CREDIT RISK MANAGEMENT POLICY GUIDE & PORTFOLIO MANAGEMENT PLAN
Credit Risk Management Policy Guide & Portfolio Management Plan
1.0 Policy Approval Memorandum ……….…………………………......................... 5 1.1 Policy Approval signoff sheet….......….……………………………… 6 2.0 Introduction …………………………….……………………………................. 7 2.1 About the Policy Manual……….….………………………………….... 8 2.1.1 Purpose of the Policy Manual………………………………………….... 8 2.1.2 Who should Use This Manual?………………………………………...... 9 2.1.3 The Purpose of Risk Management Policies .…………………………... 9 2.1.4 Establishment of Risk Management Policies ...……………………….. 9 2.1.5 Guidelines for Changing and Approving Policy Changes ..........……. 10 3.0 Overview …………………………….……………………………........................... 12 3.1 The Bank Business and Risk………………………………............... 13 3.1.1 Access Bank’s Strategic Intent and Corporate Objectives ................ 13 3.2 The Bank Risk Management Philosophy….………………............. 15 3.2.2 Credit Risk Management Policies………………………….….............. 16 3.3 3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 3.3.6 3.3.7
Types of Risks ……………………………...…………………............. Credit Risks………………………………………………………............ Direct lending risks……............……………………………….............. Contingent lending risk ….……............………………………............. Issuer risk………...……………………............……………….............. Presettlement risk.....………………………….........……… .............. Settlement risk……...…………………………………......................... Clearing risk……...…………………………………….........................
22 22 22 22 22 22 23 23
3.4 3.4.1 3.4.2 3.4.3 3.4.4 3.4.5 3.4.6 3.4.7 3.4.8
Other Risks …………………………………………………….............. Equity risk………..…............………………………………….............. Price risk…...……..…………..........………………………….............. Liquidity risk………..………………............………………….............. Fiduciary risk………..………………………...........………….............. Disclosure risk………..……………………..………..........….............. Documentation risk………..…………………..……........................... Legal and regulatory risk…….…………………………..................... Country Risk...................................................................................
24 24 24 24 24 24 24 25 25
3.5 Access Bank’s Credit Process ……………………………...………. 26 3.5.1 Credit Risk Management Process……………………………………... 26 3.5.1.2 Risk Portfolio Planning………………………………………..... 26 3.5.1.3 Exposure Development and Creation…...………………….... 26 3.5.1.4 Exposure Management.………………………………………... 26 3.5.1.5 Delinquency Management/Loan Workout…...………………. 27 February 2008
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3.5.1.6 Credit Recovery…………………………………………………. 27 3.5.2 Approaches to Risk Creation and Management…………….............. 27 3.5.2.1 Credit Product Programs…………….…………………………. 27 3.5.2.2 Individual/Business Credits……...….………………………….. 28 4.0 Roles and Responsibilities ..…………….…………………………….......... 30 4.1 Roles and Responsibilities of Organizational Groups………..…. 31 4.1.1 Board of Directors (BOD) ……………………………………………..... 31 4.1.2 Board Credit Committee (BCC)……………………………………….... 31 4.1.3 Management Credit Committee (MCC) ……………………………..... 31 4.1.4 Criticized Assets Committee............................................................. 33 4.2 Roles and Responsibilities of Business Units…….………...…… 34 4.2.1 Roles and responsibilities of Risk Management Unit ……………….. 34 4.2.2 Roles and responsibilities of Customerfacing Business Units ……. 37 5.0 Risk Management Policies……………………….…………………..................... 39 5.1 Overall Corporate Policies…………………..…………………......... 40 5.1.1 Credit Policies ……………………………………………………........... 40 5.1.2 Rules Governing the Extension of Credit.......................................... 41 5.1.3 Credit Approval Authority Limits ………………………………............. 48 5.1.4 General Rules for Using Approval Authority..................................... 49 5.1.5 Lending Products and Services....................................................... 66 5.1.6 Pricing Structure............................................................................... 73 5.1.7 Credit Collateral Guidelines.............................................................. 74 5.1.7.3 Collalteral Acceptability........................................................ 74 5.1.8 Collateral Documentation/Perfection Requirements ….................... 78 5.1.9 General Restrictions on Collateral Acceptability .……..................... 79 5.1.10 Regulatory Considerations……………………………………….......... 80 5.2 Operational Policies…………………………...….………...…............ 82 5.2.1.1 Exposure Development and Creation ……………………… 82 5.2.1.2 Preliminary Credit Screening .…………………………........... 83 5.2.1.3 Credit Analysis……………....…………………………............. 83 5.2.1.4 Credit Risk Evaluation….. .…………………………............ 83 5.2.1.5 Facility Renewals ................................................................ 85 5.2.1.6 Credit Risk Ratings………….…….…………………............ 85 5.2.1.7 Credit Approval..…………....…………………………………... 85 5.2.1.8 Credit Offer and Acceptance..……………………………….... 86 5.2.1.9 Credit Documentation……....………………………………….. 86 5.2.1.10 Credit Availment…………....…………………………………... 87 5.2.2 Exposure Management………………………………………………..... 88 5.2.2.4 Facility Performance Monitoring……………………………..... 88 5.2.2.5 Exposure Quality Classifications…………………………….... 89 5.2.2.6 Credit Collateral Management ...…………………………….... 90 5.2.2.7 Delinquency Identification…….……………………………...... 91 February 2008
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5.2.3 Delinquency Management/Loan Workout……………………………... 92 5.2.4 Credit Facility Restructuring/Loan Workout..……............................ 93 5.2.5l Loan Loss Provisioning ……………………..………………................. 93 5.2.6 Credit Recovery …………………………………………………............. 94 5.2.7 Interest and Charge Waivers ………………………………................. 94 5.2.8 Bad Debt Writeoff……….. …………………………………................. 94 5.2.9 Erroneous Changes or Interest ....................................................... 95 5.2.10 Recoveries and Credit Writeback……………………........................ 95 5.3 Portfolio Management Policies…..…………...….………...……...... 96 5.3.1 Objectives ....................................................................................... 96 5.3.4 Industry Selection & Prioritization ……...................……………..... 97 5.3.5 Target Market and Risk Acceptance Criteria (TM/RAC) …………… 98 5.3.6 Target Market Definitions …………………………………………........ 99 5.3.7 Risk Acceptance Criteria and Portfolio Guidelines………………..... 100 5.3.12 Concentration Limits/Aggregate Exposure Ceilings ……………....... 111 6.0 Risk Administration……………………………….………………….................... 112 6.1 Administration of Existing Exposures……..……………….......... 113 6.1.1 Customer Meetings and Call Reports………………………….......... 113 6.1.2 Credit Checking..…………………………………………………......... 113 6.1.3 Financial Information…………………………………………….......... 113 6.1.4 Collateral Inspection/Site Visits………………………………………... 114 6.1.5 Collateral Evaluation…………………………………………………... 114 6.1.6 Documentation Lodging, Reviews and Followups……………….... 114 6.1.7 Covenant Checkoff List……………………………………………..... 115 6.1.8 Release of Collateral, Guarantees and Support………………….... 115 6.1.9 Annual Review of Exposure Quality and Performance Grading..... 115 6.2 6.2.1 6.2.2 6.2.3
7.0
Maintenance of Credit Information………...….………...……...... File Management…………………………………………………........ Risk Reporting……………………………………………………......... Background Information…………………………………………........
116 116 117 118
Addenda..................................................................................................... 119
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1.0 Policy Approval Memorandum
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1.1
Policy Approval Signoff Sheet
Document Name:
Access Bank Credit Risk Management Policy Guide and Portfolio Management Plan
Delivery Description:
This document outlines Credit Risk Management Principles, Policies and Procedures of Access Bank. It also includes the Bank’s Portfolio Management plan.
POLICY APPROVALS Name
Representing
Kevin Ugwuoke
Group Head – Credit Risk Management
Herbert Wigwe
Group Deputy Managing Director
Aigboje Aig Imoukhuede
Group Managing Director / CEO
Signature
Date of Approval
Management Credit Committee Board Credit Committee Board of Directors
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2.0
February 2008
Introduction
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2.1
About the Policy Manual
2.1.1 Purpose of the Policy Manual
2.1.1.1
This document sets out a framework for the consistent management of Credit Risk at Access Bank Plc. (“the Bank” or “Access Bank”). It has been developed in keeping with the commitment of the Board of Directors (“the Board”) and the Management of the Bank to establishing and sustaining tested practices in Credit Risk Management at par with leading international banks. It derives from the Bank’s Enterprise Risk Management (ERM) Framework, which represents a structured approach to identifying opportunities, assessing the risk inherent in these opportunities and managing these risks proactively in a cost effective manner.
2.1.1.2
Access Bank’s Credit Risk Management Policy Manual is the primary reference document for creating and managing credit exposures in Access Bank. The manual outlines the general policies and procedures’ framework for credit risk management in the bank and incorporates provisions for marketing, risk analysis, approval, administration, monitoring and reporting of risk exposures.
2.1.1.3
The Credit Risk Management Policy Manual is designed to: · standardize credit policies for the bank, giving employees clear and consistent direction for the creation of risk exposures across all asset creating business units; · provide a comprehensive guide and framework in creating and managing risk assets. · Ensure prompt identification of problem credits and prudent management of decline in credit quality. · Outline the requirements for administration, monitoring and reporting of individual exposures and the overall risk asset portfolio. · Provide a framework for the ongoing maintenance of the bank’s risk management policies and processes.
2.1.1.4
It is expected that the risk management policies will be reviewed on an ongoing basis to ensure that the overall approach to creating and managing risk assets remains relevant and is responsive to changes in the environment and the bank’s corporate and business unit strategies. The Credit Risk Management Policy Manual will reflect changes in policy provisions including as may be required additional pages and/or sections to reflect new policy provisions. In the event of a fundamental change in direction and/or revision of the risk management strategy of the bank, complete reproduction of the entire document may be required.
2.1.1.5
This policy must be read in conjunction with other Access Bank policies including Market Risk Policy, Environmental and Social Risk Policy, Country Risk Management Policy, Cross Border Risk Management Policy etc.
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2.1.2 Who Should Use This Manual? 2.1.2.1 The Risk Management Policy Manual is intended for all Access Bank personnel involved in the creation and management of credit exposures. All businesses / countries must fully comply with these policies. For businesses / countries whose risks are not specifically addressed by these policies, a Credit Program or businessspecific procedures are required.
