Credit approval system
Preparation of quality credit proposal helps to mitigate credit risk in aid of certain guidelines of Bangladesh Bank. ABBL follows the strategy of risk diversification through syndicated financing wherever applicable. A detailed analysis of the borrower and relevant industry is conducted through Credit Risk Grading model to mitigate risk factors. Credit Committee of the Bank works on a basic platform for credit evaluation and approval up to certain limit beyond which proposals are placed in the Board.
The authority to sanction/approve loans must be clearly delegated to senior credit executives by the Managing Director/CEO & Board based on the executive’s knowledge and experience. Approval authority should be delegated to individual executives and not to committees to ensure accountability in the approval process. The following guidelines should apply in the approval/sanctioning of loans:
Credit approval authority must be delegated in writing from the MD/CEO & Board (as appropriate), acknowledged by recipients, and records of all delegation retained in CRM. Delegated approval authorities must be reviewed annually by MD/CEO/Board. The credit approval function should be separate from the marketing/relationship management (RM) function. The role of Credit Committee may be restricted to only review of proposals i.e. recommendations or review of bank’s loan portfolios.
Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications.
All credit risks must be authorized by executives within the authority limit delegated to them by the MD/CEO. The “pooling” or combining of authority limits should not be permitted.
MD/Head of Credit Risk Management must approve and monitor any cross border exposure risk. Any breaches of lending authority should be reported to MD/CEO, Head of Internal Control, and Head of CRM. It is essential that executives charged with approving loans have the relevant training and experience to carry out their responsibilities effectively. As a minimum, approving executives should have:
- At least 5 years experience working in corporate/commercial banking as a relationship manager or account executive.
- Training and experience in financial statement, cash flow and risk analysis.
- A thorough working knowledge of Accounting.
- A good understanding of the local industry/market dynamics.
The approval process must reinforce the segregation of Relationship Management/ Marketing from the approving authority. The responsibility for preparing the Credit Application should rest with the RM within the corporate/commercial banking department. Credit Applications should be recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives. Banks may wish to establish various thresholds, above which, the recommendation of the Head of Corporate/Commercial Banking is required prior to onward recommendation to CRM for approval.
In addition, banks may wish to establish regional credit centers within the approval team to handle routine approvals. Executives in head office CRM should approve all large loans. The recommending or approving executives should take responsibility for and be held accountable for their recommendations or approval. Delegation of approval limits should be such that all proposals where the facilities are up to 15% of the bank’s capital should be approved at the CRM level, facilities up to 25% of capital should be approved by CEO/MD, with proposals in excess of 25% of capital to be approved by the EC/Board only after recommendation of CRM, Corporate Banking and MD/CEO.
- Application forwarded to Zonal Office for approved/decline
- Advise the decision as per delegated authority (approved /decline) to recommending branches. A monthly summary of ZCO approvals should be sent to HOC and HOCB to report the previous month’s approvals sanctioned at the Zonal Offices. The HOC should review 10% of ZCO approvals to ensure adherence to Lending Guidelines and Bank policies.
- ZCO supports & forwarded to Head of Corporate Banking (HOCB) or delegate for endorsement, and Head of Credit (HOC) for approval or onward recommendation.
- HOC advises the decision as per delegated authority to ZCO
- HOC & HOCB supports & forwarded to Managing Director
- Managing Director advises the decision as per delegated authority to HOC & HOCB.
- Managing Director presents the proposal to EC/Board
- EC/Board advises the decision to HOC & HOCB Regardless of the delegated authority HOC to advise the decision (approval/decline) to marketing department through ZCO