Credit Approval Process

Pre and Post Approval functions

By

Saifuddin Ahmed
Vice President & Lead
Early Alert Team
Cell no. 01755630150; IP: 88162
Credit is the ability to borrow money or access goods
or services with the understanding that you'll pay
later.

The principal is “the original amount you borrowed” and

“have to pay back.”
• The Five C's credit appraisal model: character, capacity, capital,
conditions and collateral.

• The 7Cs credit appraisal model: character, capacity, collateral,

contribution, control, condition and common sense has elements
that comprehensively cover the entire areas that affect risk
assessment and credit evaluation.

• Four C's — capacity, capital, collateral and credit.

All loans and advances will be grouped into four (4) categories for the
purpose of classification, namely-

(a) Continuous Loan - The loan accounts in which transactions may

be made within certain limit and have an expiry date for full
adjustment. Examples are: Cash Credit, Overdraft, etc.
(b) Demand Loan - The loans that become repayable on demand by
the bank
(c) Fixed Term Loan and
(d) Short-term Agricultural & Micro-Credit - the short-term credits
issued by the Agricultural Credit and Financial Inclusion
Department (ACFID) of Bangladesh Bank.
Loans Vs Credit

While a loan provides all the money requested in one go at the time it
is issued, and

in the case of a credit, the bank provides the customer with an amount
of money, which can be used as required, using the entire amount
borrowed, part of it or none at all.

Advances are issued by banks to address short-term financial needs;

they are repaid within one year. While Loans are the source of long-
term financing
Credit Approval Process

Branch Manager’s Management Credit

Credit Application Recommended By Delegation Committee
Branch Manager/Relationship
Management/Corporate Banking/
Syndication Unit Head Office, Credit Risk Executive Committee of the
Management Division Board of Directors

The Board of Directors

Credit Approval Process
 Relationship Manager/Branch initiate the credit proposal. Branch Credit Officer recommends
and Branch Manager approves the credit facilities within his delegation authority, if any.

 In case of Credit facilities beyond manager’s delegation authority but within the
delegation of MCC (Management Credit Committee),RM in Branch will initiate the credit
proposal. Branch Credit Officer and Branch Manager will recommend the proposal and Head
Office MCC approves the Credit facilities.
• Renewal of Group facilities up to 50 cr.
• No fresh finance other than finance with 100% cash coverage
• Max EOL up to 1 quarter
• Max 10% overdue
• No mandatory documentation shortfall etc.

 In case of Credit facilities are beyond the delegation of MCC, RM in Branch will initiate the
credit proposal. Branch Credit Officer and Branch Manager will recommend the proposal and
send the same to Head Office for due approval. HO MCC recommends the proposal and the
EC (Executive Committee/ Board of Directors of the Bank approves the Credit facilities.
The credit approval steps are fairly straightforward regardless of the nature of
loans are as follows:

• Step 1: Gathering and Submitting Application & Required Documentations

(Pre – functions)

The first step in obtaining any loan is to complete an application and submit
the required documents. Required documents will vary based on the type of
loan, size and complexity of the operation requesting the loan. Typically, the
smaller the loan, the fewer documents are required.

The most common documents required from the applicants include: personal
financial statements, authorization to release credit, the last 2-3 years of
financial statements or tax returns, and copies of legal entity documents.
Major documents for pre assessing:

• Request Letter
• CIB Report
• Project/site visit report
• Inventory/stock report
• Legal Vetting
• Search report (Land/RJSC)
• Valuation Certificate
• Form XII
• Resolution (MOA & AOA)
• Regulatory Circulars
Step 2: Loan Underwriting (Evaluation and Analysis of Loan Application)
(Pre – functions)

Underwriting is the process by which the lender decides whether an

applicant is creditworthy and should receive a loan. An effective
underwriting and loan approval process is a key predecessor to favorable
portfolio quality, and a main task of the function is to avoid as many undue
risks as possible.

Items that will be considered when doing this evaluation will include credit
scores, repayment history (both direct and with other lenders), cash
reserves available, cash flow / earnings from employment or business
operation, amount of personal down payment being offered, overall
economic conditions, specific industry conditions and the collateral being
offered etc.
Credit Risk Assessment

• Financial Analysis (cash flow, liquidity, leverage, Debt service coverage etc.)

• Loan Repayment Trend Analysis

• Collaterals

• Debt Structuring

• Qualitative factors
• Management competence and integrity
• Industry and sector analysis
• Supplier/Buyer analysis
• Different risk factors i.e, market risk, technological risk, environment and social
risk etc.
Functions Related to Credit Approval Process and their Role
in Credit Recovery

Approval Process

Branch Manager’s Management Credit

Credit Application Recommended By Delegation Committee
Branch Manager/Relationship
Management/Corporate Banking/
Syndication Unit Head Office, Credit Risk Executive Committee of the
Management Division Board of Directors

The Board of Directors

Credit Approving Authority

 The Board of Director

• Any loan for the amount not exceeding the regulatory limit.
• Besides all proposals for waiver of interest, commission, charges etc. and
principal must be approved by the BoD.

 The Executive Committee of the Board

• EC shall exercise most of the job of the Board other than those specially
directed for the Board through the Bank Company Act and other laws, rules
and regulations and the following:
i. Large loans/loans and advances exceeding 5.00% of Bank Capital.
ii. Loans and Advances concerning any Director/ex-Director of the Bank.
iii. Any other specific cases that require approval from the BoD of the Bank.
Credit Approving Authority

 The Management Credit Committee

The EC of the Board of Directors delegates lending authority to the

Managing Director / MCC to facilitate smooth business operation and
early disposal of credit decision making.

• Managing Director and CEO

• Additional Managing Director
• Deputy Managing Director (CRM)
• Head of Corporate Banking Division
• Head of CRM

 Branch Manager
Step 3: Decision & Post documentation

Once a decision is made on the loan request, a response is provided to

the applicants as quickly as possible. If the loan was approved, the
terms and conditions of the approval are also communicated to the
applicant at this point.

If the terms and conditions are acceptable to both the applicant and
the lender, the next step is to order an appraisal, survey, title
mortgage/insurance, loan documents and any other required items.
Once those items are received, they are reviewed to ensure that they
meet the requirements of the loan approval. If everything is in order,
then closing is scheduled.
Major documents for post approval:

• Customer acceptance
• CIB Report
• Valid Charge documents
• Project/site report, if required
• Inventory/stock report, if required
• Legal Vetting
• Letter of Satisfaction and Letter of Compliance
• Search report (Land/RJSC)
• Valuation Certificate
• Deed of Mortgage
• Up to date ground rent payment receipts
• Insurance policy with money receipts
Thank you.