2.1.3 The Purpose of Risk Management Policies 2.1.3.1
Risk management policies exist to support Access Bank’s business strategies and to ensure the achievement of the bank’s overall corporate goals and business objectives. Implicit in the bank’s business objectives is responsiveness to customer requirements and optimal customer satisfaction while maintaining a sound risk asset portfolio.
2.1.3.2
Risk management policies play a vital role in ensuring that this critical balance is achieved. Access Bank’s risk management policies comprise the following:
2.1.3.3
Policies: clear articulation of management criteria for decision making to provide guidelines for appropriate behaviour
2.1.3.4
Standards: performance criteria and expected results and outcomes against which actions, decisions and results achieved will be benchmarked for compliance with articulated policies and objectives
2.1.3.5
Procedures: description of specific activities and tasks in respect of the creation and management of risk assets.
2.1.4 Establishment of Risk Management Policies 2.1.4.1
Risk management policies and procedures are articulated by the Risk and Management Control function of the bank. The Head of Credit Risk Management has responsibility for compiling and presenting credit risk management policies to the Management Credit Committee for review and endorsement to the Board of Directors for approval through the Board Credit Committee. The Board of Directors shall approve risk management policies and such approval shall be evidenced in writing through a Board Extract and by the signature of the Group Managing Director.
2.1.4.2
The Credit Risk Group is currently divided into (i) the Head Office and (ii) the Africa Regional Office. The Regional Office will oversee all other countries in Africa for all credit issues and reports functionally to Head Office Credit Risk. As the bank expands its presence in Africa, more Regional Offices may be established.
2.1.4.3
Credit Risk Management will be fully represented at the Head Office and in the countries. All issues regarding credit risk management emanating from the
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countries or concerning the countries will be centralized at the appropriate Regional Office, which thus serves as the clearing house for credit risk management from the countries covered by that Regional Office. 2.1.4.4
Credit Risk Management at the Head Office is responsible for setting overall policies on all issues relating to credit risk management. The countries may institute procedures that must be in compliance with these policies. They may also institute local policies adapted to their peculiarities, but which must not be at variance with Head Office policies. Any local policy that is at variance to Head Office policies must be approved at the same level for the Head Office policies.
2.1.4.5
Head Office may also delegate the development of certain policies to the Regional Office. Such policies shall be approved as Head Office policies.
2.1.4.6
The countries may also originate independent local policies i.e. policies for issues not specifically addressed in Head Office policies. In addition to approval by the Head of Credit Risk Management in the Regional Office and ED for Rest of Africa, such policies must be endorsed by Head Office Credit Risk Management Head and approved by GDMD or GMD.
2.1.4.7
Throughout this Guide, any reference to the Head of Credit Risk Management shall be interpreted to mean the Head of Credit Risk Management at the Head Office except stated otherwise.
2.1.4.8
While approved policies and guidelines as articulated in the Credit Risk Management Policy Guide & Portfolio Management Plan (“The Guide”) are intended to provide guidelines for prudent optimal credit management in the bank, it is expected that creativity and good judgment shall be exercised by all bank employees in the process of creating and managing risk assets in the bank.
2.1.5 Guidelines for Changing and Approving Policy Changes 2.1.5.1
All Access Bank personnel who are involved in the credit process and apply these guidelines on a continual basis shall be responsible for ensuring that the provisions remain relevant and adequate to address the changing needs of the environment, as well as support the achievement of the bank’s business goals and objectives.
2.1.5.2
As may be required in response to changes in the environment and the changing needs of the market place, the risk management policies shall be reviewed periodically. Proposals for addition to or modification of policy statements and procedures or any section of this manual will be documented in writing by the initiating officer and presented to the Head, Credit Risk Management to ensure due process and evaluate the proposed revisions to the provisions of the bank’s risk management policies.
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2.1.5.3
Amendments to the approved policy shall be documented in the form of supplemental policies and procedures and presented to the Management Credit Committee for review and endorsement to the Board of Directors for approval. On approval by the Board of Directors indicated by the Board Extract, the Group Managing Director shall append his signature on the policy as evidence of approval and such amendments shall be inserted as addenda to The Guide.
2.1.6. Others 2.1.6.1
As used throughout this Guide, wherever an approval may be given by a designee other than the primary authority for such approval, the designation must be in writing and must state the terms of the designation e.g. the period covered, any restrictions on the powers of the designee etc.
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3.0
February 2008
Overview
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3.1 The Bank’s Business and Risk 3.1.1 Access Bank’s Strategic Intent and Corporate Objectives 3.1.1.1
Access Bank’s key strategic objectives in the planning period 2007 – 2012 are as follows: • To Rank amongst top 3 Financial services Group in Nigeria • To become the employer of choice in Africa • To attain “AAA” Agusto & CO Rating, A+ Fitch, S &P Rating (Bank) • To be the leading EBusiness bank in Africa • To rank amongst the Top 3 Banks Stocks in any exchange where we are listed • To be the Best Treasury & Financial Markets Bank in Africa • To be the reference point for service delivery in African Financial Institutions • To be the reference point for corporate governance in Africa • To be a leading Project & Structured finance Bank in Africa
3.1.1.2
Existing credit risk products and service offerings that the bank will continue to offer aggressively in the market place include: § Overdraft § Term loans § Retail Credit § Project Finance § Leasing § Bonds and Guarantees § Bank Placements
3.1.1.3
In addition, Access Bank will identify and develop offerings to take advantage of opportunities in the following areas: § Mortgage finance § Capital Markets § Private Banking/Asset Management § Corporate Finance and Advisory Services § Trade Finance § Leasing § eBusiness
3.1.1.4
Access Bank will position at different points of each business’ value chain as determined by the expected strategic importance of each role, expected profitability, and capabilities. As a general rule, Access Bank will play across the entire chain of its customers business.
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3.1.1.5
To achieve and sustain the desired business performance, an implied objective is to aggressively grow the bank’s assets portfolio, without compromising risk asset quality and yield. A holistic risk management framework for creating and managing risk assets and monitoring the bank’s risk asset portfolio is a strategic business imperative for the successful achievement of these articulated goals and business objectives.
3.1.1.6
Access Bank’s risk management policies as documented in this manual are specifically defined to support the achievement of the overall corporate objectives and business goals of the bank.
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3.2
The Bank’s Risk Management Philosophy
3.2.1 As described in Access Bank’s Enterprise Risk Management Framework, the Bank. “….considers risk management philosophy and culture as the set of shared beliefs, values, attitudes and practices characterising how the Bank considers risk in everything it does, from strategy development and implementation to its daytoday activities. In this regard, the Bank’s Risk Management philosophy is that moderate and guarded risk attitude will ensure sustainable growth in shareholder value and reputation. The Bank believes that enterprise risk management will provide the superior capabilities to identify and assess the full spectrum of risks and to enable staff at all levels to better understand and manage risks. This will ensure that: · · · · · 3.2.1.1
Risk acceptance is done in a responsible manner; The executive and the board of the Bank has adequate risk management support; Uncertain outcomes are better anticipated; Accountability is strengthened; and Stewardship is enhanced.
The Bank has identified the following attributes as guiding principles for its risk culture. a) Management and staff shall: Ø Consider all forms of risk in decisionmaking; Ø Create and evaluate businessunit and Bankwide risk profile to consider what is best for their individual business units/ department and what is best for the Bank as a whole; Ø Adopt a portfolio view of risk in addition to understanding individual risk elements; Ø Retain ownership and accountability for risk and risk management at the business unit or other point of influence level; Ø Accept that enterprise risk management is mandatory, not optional; Ø Strive to achieve best practices in enterprise risk management; Ø Document and report all significant risks and enterpriserisk management deficiencies; Ø Adopt a holistic and integrated approach to risk management and bring all risks together under one or a limited number of oversight functions; Ø Empower risk officers to perform their duties professionally and independently without undue interference; Ø Ensure a clearly defined risk management governance structure; Ø Ensure clear segregation of duties between market facing business units and risk management/control functions;
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b)
c) d) e) f)
Ø Strive to maintain a conservative balance between risk and profit considerations; and Ø Continue to demonstrate appropriate standards of behaviour in development of strategy and pursuit of objectives. Risk officers shall work as allies and thought partners to other stakeholders within and outside the Bank and be guided in the exercise of their powers by a deep sense of responsibility, professionalism and respect for other parties; Risk management is a shared responsibility. Therefore, the Bank shall aim to build a shared perspective on risks that is based on consensus; Risk management shall be governed by welldefined policies, which are clearly communicated across the Bank; Equal attention shall be paid to both quantifiable and nonquantifiable risks; and The Bank shall avoid products and businesses it does not understand.”
3.2.1.2.
These philosophies and culture shall underlie credit risk management in Access Bank.
3.2.2
Credit Risk Management Policies
3.2.2.1
The following are Access Bank’s credit policies
3.2.2.2
Board and Management Accountability ·
The Board of Directors of the bank shall be responsible for articulating and reviewing on an ongoing basis the overall risk strategy and risk policies of the bank that outline clearly the risk appetite and return preferences that will govern the creation and management of risk assets in the bank. Specifically the Board shall be responsible to: o Approve the Bank’s overall risk tolerance in relation to credit risk based on the recommendation of the Chief Risk and Compliance Officer; o Ensure that the Bank’s overall credit risk exposure is maintained at prudent levels and consistent with the available capital through quarterly review of various types of credit exposure; o Ensure that top management as well as individuals responsible for credit risk management possess the requisite expertise and knowledge to accomplish the risk management function; o Ensure that the Bank implements a sound methodology that facilitates the identification, measurement, monitoring and control of credit risk; o Ensure that detailed policies and procedures for credit risk exposure creation, management and recovery are in place; and o Appoint Credit Approval Officers and delegate approval authorities to individuals and committees.
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·
The Board Credit committee shall under delegated authority be responsible for the following: o Facilitate the effective management of credit risk by the Bank; o Approve credit risk management policies, underwriting guidelines and standard proposals on the recommendation of the Management Credit Committee (MCC); o Approve definition of risk and return preferences and target risk portfolio; o Approve the Bank’s credit rating methodology and ensure its proper implementation; o Approve credit risk appetite and portfolio strategy; o Approve lending decisions and limit setting; o Approve new credit products and processes; o Approve assignment of credit approval authority on the recommendation of the Management Credit Committee (MCC); o Approve changes to credit policy guidelines on the recommendation of the Management Credit Committee (MCC); o Approve credit facility requests and proposals within limits defined by Access Bank Plc’s credit policy and within the statutory requirements set by the regulatory/ supervisory authorities; o Recommend credit facility requests above stipulated limit to the Board; o Review credit risk reports on a periodic basis; o Approve credit exceptions in line with Board approval; and o Make recommendations to the Board on credit policy and strategy where appropriate.
