Collateral
a. Highlights of the properties/fixed assets
b. For a real estate property (location, size, improvements, different valuations)
c. For a chattel or personal property (description, certificate of registration, official
receipts, others)

9
 UNIT 3: CREDIT MANAGEMENT
DOCUMENTARY REQUIREMENTS

• Financials (at least 2 years)

a. Highlights of the financials
b. Vertical/horizontal analysis
c. Ratios and percentages
 Profitability
 Activity/Asset Efficiency
 Liquidity
 Solvency
 Highlights of Financial Projections
 Overall Analysis

• Future growth/Business Prospects

• Annexes/Attachments (supporting documents)

10
 UNIT 3: CREDIT MANAGEMENT
CREDIT BANK AUTHORITIES :MARKETING DIVISION

1. Marketing Division
 Offer various products and services of the bank to prospective clients

 Duties and Responsibilities:

a. Solicit accounts (new accounts)
b. Probe (gathering information)
c. Package the Loan (need fit application – bundling products and services)
d. Recommend the account (endorse)
e. Close the transaction (documentation to release)
f. Service and monitor the account (collection and repayment)
g. Cross selling
h. Repeat business
i. Conduct remedial or Default Management

11
 UNIT 3: CREDIT MANAGEMENT
CREDIT BANK AUTHORITIES:MARKETING DIVISION

 Credit Criteria
a. Business track record (vs. peers)
b. Key financial indicators
c. Target obligor risk grade (rating)
d. Terms and conditions

 Credit Limit (based on the credit strength)

 Credit Granting
a. Credit assessment
b. Structuring of credit transactions
c. Approval by management
d. Completion of legal documentation
e. Disbursement

 Credit Review (credit verification)

12
 UNIT 3: CREDIT MANAGEMENT
CREDIT BANK AUTHORITIES:CREDIT DEPARTMENT

2. Credit Department
 Functions:
a. Collection/acquisition of information
b. Preparation and analysis of information
c. Monitoring of account (terms and conditions)
d. Maintenance of credit records (for future use)
 Credit Investigation Report (background check/verification)
Corporation:
a. Lead bank/creditor banks
b. Key officers/stockholders of the company
c. Affiliated companies
Individual:
a. Capacity and capital of the client
b. Client’s identity
Both:
a. Credit dealings/past experiences
b. Credit investigation report
c. interview

13