·
The Management Credit Committee shall be responsible for managing credit risks in the Bank. The members of the committee shall include all group heads and Head, Credit Risk. This Committee shall: o Review Credit Policy recommendations for Board approval; o Approve individual credit exposure in line with its approval limits; o Agree on portfolio plan/strategy for the Bank; o Review monthly credit risk reports and remedial action plan; and o Coordinate the Bank’s response to material events that may have an impact on the credit portfolio.
·
Business managers will be accountable for managing risk and, in conjunction with Credit Risk Management, for establishing and maintaining appropriate risk limits and risk management procedures for their businesses. ·
For every Access Bank client there will be a single unit responsible for approving or coapproving all credit extensions related to the client. This unit is generally a customerfacing unit (e.g. a business unit) or, if the relationship is
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ProductManaged, it is a Product Organization. The designation of such a unit ensures clear and defined accountability for the credit relationship. Þ The unit has primary responsibility for the credit relationship with a client (which may include extensions of credit to subsidiaries), including: o coordinating credit activities and risk assessment when clients deal with more than one country where Access has presence, and o ensuring compliance with internal credit limits (e.g., Risk Rating Limits), regulatory limits (e.g., Single Obligor Limits), and credit risk reporting requirements. Þ Certain responsibilities may be performed by Independent Credit Risk Management, however accountability remains with the unit. Þ In situations when an appropriate unit is not clearly identifiable, e.g., o The most appropriate unit may be domiciled outside the country of the obligor, or o The client is headquartered in a country with no appropriate Access Bank resident unit, Þ The Head of Credit Risk Management can designate an appropriate unit. Any disputes with respect to the designation of the appropriate unit are resolved by the Head of Credit Risk Management ·
The Bank will have a system of checks and balances in place around the extension of credit which are: - An independent credit risk management function - Multiple credit approvers - An independent audit and risk review function.
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3.2.2.3
Credit Approval Authorities ·
The authority to extend or approve credit will be granted to individual credit officers based upon a consistent set of standards of experience, judgment, and ability. At Access Bank, responsibility and accountability will be matched by appropriate authority to perform job duties and achieve desired results and outcomes. Hence individuals and groups with responsibility for credit creation and approval shall be accordingly empowered with the appropriate level of authority to carry out their tasks.
·
Credit approval officers will be recommended by senior members of risk and business management for approval by the Board.
·
The level of authority required to approve credit will increase as amounts and transaction risks increase and as risk ratings worsen.
·
The authority to approve credit shall be jointly exercised by the bank’s credit risk management function and business managers in line with the provisions of the bank policies in respect of credit approval. Every extension of credit must be approved in line with approval limits established in this Guide.
·
Assigned credit approval authority may be withdrawn on incidence of o breach of integrity, recklessness or incompetence o inaccuracies, falsification, incomplete or inadequate credit analysis o noncompliance with bank credit risk management policies
3.2.2.3.1 In addition to the withdrawal of such approval authority, appropriate disciplinary action shall be determined and applied by the bank. ·
3.2.2.4
It is the responsibility of the Relationship Manager/Originating Officer to ensure the integrity of the credit process and the proper documentation of the credit decision.
Credit Risk Measurement
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·
There will be a single set of standards for the measurement of credit risk in order to ensure consistency across businesses, stability in methodologies and transparency of risk.
·
Every obligor and facility must be assigned a risk rating, in accordance with an approved Risk Rating Process.
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3.2.2.5
3.2.2.6
Credit Origination and Maintenance ·
There will be consistent standards across Access Bank for the origination, documentation and maintenance of extensions of credit.
·
For obligors to whom we have extensions of credit, there will be a consistent approach across the Bank toward problem recognition, the classification of problem exposures, and remedial action.
Portfolio Management ·
Access Bank will maintain a diversified portfolio of risk assets in line with the capital desired to support such a portfolio. In line with defined risk and return preferences, the risk asset portfolio of the bank shall be deliberately managed to avoid excessive concentration of risk to any industry, market sector or individual customer as well as to ensure portfolio flexibility and liquidity.
·
The Access Bank portfolio management process provides for upfront definition of target risk asset stratification in the bank and on an ongoing basis, tracks the actual composition of the risk asset portfolio against the desired structure. The bank’s management information system shall provide up to date, accurate and complete information on the risk asset portfolio to enable monitoring of the overall composition and quality of the portfolio; and provide informed basis for management action and decision making in respect of the risk asset portfolio
·
Credit portfolio risk limits will be proposed by Credit Risk Management and approved by the Board Credit Committee. Such limits include, but are not limited to, obligor limits and concentration limits by industry, product or geography.
·
In order to ensure transparency of risks taken, it is the responsibility of Credit Risk Management to accurately, completely and in a timely fashion, report the comprehensive set of credit risk data into the independent risk reporting system. In addition Credit Risk Management function responsibilities shall be to: o Establish and maintain effective credit risk management environment in the Bank; o Review proposals in respect of credit policies and standards and endorse to the board of directors for approval; o Define the Bank risk and return preferences and target risk portfolio; o Monitor on an ongoing basis the Bank’s risk quality and performance, review periodic credit portfolio reports and assess portfolio performance; o Define credit approval framework and recommend credit approval limits in line with bank policy;
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o Review defined credit product programs and endorse to the Board of Directors for approval, through the Management Credit Committee. o Review credit policy changes initiated across the bank and endorse to the Board of Directors for approval; o Ensure compliance with the Bank’s credit policies and statutory requirements prescribed by the regulatory/supervisory authorities; o Approve credit facility requests within limits defined by Access Bank’s credit policy guidelines, and within the statutory requirements set by the regulatory/ supervisory authorities; o Review and endorse credits approved by SBU heads; o Review and recommend to the Board Credit Committee, credits beyond their approval limits; o Review periodic credit portfolio reports and assess portfolio performance; and o Approve exceptions/ writeoffs, waivers and discounts on nonperforming credit facilities within specified limit.
3.2.2.7
In general, the Risk and Management Control function shall establish and maintain appropriate structures and frameworks for administration of the bank’s risk asset portfolio and individual risk exposures. The Risk Management Framework shall enable ongoing administration of credit riskbearing portfolios, monitor the condition and performance of individual credits, develop and utilize internal performance rating systems in managing individual exposures.
3.2.2.8
Analytical techniques based on information systems shall be established to enable management measure and manage risk inherent in all on and off balance sheet activities.
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3.3
Types of Risks
3.3.1 Credit Risks 3.3.1.1
Effective risk management requires proper identification and understanding of the credit risks. Credit risk is most simply defined as the potential that a bank borrower or counter party will fail to meet obligations in accordance with agreed terms.
3.3.2
Direct Lending Risks
3.3.2.1
Direct lending risk is the risk that actual customer obligations will not be repaid on time. Direct lending risks occur in products ranging from loans and overdrafts to credit cards and residential mortgages. It exists for the entire life of the transaction.
3.3.3
Contingent Lending Risk
3.3.3.1
Contingent lending risk is the risk that potential customer obligations will become actual obligations and will not be repaid on time. Contingent lending risk occurs in products ranging from letters of credits to guarantees to unused loan commitments. It exists for the entire life of the transaction.
3.3.4
Issuer Risk
3.3. 4.1
Issuer risk is the risk that the market value of a security or other debt instrument may change when the perceived or actual credit standing of the issuer changes, thereby resulting in exposure of financial loss.
3.3. 4.2
In underwriting and distribution activities, in the event of a commitment to purchase a security or other debt instrument from an issuer or seller, there is a risk of inability to sell the instrument within a predetermined distribution period to an investor or purchaser. In this event, direct lending risk and unintended price risk is created. This risk is sometimes also described as issuer risk.
3.3.5
Presettlement Risk
3.3.5.1
Presettlement risk (PSR) is the risk of default on a contractual obligation before settlement of the contract by a counter party in a transaction.
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3.3.6
Settlement Risk
3.3. 6.1
Settlement risk occurs when there is a simultaneous exchange of value with a counter party for the same value date and verification that payment is received is not made until after the bank has paid/ delivered on the obligation. There is a risk that the counter party does not deliver as such resulting in exposure of the bank to direct lending risk.
3.3.7
Clearing Risk
3.3.7.1
Clearing risk occurs when funds are transferred on a customer’s instructions to transfer or to order the transfer of funds before the bank receives reimbursement or the customer’s accounts is funded. Clearing risk is the risk that the bank may not be reimbursed on the same value date for payments made on behalf of customers.
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3.4
Other Risks
3.4.1
Equity Risk
3.4.1.1
Equity risk occurs when the bank invests in, holds or receives equity, equitylike securities or other junior securities in nonaffiliated entities. These securities include instruments such as common shares, preferred shares and related derivative instruments such as warrants, stock options, calls and stock index futures. Equity risk encompasses potential conflicts with our normal senior creditor role, as well as our exposure to permanent declines in carrying values.
3.4.2
Price Risk
3.4.2.1
Price risk is the risk that market conditions may change for an individual instrument or for all securities of the same general class. For example, a change in the level of interest rates affects the price of all interest rate sensitive instruments. Price risk is not to be confused with issuer risk, which describes price changes attributable to real and perceives changes in the quality of a particular issuer and instrument.
3.4.3
Liquidity Risk
3.4.2.1
Liquidity risk is risk that the bank may be unable to meet its financial commitments to customers or markets when due.
3.4.4
Fiduciary Risk
3. 4.4.1
Fiduciary risk occurs when the bank is charged with the responsibility of acting as a trustee for third parties. Fiduciary risk is most significant where the charge is involuntary i.e. in the event that a trust agreement is not in place clearly outlining the duties and responsibilities of the bank and when the bank may be exposed to potential or real conflict of interest.
3.4.5
Disclosure Risk
3.4. 5.1
Disclosure risk occurs when the bank acts as an agent to other investors, as an underwriter, or as an advisor on a transaction. The risk is that there is disclosure of information that the bank either knows or should have known to be incorrect, that the bank does not disclose actual or potential conflicts of interest, or that the bank does not disclose or delay in disclosing material information.
3.4..6
Documentation Risk
3.4.6.1
Documentary risk is the risk that documentary evidence on which the bank depends to enforce rights under contracts or transactions may not be complete, correct or enforceable.
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3.4.7
Legal and Regulatory Risk
3.4.7.1
Legal and regulatory risk occurs when the bank, a related corporate entity (such as nonbank subsidiary or affiliate), a transaction or a customer is subject to a change in exposure resulting from regulatory, civil or criminal sanctions, or litigation.
3.4.8
Country Risk
3.4.8.1
This is a broad risk category that encompasses political risk, transfer risk and convertibility risk. It is the risk that an event in a country (precipitated by developments within or external to a country) will impair the value of Access Bank assets or will adversely affect the ability of obligors within that country to honour their obligations to Access Bank. Country Risk events may include sovereign defaults, currency convertibility and/or transferability restrictions, or political events.
3.4.8.2
It is imperative that credit decisions and approvals in Access Bank are made after proper consideration of all credit risks. Due care should be taken to ensure that accurate, complete and uptodate information in respect of existing and potential obligors are maintained at all times and form the basis for evaluation of credit risks.
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3.5 Access Bank’s Credit Process 3.5.1 Credit Risk Management Process 3.5.1.1
Access Bank’s Credit Risk Management Framework is made up of five distinct modules for the proactive creation and deliberate management of credit risk exposures in the bank. Each module represents a critical component of Access Bank’s credit risk management framework for creating and maintaining an appropriate credit risk environment in the bank to maximize return on credit risk assets with minimal loss. These modules are: o Risk Portfolio Planning o Exposure Development and Creation o Exposure Management o Delinquency Management / Loan Workout o Credit Recovery
3.5.1.2
Risk Portfolio Planning 3.5.1.2.1 In line with the bank’s planning cycle, risk portfolio plans shall be developed and approved at the overall bank and individual business unit level. 3.5.1.2.2 Risk portfolio planning entails definition and agreement of target risk asset ceilings for different sectors, definition of target markets and criteria for risk acceptance at the overall corporate level and across each risk creating business unit in the bank.
3.5.1.3
Exposure Development and Creation 3.5.1.3.1 Exposure development and creation incorporates the procedures for preliminary screening of facility requests, detailed credit risk analysis and risk rating, risk triggered review an approval of facilities, and controlled credit availment of approved facilities. Processes and guidelines for developing credit opportunities and creating quality risk assets in line with the bank’s risk management policies.
3.5.1.4
Exposure Management 3.5.1.4.1 To minimize the risk and occurrence of loss as a result of decline in quality and nonperformance of risk assets, clear requirements and guidelines for ongoing management of the risk asset portfolio and individual risk exposures as defined. Ongoing exposure management shall entail collateral management, facility performance monitoring, exposure quality reviews and classification and risk portfolio reporting.
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3.5.1.5
Delinquency Management/Loan Workout 3.5.1.5.1 In the undesired event of decline in quality of assets, prompt identification and management of such delinquency may significantly reduce credit loss to the bank. The delinquency management/loan workout module of the integrated risk management framework outlines the approach for identification and management of declining credit quality. This also covers loan workout where all activities are geared towards resuscitating nonperforming loans, and the first stage in the process of recognizing possible credit loss i.e. loan loss provisioning (general and specific).
3.5.1.6
Credit Recovery 3.5.1,6.1 Deliberate action shall be taken on a proactive basis to minimize the bank’s loss on nonperforming exposures. Guidelines for winding down the bank’s exposure, interest and charge waivers as well as the next stages in the process for recognizing credit loss such as bad debt writeoff etc. are outlined here. In the event of recovery, process for recognizing income and previously writtenoff amounts is also defined in this phase.
3.5.2
Approaches to Risk Creation and Management
3.5.2.1
Credit Product Programs 3.5.2.1.1 Credit product programs shall be defined and approved to accommodate specialized credits up to a preapproved level to a predefined set of customers with homogenous characteristics, similar product needs or risk profiles under clearly defined standard terms and conditions. It is expected that most facility requests and credit activities in the Consumer Finance and Retail Banking unit will be accommodated under credit programs. 3.5.2.1.2 Approved credit product programs shall o target specific customers or customer segment o contain standard risk acceptance criteria for evaluating and further approving individual transactions under the program o demonstrate that the behaviour of the portfolio will be predictable in terms of yield, delinquencies and writeoffs, and specify tracking and reporting mechanisms to identify trends in portfolio behaviour early and allow timely adjustments o specify maximum program limit and maximum individual limit per customer o stipulate funding instruments and maximum/minimum tenor o detail minimum documentation requirement o state principal terms and conditions
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3.5.2.1.3 Credit product programs would be appropriate for credit product offerings such as: o o o o o o o o o o 3.5.2.2
Customer installment loans Customer and small business revolving credit lines Residential mortgages Shortterm foreign exchange lines Routine shortterm credit risks Shortterm payment related lines Trade finance Oil and Gas contract finance Distributor finance Commercial papers
Individual/Business Credit 3.5.2.2.1 In the absence of approved credit programs, transactions for individual customers or customer relationships will be treated as individual/business credits. With this approach, credit is approved using the approval process as defined in the risk management policies to the bank. This shall entail detailed and comprehensive evaluation of the proposed transaction in the context of existing exposures to a particular customer. Credit approval may be for a single, simple product or for a series of large complex transactions. 3.5.2.2.2 Individual/business credits shall only be applicable in respect of facility requests and credit approvals for customers that meet the requirements of the approved target market definition and risk acceptance criteria as defined in the bank’s risk management policies. 3.5.2.2.3 Individual/Business Credits are applicable in the event that: v customer characteristics are unique v facility request is for large, complex transactions that may result in significant risk such that indepth and detailed evaluation of the customer is required v approval is based on detailed financial analysis and the individual judgment of credit officers v transaction will result in multiple facilities, structures and forms of collateral. 3.5.2.2.4 All exposures to a customer or a group approved as individual/ business credits must be aggregated and managed by the customer relationship manager. 3.5.2.2.5 Individual/business credits approval would be appropriate for credit facility requests such as: v tailored or structured consumer or commercial loans v complex corporate finance products and transactions
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3.5.2.2.6 It is expected that most facility requests and credit activities in the Institutional Bank and Commercial Bank business units will be business credits. Also, in exceptional cases, some credit activities in the Retail Banking business unit may be categorized as individual/ business credits.
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4.0
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Roles aand Responsibilities
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4.1 Roles and Responsibilities of Organizational Groups 4.1.1 Board of Directors (BOD) 4.1.1.1
The Board of Directors is the highest credit approval body in Access Bank and shall be responsible for approval of credits beyond the authorized approval limits of the Board Credit Committee.
4.1.2
Board Credit Committee (BCC)
4.1.2.1
The Board Credit Committee (BCC) is a committee of the Board of Directors of Access Bank and shall act on behalf of the Board of Directors on credit matters. Decisions and actions of the BCC shall be presented to the Board of Directors. The BCC shall be responsible for approval of credit product programs and individual/business credits in line with the bank’s credit approval authority limits and in compliance with regulatory/statutory limits.
4.1.2.2
Composition § The Board Credit Committee shall be comprised of: v 5 nonExecutive Directors appointed by the Board of Directors v The Group Managing Director v The Group Deputy Managing Director v Executive Directors as appointed. § One of the nonExecutive Directors shall be Chairman of the Committee. § Six committee members, including at least two nonExecutive Directors shall form a quorum. § To recommend credit facility request above stipulated limit to the Board.
4.1.2.3
Meeting Frequency
4.1.2.4
The Board Credit Committee shall meet at least once quarterly. However, special Board Credit Committee meetings may be convened at the instance of the Chairman of the Committee.
4.1.3 Management Credit Committee (MCC) 4.1.3.1
The Management Credit Committee (MCC) is the highest management approval body for credits in Access Bank and performs the dual role of credit policy articulation and credit approval.
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4.1.3.2
The Management Credit Committee (Credit) shall review and recommend to the Board Credit Committee for approval, credit policy direction including articulation of risk and return preferences at corporate level and for individual assetcreating business units in the bank. The Committee shall also on an ongoing basis ensure compliance of the credit environment in the bank with approved policies and framework.
4.1.3.3
Composition § § § § § § § § § § § §
Group Managing Director/Chief Executive Officer – Chairman Group Deputy Managing Director – Vice Chairman All Executive Directors Group Head, Credit Risk Management Team Leaders, Credit Risk Management Group Heads, Commercial Bank Group Heads, Institutional Bank Group Heads, Operations & IT Group Head, Compliance Group Head, Internal Audit Head of Legal (or his/her nominee as approved by the GMD/CEO) Other Group Heads
4.1.3.4
The following officers of the bank shall sit in attendance at MCC meetings: v Group Head, Credit Risk Management Unit v One officer from Legal Department, nominated by the Group Head v The Credit Risk Management Unit shall act as Secretariat
4.1.3.5
For an MCC meeting to be valid, it must be presided over by the Chairman or Vice Chairman. In their absence, the Chairman may delegate any member of the Committee to act as Chairman. The Chairman or Vice Chairman, the Secretary, a representative from Legal Department and at least two other Group Heads shall form a quorum.
4.1.3.6
Meeting Frequency
4.1.3.7
The MCC shall meet for CPG policy review and direction setting purposes, at least once a year; while the Committee shall meet weekly to review and consider facility requests.
4.1.3.8
However, as may be required to ensure responsiveness to credit facility requests, MCC meetings may be convened as required at the instance of the Group Managing Director or Group Deputy Managing Director (in the absence of the GMD). In addition, MCC approvals may be obtained by circulation of credit memo, but only on exception basis only and with the prior approval of the GMD or GDMD.
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4.1.4 Criticized Assets Committee (CAC) 4.1.4.1
Credit facilities that do not meet approved terms, covenants or repayment schedules shall be regarded as delinquent loans. Such nonperforming loans that show little or no movement during their tenor or which fails to be liquidated on due date are also regarded as delinquent facilities and are called “Criticized Assets”. Facilities shall be regarded as delinquent where normal repayment of principal and/or interest is in arrears for more than 180 days but less than 360 days. Facilities with little or no movement within 30 days shall also be reviewed for early warning signs. The Criticized Assets Committee shall review all such facilities.
4.1.4.2
Composition o Group Deputy Managing Director – Chairman o Executive Director Risk Management – Vice Chairman o All other Executive Directors o Credit Risk Management Unit – Secretariat o Group Heads of business/support units with criticized assets
4.1.4.3
The CAC shall be convened at least once every quarter to review all qualifying assets and take decisions on remedial actions and / or provisioning. The Chairman may also nominate a designee to chair the CAC session.
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4.2 Roles and Responsibilities of Business Units 4.2.1
Roles and Responsibilities of Credit Risk Management Unit
4.2.1.1
The Credit Risk Management function of the bank has specific and overall responsibility for facilitating risk asset creation and exposure management processes in the bank.
4.2.1.2
This shall encompass the following as it relates to credit risk: o design and development of risk management framework and structures, and ensuring bank wide compliance o coordination of the risk management policy definition process o ensuring compliance with the bank’s policies and procedures for risk creation and management o review of recommended credit programs and endorsement of such programs and approval o detailed evaluation of risk of individual/business credits and risk rating as a basis for approval decision o recording of individual credit exposures including maintaining complete upto date and accurate records of all credit related customer interactions including requests approvals, transactions and correspondence. o ongoing assessment and monitoring of quality and performance of the bank’s risk asset portfolio o periodic review and classification of the quality and performance of individual credit exposures o timely, accurate and complete reporting of risk assets and risk asset portfolio quality and performance to provide informed basis for management actions and decisionmaking o serving as the Secretariat for the various credit committees.
4.2.1.3
Specific responsibilities include:
4.2.1.4
Risk Analysis v Confirm all credit facility requests are accompanied by relevant supporting data to ensure informed decisionmaking. v Identify inherent credit, financial and business risks in facility requests. v Recommend visits to customer to confirm information provided on business state, collateral etc. v Investigate environmental factors that can influence credit decisions and make recommendation as required. v Recommend appropriate structure for credit facilities to ensure that the risk of credit loss is properly mitigated including credit terms, security and repayment terms. v Conduct analysis and appraisals of all credit requests in accordance with approved policies and procedures and ensure that credit exposures are created subject to stipulated guidelines by analysis of individual credit request.
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v Conduct risk acceptance evaluation and assign risk rating in line with approved risk classification guidelines. v Recommend approval/rejection of facility request. v Conduct anniversary reviews for renewal/assessment of existing facilities performance and other creditrelated requests. v Ensure proper documentation of individual exposure by adhering to set documentation standards and procedure. 4.2.1.5
Credit Administration and Control v Maintain database on bankwide credit portfolio and uptodate accurate records on the performance of individual credit exposures. v Provide detailed guidelines for monitoring and managing information on existing exposures as a basis for informed decision making. v Ensure completeness of all due diligence documentation and security documents before signing off for availment. v Liaise with Legal Department to confirm adequacy of documents submitted and facilitate perfection of securities pledged. v Maintain custody of all security documents related to the extension of credit. At least semiannually, the Internal Control function will audit the adequacy of these records. v Deliberately track and produce credit information for all parties involved in the credit creation process to enable effective credit exposure and credit portfolio performance monitoring. v Conduct independent inquiries on the borrower e.g. from CBN credit bureau and other sources. v Evaluate credit quality and performance of existing exposures and assign quality classification in line with bank’s guidelines.
4.2.1.6
Loan Workout and Classified Assets Management 4.2.1.6.1 Intensive remedial action on nonperforming/delinquent credits may be required to minimize loss to the bank, in the event of further decline in credit quality or increased exposure risk of loss of an outstanding amount. Facilities shall be regarded as delinquent where normal repayment of principal and/or interest is in arrears for more than 180 days, but less than 360 days. The decision to transfer nonperforming facilities to the Remedial Assets Management Unit shall be taken at the Criticized Assets Committee (CAC) meeting under the Chairmanship of the Group Deputy Managing Director (or ED Risk Management). 4.2.1.6.2 Specific activities that shall be required in a loan workout situation include: · Liaising with the Relationship management function to determine appropriate workout strategies to minimize loss. · Restructuring exposure as appropriate subject to approval at the appropriate level.
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4.2.1.6.3 In exceptional instances where it is determined that the probability of turnaround of the facility performing is remote, such facilities shall immediately be classified as lost and transferred to Remedial Assets Management Unit. 4.2.1.6.4 Other exceptional instances that will trigger transfer to Remedial Assets Management Unit: o death or disappearance of an obligor o bankruptcy or going concern problems o unforeseen circumstances that have significant implication on the business ·
Implementing agreed workout strategies and tracking/monitoring of achievements on an ongoing basis.
4.2.1.6.5 In the event of delinquency, where principal and/or interest are unpaid for more than 360 days (it is expected that 100% provision of principal amount has been made), the bank shall commence deliberate action to recover on such exposures and minimize total loss to the bank. It is expected that the required approach to resolve lost credits shall be unique in each instance and will depend on the specific details including documentation status, collateral situation etc. 4.2.1.6.6 Recovery action may without prejudice to the above provision be instigated when there is evidence that an account cannot be salvaged by other means. 4.2.1.6.7 However, the following general guidelines shall apply: · Strict compliance with management decisions on nonperforming accounts. · Recovery action may include legal proceedings. · The bank’s entitlement shall be limited to the full amount of principal and interest unpaid to date of recovery and all associated costs incurred in the recovery. · Where sale proceeds fall short of the bank’s full entitlement, demand shall be made for the balance from the customer. · Where sale proceeds are in excess of bank’s entitlement, the surplus shall be credited to the customer’s account. 4.2.1.6.8 Specific responsibilities shall include: · Advising Legal Department to call in specific facilities as approved at the appropriate levels of authority in the bank. · Overseeing the realization of securities on lost facilities. · Liaising with Legal Department and/or external debt recovery agents for collection of calledin facilities. · Recommending appointment of recovery agents. · Preparing periodic reports on all recovery activities. · Recommending concessions/waivers in deserving cases. · Recommending debt writeoff and/or process writeback to income as appropriate.
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4.2.1.7
Legal Department 4.2.1.7.1 The role of the Legal Department in the credit creation and approval process shall be to: § Assess and confirm adequacy of documents required for the perfection/ up stamping process. § Assess suitability of title deed and arrange for formal search to be conducted over title deed. § Prepare relevant documentation for execution by Customer/Surety Company Secretary. § Initiate and recommend external solicitor involvement to conduct search. § Liaise with external solicitors and ensure due supervision throughout the perfection/upstamping of securities. § Prepare and issue relevant demand notices and call in classified facilities as appropriate. § Monitor on an ongoing and regular basis, the performance of external solicitors involved in perfection/upstamping process or recoveryrelated litigation. § Provide legal opinion as may be required or necessary. § Assist in structuring complex transactions (project financings, syndications etc) and work with external counsel on documentation and agreements for such transactions.
4.2.2 Roles and Responsibilities of Customerfacing Business Units 4.2.2.1
Customerfacing business units are responsible for generating revenues through product delivery and sales of financial services to bank customers to achieve and sustain the defined goals and business objectives.
4.2.2.2
In this respect, it is expected that the business units shall: § Continually grow market share (specific to target market) by effective management of individual customer relationships; § market/sell bank product and service offerings to target customers § create, manage and own risk assets, through a very thorough customer selection and controlled risk availment process without compromising portfolio profitability, and in compliance with the bank’s management policies.
4.2.2.3
Specific Responsibilities
4.2.2.3.1 Each customerfacing unit shall: § Define and articulate target market, risk acceptance criteria and portfolio mix, with concurrence from Credit Risk Management. § Define market specific strategies. § Initiate credit request that meet set risk acceptance criteria and target market definition. § Obtain adequate information in respect of each facility request/prospect to conduct preliminary credit screening. § Perform preliminary credit screening to confirm that facility requests meet Access Bank’s defined target market and risk acceptance criteria. February 2008
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§ Create credit facility proposals for individual/business credits within stipulated limits and guidelines as defined by risk management policies and procedures. § Approve credit facility requests in accordance with the Bank’s preapproved credit programs. § Manage risk exposures in line with approved risk management policies. § Develop and implement appropriate response on a casebycase basis to manage delinquency. § Proactively identify potential delinquency in existing exposures on a continuous basis and support the risk management function in ensuring efficient administration of all credit recovery activities. 4.2.2.3.2 In particular, each relationship manager is responsible for ensuring the coordination, execution and monitoring of an extension of credit, from early consultation through approval to maturity, including: · Serving as the primary interface with the client · Ensuring a complete, accurate and balanced assessment of risk in the credit approval presentation. · Coordinating the approval process; managing information flow. · Ensuring that clear communication between Access Bank and the client is maintained, and that the internal approvals are consistent with client expectations. · Bringing in Industry, Product and other specialists (e.g., Legal, Tax) when required. · Ensuring compliance with related policies, as referred to throughout these policies. · Ensuring that the approval documentation is complete. · Ensuring that the legal documentation is complete, consistent with the internal approvals and properly executed and filed. · Ensuring quality and timely service delivery, within (or exceeding) customer expectations.
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5.0
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Risk Management Policies
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5.1 Overall Corporate Policies 5.1.1 Credit Policies 5.1.1.1
The overall corporate risk management policies of the bank that outline the overall principles, rules and procedures that will form the basis for decision making and approvals in respect of the creation and management of risk exposures in the bank are articulated in this section.
5.1.1.2
Risk management policies shall be approved by the Board of Directors to enable informed decision making and approval, and establish/maintain an appropriate environment for risk management in the bank. All Access Bank employees involved in the creation and management of risk exposures shall comply at all times with the risk management policies, and procedures as approved. Compliance shall be monitored on an ongoing basis by the bank’s Internal Audit Unit and reported on a quarterly basis to the Management Credit Committee.
5.1.1.3
Details of operational policy statements for each phase of the bank’s exposure creation and management process are outlined in subsequent sections of this document.
5.1.1.4
The risk management unit shall have specific and overall responsibility for ensuring compliance.
5.1.1.5
The following constitute the pillars of Access Bank’s credit policies and procedures: Credit Approval Policy – Every extension of credit must be approved in line with the approval requirements stated in this policy. Credit Risk Management must sign off on all extension of credits for the credit approval to be valid. Risk Rating Limits Policy – Access Bank shall utilize Risk Rating Limits to maintain a diversified portfolio of risk assets. Specific Risk Policy – Certain extensions of credit have incremental or unique approval and risk management requirements or may be prohibited altogether. Credit Program Policy – Credit programs will be used to document business specific credit approval or risk management requirements, and are approved identically to extensions of credit. Credit Analysis Policy – There will be consistent credit analysis standards across Access Bank for the approval of credit facilities. Annual Review Policy – All credit files must be maintained and reviewed at least once every 12 months.
1.
2. 3. 4.
5. 6.
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5.1.2 Rules Governing the Extension of Credit 5.1.2.1
Approval Authorities 5.1.2.1.1 Individuals shall be given credit approval limits that establish the maximum amount for which that individual may give final approval.
5.1.2.2
Credit Approval 5.1.2.2.1 Credit Approval is the documented acceptance by credit officers of the credit risks in a credit facility. Credit approval is always required for the establishment of a credit facility. (Due diligence requirements for the approval of credit, which should include use of internal resources and knowledge, can be found in subsequent sections of this document).
5.1.2.3
Rask Rating Limits 5.1.2.3.1 Access Bank will use Risk Rating Limits as the primary mechanism to control its portfolio of credit exposures. Risk Rating Limits are established by the Head of Credit Risk Management and approved by Management Credit Committee, and are a function of the obligor risk rating and tenor of facilities. Risk Rating Limits shall be specified on approval of the revised Risk Rating Policy for Access Bank. Note that regardless of the Risk Rating Limits, Legal Lending Limits set by the Regulators shall always prevail. 5.1.2.3.2 Risk Rating limits shall be established for the following classes of borrowers: o Banks, Corporations o Government owned or controlled entities
5.1.2.4
One Obligor Concept 5.1.2.4.1 Section 20 (1a) of the Bank and Other Financial Institutions Act (BOFIA) 1991 as amended states that a Bank shall not grant more than 20% of its shareholders’ funds unimpaired by losses to a company, its subsidiaries and associates. 5.1.2.4.2 However, at Access Bank, the concept of one obligor is extended to include any company belonging to a group whose management are strongly linked by virtue of their related ownership structure and in particular, where the business fortune of one entity
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affects the other. Thus credits extended to any member of the group shall be aggregated to determine total facilities to the group, as well as the appropriate level of approval of such facilities. 5.1.2.4.3 It shall be the responsibility of the Approving Officers to determine whether related company obligations shall be aggregated, and the basis for their decision shall be documented. As a guide, the term “OneObligor” includes all credit extension to a borrower including: Þ All subsidiaries owned at least 50%; such interest being an aggregate of both direct and indirect shareholdings Þ Any less than 50% owned affiliate where the borrower exercises management control and where, in the opinion of the credit approval officers, the commercial fortunes of the affiliate are strongly influenced by the borrower Þ Any obligor related to the borrower as a result of guarantees, endorsements, or other similar arrangements in favour of the bank Þ All obligors under common ownership or control of a corporation or individual.
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5.1.2.5
Measuring Exposure Against Risk Rating Limits 5.1.2.5.1 The Risk Rating Limit process outlined below applies to exposure at the overall relationship level. 5.1.2.5.2 For the purposes of applying Risk Rating Limits, the obligor risk rating that is used must be: · · ·
For corporations, the obligor risk rating of the parent company For banks, the risk rating of the lead bank. For other entity types, the risk rating as determined in accordance Access Bank’s Risk Rating Policy.
5.1.2.5.3 Exposure against Risk Rating Limits is measured as the Outstandings and Unused Commitments (“OSUC”) to a given relationship. ·
·
·
·
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OSUC is the sum of all Outstandings (including Direct and Contingent Exposure) against Total Facilities, as well as the unused portion of any Committed Facility included in Total Facilities. OSUC does not include settlement and clearing exposure, or the Underwritten Position of a credit underwriting transaction unless the position becomes Aged beyond the Extension Period. For purposes of measuring exposure against Risk Rating Limit tenor buckets, contractual principal repayments may be taken into consideration. For purposes of measuring exposure against Risk Rating Limits, OSUC may be considered net of: - Reductions resulting from asset sales; - Risk mitigation efforts, including credit derivatives
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5.1.2.6
Risk Rating Limit Exceptions (RRLEs) 5.1.2. 6.1 Risk Rating Limit Exceptions are discouraged and must be approved in advance at the appropriate level. 5.1.2.6.2
RRLE Types
5.1.2.6.2.1 The required approvers to an RRLE depend on the RRLE type, as defined below. Unless stated otherwise, an RRLE must be approved in advance.
5.1.2.6.3
Cash Exceptions
5.1.2.6.4.1 Exceptions that can be attributed to cash collateralized facilities.
5.1.2.6.5
‘Immaterial’ Exceptions
5.1.2.6.5.1 Immaterial overages to alreadyapproved Risk Rating Limit exceptions, defined as overages up to 10% of Risk Rating Limit. 5.1.2.6.6
Passive Exceptions
5.1.2.6.6.1 Passive exceptions are those caused by: · A valuation change on an existing transaction · A downgrade in the risk rating of the obligor · An Underwritten Position becoming ‘Aged Inventory’ (defined on page 53). 5.1.2.6.6.2 (Note that Passive exceptions need not be pre approved; Instead, they are flagged as part of the regular reporting process, and must be reviewed and their associated action plan must be approved as soon as possible after they occur, but no later than the next quarterly review of Risk Rating Exceptions.) 5.1.2.6.7
All Other: LongTerm and Continuing
5.1.2.6.7.1 All other RRLEs, not captured in the definitions above, are considered to be ‘LongTerm and Continuing’.
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5.1.2.6.8
Required Approvals
Þ Cash, Immaterial and Passive RRLEs require approval from Line ED and Head of Credit Risk Management (or their designees) Þ All other RRLEs require approval by MCC. 5.1.2.6.9
Administrative Issues
5.1.2.6.9.1 All requests for exception approvals (excluding cash collateralized exceptions) must include an action plan and time frame for bringing the credit exposure back within Risk Rating Limits, and must clearly identify the Relationship Manager or Business Head requesting the exception. 5.1.2.6.9.2 An approved Risk Rating Limit exception does not need to be reapproved (by the above approvers) during the Annual Review process. However, all Risk Rating Limit Exceptions must continue to be noted on the Facility Approval Memo. 5.1.2.6.10
Reporting
5.1.2.6.10.1 All Risk Rating Limit exceptions will be reported monthly to the Management Credit Committee. 5.1.2.6.10.2 On a quarterly basis, the Head of Credit Risk Management will review all risk rating limit exceptions including exceptions that have aged past their originallyestablished and approved resolution period. 5.1.2.7
Credit Facilities Approval Process 5.1.2.7.1
Step 1: Establish Total Facilities
5.1.2.7.1.1 Credit facilities are established to express the purposes and terms under which Access Bank is prepared to extend credit. (A proposal or marketing letter does not require credit approval as long as it expressly disclaims any commitment or any undertaking to provide a commitment or other services, and does not obligate Access Bank in any way. Marketing letters will be jointly approved by the business head or ED and the Head of Credit Risk Management ). 5.1.2.7.1.2 In some cases, it may be appropriate to establish Total Facilities that exceed the Risk Rating Limit. It is the responsibility of the Relationship Manager to ensure that actual OSUC stays within the Risk Rating Limit or is covered by an approved Risk Rating Limit exception. February 2008
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5.1.2.7.1.3 When establishing Total Facilities for a relationship, Total Facilities must include: · ·
All existing and proposed Direct, Contingent, including those offered under approved Credit Programs. Facilities extended to all related entities including the parent entity and its majorityowned or effectivelycontrolled entities. It should also include credit facilities to affiliates (up to 20% but less than 50% owned) where the borrower effectively controls or provides support to the affiliate; or where there is a material economic relationship in either direction, as determined by the credit approvers.
·
Existing and proposed credit facilities for which the obligor provides credit enhancement (e.g. guarantees), and that credit enhancement is one of the primary sources of repayment or one of the principal considerations in the approval of the facility.
·
The seller risk in a securitization transaction, defined, for these purposes, as a minimum of 5% of the notional amount. (The Head of Credit Risk Management or Designee can approve an exception to this requirement.) The seller risk must be shown as a Committed Facility.
·
Issuer risk in certain securities held in availableforsale portfolios, unless the security is defined as an ‘Eligible AFS Security’.
·
Aged Inventory beyond the Extension Period, as described in the section on Credit Underwriting.
5.1.2.7.2
Step 2: Determine the Required Approvals and Approval Levels
5.1.2.7.2.1 The level of authority required for approval can be found on the Credit Facility Approval Grid, and is a function of the Total Facilities amount. Þ All extensions of credit in the bank must be approved in compliance with the Credit Risk Management Policy Guide. Approval limits may be assigned to individuals in the countries as appropriate, and in line with policies. Þ Extensions of credit facilities in the regions must have the concurrence of the Head of Credit Risk in the Regional Office and must be approved by an officer of the bank with a covering credit approval limit.
Þ Credit requests that are above the limit of the ED for Rest of Africa will be approved at the next higher appropriate level GDMD / February 2008
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GMD / MCC / BCC / Board. For regional credits requiring MCC presentation at Head Office, prior review and concurrence of the Regional Head of Credit Risk Management is required and MCC must be notified well in advance of the meeting of the committee to discuss the credit. 5.1.2.8 Guidelines for Determining Approval Authority and Level 5.1.2.8.1 No credit exposure shall be created on the judgment or at the discretion of a single bank officer acting independently. All extensions of credit or Individual/Business Credit transactions shall require involvement of a minimum of three (3) bank officers whose positions involve responsibility for credit creation. 5.1.2.8.1.1 Signoff for approval of credit shall require the involvement of: ü officer at the appropriate level in the marketfacing unit originating and sponsoring the credit facility request ü officer at the appropriate level in the Credit Risk Management function ü approval authority in line with the approved credit approval authority guidelines. 5.1.2.8.1.2 Involvement of a signoff by at least one officer of the bank from the Credit Risk Management function with exposure endorsement authority equal to or greater than the amount of the credit facility request shall be condition for approval of credit. 5.1.2.8.1.3
The Approval Authority shall be in line with delegated credit approval authority limits at the Board Credit Committee, Management Credit Committee (MCC) or designated bank officers.
5.1.2.8.1.4 For credit acceptance and exposure creation purposes, no single facility shall be considered in isolation, but the wider “one obligor” concept shall be applied in all instances. Each credit exposure to/facility request from a customer and related parties shall be aggregated to determine the total credit exposure of the bank to the particular customer and related parties. An obligor shall therefore represent all related parties that are associated/belong to the same group of companies whose management are strongly linked or share the same ownership. Exposures to any such obligor shall be aggregated to determine the level of Access Bank’s exposure to the company or group of companies.
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5.1.2.8.1.5 By definition and for the purpose of credit creation at Access Bank, a group of companies shall exist where one or more of the shareholders of the company has up to 20% holding in another company. In determining the appropriate approval authority level, the aggregate of all exposures to the individual customer or group shall be adopted. 5.1.3 Credit Approval Authority Limits 5.1.3.1
Individual Authority
5.1.3.1.1 The individual levels for credit approval in the bank shall be: ü Group Managing Director/CEO ü Group Deputy Managing Director ü Respective Executive Directors of MarketFacing Business units jointly with the Executive Director Risk & Management Control (or the Head of Credit Risk Management as his/her alternate) ü Other designated officers. 5.1.3.1.2 Credit approval authority shall be approved by the Group Managing Director/CEO based on delegation by the Board of Directors, on the recommendation of Business EDs and Head of Credit Risk Management. 5.1.3.2
Group Limits
5.1.3.2.1 Group approval shall be required in respect of credit exposures that are in excess of the approved individual credit approval authority. Group approval authority shall be defined at the following levels: v The Board of Directors v Board Credit Committee (BCC) v Management Credit Committee 5.1.3.2.2 The Management Credit Committee (MCC) shall consider facility proposals in excess of the highest individual credit authority limit. Facility proposals that exceed the approval authority of the MCC shall be approved by The Board Credit Committee on behalf of the Board of Directors.
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5.1.4 General Rules for Using Approval Authority 5.1.4.1
Review and ReAppointment
5.1.4.1.1 All appointments and designations for credit risk approval, as well as corresponding credit limits, must be reviewed and re approved by the Head of Credit Risk Management at least once a year. Each customerfacing business unit shall maintain uptodate records of credit approval authority delegated to approving officers. 5.1.4.2 5.1.4.2.1
Approval Requirements Credit Program Approval
5.1.4.2.1.1 Credit programs shall be primarily defined to accommodate credit offerings where there are business opportunities that such will address for groups or groups of customers with homogenous business fundamentals and/or profiles such that their financial needs are better met through a common approach. Approvals under credit programs shall be within approved global exposure and maximum individual exposure limits and shall be exercised within the marketfacing business units, subject to approval limits as may be set by the bank for each product program. 5.1.4.2.1.2 In the approval of individual transactions under approved credit programs, all exceptions to defined parameters shall require the involvement of Credit Risk Management. 5.1.4.2.1.3 Approval limits for individual job roles shall be set within each Credit Program and approved as appropriate. 5.1.4.2.2
Individual/Business Credit Approvals
5.1.4.2.2.1 The Board Credit Committee (on behalf of the Board of Directors), on the recommendation of the MCC shall periodically review the approval authority assigned to specific individual roles and organizational groups in line with responsibility and accountability.
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5.1.4.2.3
Individuals Group Managing Director/CEO Group Deputy Managing Director Executive Directors Designated Business Officers Designated Credit Risk Management Officers
5.1.4.2.4
Organizational Groups Board of Directors Board Credit Committee Management Credit Committee
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APPROVING AUTHORITY
APPROVAL AUTHORITY Current Limit (N)
Executive Director (specifics names) Group Deputy Managing Director Group Managing Director / CEO Management Credit Committee Board Credit Committee Board of Directors
5.1.4.2.5
75,000,000 150,000,000 200,000,000 500,000,000 6,000,000,000 Above 6bn
Guidance Limits
5.1.4.2.5.1 To provide flexibility in managing valued customer relationships, especially for specific Institutional banking customers that satisfy at the minimum, the criteria for the best risk rating, the bank shall approve ‘guidance limits’. These shall be preapproved exposure limits not advised to the customer, but available to allow for quick response to temporary emergency needs for accommodation/enhancement of facilities. The purpose and other terms and conditions may not be specified in the original approval of Total Facilities. (Typically, however, these guidance limits should include a tenor limit.) Guidance limits are included in Total Facilities and, unless otherwise specified, are designated as Direct exposure. 5.1.4.2.5.2 Guidance limits may be exercised at the discretion of the relationship management function in conjunction with Credit Risk Management up to a maximum of 10% of the approved credit facility advised to the customer. In all other situations, two credit officers must approve the allocation and one of the credit officers must have a covering limit for the allocation amount. In all situations, careful consideration must be given to the adequacy of collateral for the additional exposure, as well as the certainty / adequacy of the obligor’s cash flow as our first way out. 5.1.4.2.6
Unusual/Special Risks
5.1.4.2.6.1 Unusual/special risks shall be defined from time to time in unusual risk policies approved by MCC and includes, but is not limited to, the following: v Exposures to director related accounts v Exposures to politically exposed entities v Exposures to gambling entities
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5.1.4.2.6.2 All unusual/special risks shall require approval at Management Credit Committee / Board Credit Committee or Board of Directors subject to applicable limits.
5.1.4.2.6.3 In addition, the following requirements must be met: ·
Approval by at least three authorized credit officers, one of whom must be from the business or geography, and one of whom must be from Credit Risk Management.
5.1.4.2.6.4 The Relationship Manager/Originating Officer must identify whether any characteristics of the facilities merit higher or additional approvals as required by these policies, including: ·
Unusual / Special Risks (as highlighted above);
·
Remedial Management ;
·
The Risk Rating Policy;
as well as any requirements contained in other Access Bank Policies. 5.1.4.2.7
Total Facilities in Excess of Risk Rating Limits
5.1.4.2.7.1 If Total Facilities exceed the Risk Rating Limit, then approvers must determine that the level and purpose of the facilities are reasonable and there is an effective process to ensure that actual OSUC remains within the Risk Rating Limit.
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5.1.4.3
Other Approval Requirements 5.1.4.3.1
New or Increased Facilities
5.1.4.3.1.1 Any increases to Total Facilities, whether caused by new facilities or increases to existing facilities, must be approved, based on the new Total Facilities amount, as per the Credit Facility Approval Grid. 5.1.4.3.2
Drawdown of Approved Facilities
5.1.4.3.2.1 Availments under approved credit facilities shall be through drawdown memorandum approved by an officer in Credit Risk Management and an officer in Legal Department, who will verify that all conditions precedent to drawdown have been met. 5.1.4.3.2.2 Classified Facilities Drawdown on facilities classified “substandard” are approved as described above, while drawdown of facilities classified ‘doubtful’ and worse must be approved by the Head of Credit Risk Management. At a minimum, classification shall be in accordance with prudential guidelines set by the regulators. 5.1.4.3.3
Material Change
5.1.4.3.3.1 When an established credit facility undergoes a material change in terms, tenor or conditions (with materiality determined by the Head of Credit Risk Management), Total Facilities must be reapproved, in accordance with the Credit Facility Approval Authority Limits. 5.1.4.3.5
Risk Reductions
5.1.4.3.5.1 When the amount of a credit facility is reduced or cancelled, or the tenor is shortened, the Relationship Manager / Originating Officer must promptly advise the applicable credit administration area, in writing, that the credit systems be updated to reflect the changes.
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5.1.4.3.6. Reallocations and Suballocations of Approved Facilities 5.1.4.3.6.1 Two officers from the business unit may approve any reallocation or suballocation from an approved facility, where the obligor, Exposure Type (Direct, Contingent) and tenor are preestablished, in order to establish or increase another facility under the following conditions: · The facility is for the same obligor. · The risk rating of the new or increased facility is equal or better. · The Exposure Type is equal or better. · The tenor is equal or shorter. 5.1.4.3.6.2 If the reallocation or suballocation is for a related obligor of equivalent or better risk rating within the same client relationship, and the last three conditions are met, then two business credit officers may approve reallocations / sub allocations, one of who must be the responsible business Group Head. 5.1.4.3.6.3 For all other situations, approval is required from the Head of Credit Risk Management and the responsible business ED. The Head of Credit Risk Management has the responsibility to determine if the reallocation constitutes a ‘material change’ in Total Facilities, and has the discretion to require that Total Facilities be reapproved, in accordance with the Credit Facility Approval Grid. 5.1.4.3.7
Release of Collateral, Guarantees and Support
5.1.4.3.7.1 Upon confirmation of full repayment of the credit facility and liquidation of the bank’s exposure, all collateral, guarantee or support for any type of credit transaction shall be released to the customer in accordance with agreed terms and conditions. The release of collateral, guarantees or support for any type of credit transaction requires the following approvals: ·
·
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Before the corresponding commitment is cancelled or repaid, the Head of Credit Risk Management must determine if the release of the collateral, guarantee or support constitutes a material change in the risk of the transaction. If so, then the transaction must be reapproved, based on the Credit Facility Approval Grid. After the corresponding commitment or exposure is cancelled or repaid, approval must be obtained from a credit officer with a covering limit, not to exceed the responsible business Executive Director and Head of Credit Risk Management after verification of cancellation or repayment.
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5.1.4.3.7.2 This does not apply to adjustments in collateral amounts related to changes in asset values, such as margining, repurchase or reverse repurchase agreements, to the release of the underlying security in a repurchase agreement, margin lending or securities lending activities, or assetbased finance arrangements. 5.1.4.3.8
Waivers or Amendments to Existing Legal Documentation
5.1.4.3.8.1 Requests to waive or amend the provisions contained in existing credit agreements must be considered carefully, as they may be a critical component of problem identification and remedial management activities. Such requests must be approved by the responsible business ED and in accordance with the Credit Approval Grid, but not to exceed the Group MD/CEO limit for credits. Any waiver or amendments for facilities above that must be approved by GDMD/GMD. 5.1.4.3.8.2 Other types of amendments to credit agreements, such as the lengthening of tenor, increasing facility amount, or material relaxation of collateral structure, require full credit approval of Total Facilities, in accordance with the Credit Approval Grid. 5.1.4.3.9
Temporary Extensions
5.1.4.3.9.1 All credit facilities must be reviewed once every 12 months. However the periodic review may be temporarily extended for up to 30 days with approval of the Business ED and the Head of Credit Risk Management. Extensions beyond 30 days, up to 60 days, must be approved by the GDMD (or designee). Extensions beyond 60 days must be approved by the GMD/CEO (or designee). 5.1.4.3.9.2 The annual review date may then be reset, as one year from the approved extension date. 5.1.4.3.10
Unaudited Financial Statements
5.1.4.3.10.1 The use of unaudited financial statements for credit approval requests is discouraged.
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5.1.4.4.
Credit Underwriting and Distribution 5.1.4.4.1
Overview
5.1.4.4.1.1 This policy applies to loans and other debt instruments that Access Bank underwrites and distributes. 5.1.4.4.2
Definitions
5.1.4.4.2.1 The Hold Position is the amount that Access Bank intends to retain. 5.1.4.4.2.2 The Underwritten Position is the amount Access Bank commits to purchase and distribute to investors. 5.1.4.4.2.3 The Total Position is the sum of Access Bank’s Hold and Underwritten Positions. 5.1.4.4.3
Credit Program and ‘OneOff’ Apprvoal Requirements
5.1.4.4.3.1 Businesses may only undertake credit underwriting and distribution activities under an approved Credit Program that includes the definitions and provisions below. All Credit Programs for Credit Underwriting must be approved in line with the Credit Approval Authority grid. 5.1.4.4.3.2 Credit underwriting and distribution requires the approval of individuals with highly specialized market skills and specific product expertise. The level of approval depends upon the amount and facility risk rating. The responsibilities for approving each part of a credit underwriting are as follows. 5.1.4.4.3.3 These are the minimum approval standards that must be contained in a Credit Program, as well as the approval requirements for oneoff transactions, outside of a Credit Program. 5.1.4.4.3.4 Oneoff transactions (i.e., those done outside a Credit Program) also require approval in line with the Credit Approval Authority grid.
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5.1.4.4.4
Approval of Hold Position
5.1.4.4.4.1 The Hold Position is subject to credit approval in accordance with the Credit Facility Approval Authority Grid. This Hold Position amount must be aggregated with other credit exposures for the relationship, and is included in Total Facilities.
5.1.4.4.5
Approval of Underwritten Position
5.1.4.4.5.1 Each Credit Program must have an approval process for the Underwritten Position that specifies approval levels as a function of the size of the underwriting. The Underwritten Position, during its defined distribution period, is captured by the market risk / issuer risk reporting and limit framework. 5.1.4.4.6
Approval of Total Position
5.1.4.4.6.1 Each Credit Program must have an approval process for the Total Position that specifies approval levels as a function of the size of the Total Position. 5.1.4.5
Other Requirements 5.1.4.5.1
Best Efforts Undertakings
5.1.4.5.1.1 In Best Efforts Undertakings, Access Bank agrees to use its best efforts to place loans or securities with investors. Although distribution efforts are similar to an underwriting, a Best Efforts undertaking does not entail a legal commitment to fund any distribution shortfall. However, there is risk here in the franchise damage associated with a failed undertaking. 5.1.4.5.1.2 Best Efforts Undertakings should either have a specific approval process, documented as part of a Credit Program, or the total amount of the undertaking must be approved pursuant to credit underwriting requirements.
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5.1.4.5.2
Assignments and Participations
5.1.4.5.2.1 The distribution of Underwritten Position is normally accomplished by assignments, in which an investor assumes his pro rata share of a transaction on a full risk basis, with no recourse or future funding risk to the underwriter. 5.1.4.5.2.2 Unfunded participations entail counterparty funding risk in that, should the participant fail to fund, Access Bank remains obligated. Therefore, any unfunded portion of a transaction sold by participation requires credit approval as an increase to the issuer hold position 5.1.4.5.3
Documentation Requirements
5.1.4.5.3.1 An underwriting commitment should follow Commitment Letter standards. 5.1.4.5.4
Defined Distribution Period
5.1.4.5.4.1 Each underwriting and distribution must have a Defined Distribution Period that cannot exceed 90 days, unless otherwise specified in advance as part of the original transaction approval. 5.1.4.5.4.2 This distribution period begins: · For loans – when the issuer accepts Access Bank’s commitment, either verbally or in writing. · For securities – on the date the price is set. 5.1.4.5.4.3 The distribution is completed when another party contractually assumes Access Bank’s commitment or purchases the asset. 5.1.4.6
Remidial Management
5.1.4.6.1
Aged Inventory
5.1.4.6.1.1 If an Underwritten Position is not completely sold within the Defined Distribution Period (usually 90 days), the amount remaining is considered Aged Inventory and must be markedto market. This could occur due to unexpected delays, lack of marketability, or credit deterioration. If such events occur during the Defined Distribution Period, any of the approving officers can determine that the Underwriting is Aged Inventory at an earlier date. 5.1.4.6.1.2 Once an underwriting becomes Aged Inventory, a memorandum, specifying the Extension Period (usually an additional 90 days), and describing an action plan or alternate strategy and the marktomarket methodology, must be prepared by Investment February 2008
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Banking Division. The process to approve the Aged Inventory memorandum must be documented as part of the Credit Program. Required approvers must include a Business ED and the Head of Credit Risk Management. 5.1.4.6.1.3 If Aged Inventory remains unsold at the end of the Extension Period (i.e., usually after 180 days from the start of the Defined Distribution Period), the Business Unit for the issuer must include the position in Total Facilities and must ensure that the position is included in the credit reporting systems. If the corresponding Hold Position is classified at this point, then the Aged Inventory amount should also be classified. All Aged Inventory positions must be reported at least monthly to the GMD, GDMD and responsible business Executive Director. The process for reporting Aged Inventory must be included within the Credit Program. 5.1.4.6.2
Environmental and Social Risks
5.1.4.6.2.1 Access Bank is committed to conducting business in an environmentally and socially responsible manner, and will operate in accordance with the Equator Principles, which are a voluntary set of guidelines for managing environmental and social risk issues related to the financing of development projects based on guidelines of the World Bank and the International Finance Corporation (IFC). For specific information on the Equator Principles and on World Bank/IFC Guidelines, please refer to the website at http://www.equator principles.com).
5.1.4.6
Credit Review and Maintenance 5.1.4.6.1
Overview
5.1.4.6.1.1 All credit relationships are subject to reviews on at least an annual basis in the form of either an ‘Abbreviated’ or a ‘Full’ Credit Review. 5.1.4.6.1.2 Not withstanding the criteria below, at any time a credit approval authority or the Head of Credit Risk Management may determine that a more frequent review cycle is more appropriate for a particular relationship, geography, industry or business. 5.1.4.6.2
‘Abbreviated Only’ Criteria
5.1.4.6.2.1 An Abbreviated Annual Review is allowable each year for the following: · Relationships with Total Facilities of N5MM or less; within the business unit’s defined target market, adheres to the approved Risk February 2008
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· ·
Acceptance Criteria, and facilities extended are part of an approved Credit Program; and there are no classified facilities. Relationships where all facilities are cash collateralized shall also undergo an Abbreviated Annual Review. Facilities below N5MM will only be approved under a Credit Program. Countries may establish local limits, which must be endorsed by the Regional Head of Credit Risk Management and approved by the Head of Credit Risk Management in Head Office.
5.1.4.6.3
‘Full Only’ Criteria
5.1.4.6.3.1 A Full Credit Review is required every year for all other relationships not meeting the standards above, as well as for: · Any industry, region, country or business where it is determined in a Portfolio Review that abbreviated Annual Reviews will not be permitted; · Any relationships with classified (“substandard” and worse) facilities; or has been adversely noted at a CAC review in the review period. 5.1.4.6.4
Full Credit Reviews
5.1.4.6.4.1 Components 5.1.4.6.4.1.1 A Full Credit Review must include the Credit Analysis standards in section 5.2.1.3. 5.1.4.6.4.2 Approvals · The Approval requirement for a Full Credit Review is the same as that required by the Credit Facility Approval Grid. However where there are no increases to Total Facilities and no overall material changes in tenor, credit terms, security/support, or the credit risk profile of the obligor, this fact should be clearly stated in the Facility Approval Memorandum for consideration by the Approval authority in deciding whether to fast track approval or not. · Additional approvals may be required for relationships with adversely classified facilities. 5.1.4.6.5
Abbreviated Credit Reviews
5.1.4.6.5.1 Components 5.1.4.6.5.1.1 At a minimum, an Abbreviated Credit Review must include: · A brief ‘Summary of Risk Trends’, which focuses on the main changes in the risk profile since the last Abbreviated or Full Credit Review. · A review/verification of credit facilities to ensure they are appropriate to the obligor’s needs and are correctly reflected on the FAM and in the credit reporting systems. February 2008
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· · ·
·
An explanation for changes in credit facilities and terms, if any. Reaffirmation that collateral, documentation and related security arrangements are in full effect. Updated risk rating information, and a review of all Obligor Risk Ratings and Facility Risk Ratings in the credit reporting systems to ensure they are current and accurate. As applicable, any Risk Rating Limit Exceptions, and the related action plan.
5.1.4.6.5.2
Approvals
5.1.4.6.5.2.1 The Abbreviated Relationship Credit Review must also be approved in line with the Credit Facilities Approval Grid. 5.1.4.6.6
Flow Chart of the Credit Process
5.1.4.6.6.1 The following flow chart summarizes the credit process in Access Bank.
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START Customer applies for loan in writing to the branch / lending unit or RM solicits for business. Account Officer prepares the FAM and forward to Relationship Manager / Group Head
Group Head reviews the FAM NO Adjustments required Is Credit proposal OK for further processing?
NO
Declined. Customer is advised accordingly by the Relationship Manager.
A YES Group Head forward the FAM to Credit Risk for credit analysis and review.
Credit Analysis & Approval Communication · The Credit Risk registers the credit requests · Credit Analysis and Review · Issues are communicated to Unit Head / Group Heads by mail.
Credit Analysis forwards FAM to Legal Dept for review
FAM is forwarded to Approval Authority depending on approval limit.
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Credit Risk registers the approved FAM. Approval is communicated to Relationship Manager
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C B
C
List of qualifying credits are compiled for MCC presentation.
The credits are considered by MCC and decision taken
Is credit approved by MCC?
NO
Declined. Customer is advised accordingly by the Relationship Manager.
YES A Is credit within MCC limit?
YES B
NO The Credit request will be considered by Board Credit Committee (BCC).
D
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D
Is Credit approved by Board Credit Committee?
NO
A
YES
Is credit below N6 Bn?
YES
NO The Credit request will be considered by Board of Directors (BOD).
Is Credit approved by Board of Directors?
NO
A
YES Credit Admin will communicate approval indicating documents required for drawdown.
B
E
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E Customer executes the offer letter/other loan documentation and must meet all conditions precedent to drawdown
Relationship Manager / Group Head prepare and forward the drawdown approval memo and other documents to Credit Admin.
Inadequacies are communicated to Relationship Manager and Group Heads NO
Have all conditions precedent to drawdown been
met?
YES Drawdown approval is signedoff by Credit Admin. and Legal Department
Facility is booked / maintained in the system
Facility is monitored continuously and reported in various portfolio reports
Examples of Reports 1. Overdraft reports 2. Loan maturity reports, etc
F February 2008
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F
NO Account passed to Remedial Assets via CAC decision
YES
Account is packaged for workout or full scale recovery
Is loan amount recovered after all recovery efforts?
Is facility performing?
Monitoring continues
YES
Account is paid down
NO
A
Declined. Customer is advised accordingly by the Relationship Manager.
Loan amount is provided for and writtenoff
END
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5.1.5 Lending Products and Services 5.1.5.1
Offer Letters 5.1.5.1.1 An Offer Letter is a commitment by the Bank to lend to a customer once the terms and conditions contained in the letter have been satisfied. 5.1.5.1.2 Access Bank extends credit facilities on the basis of legal commitments notified in writing through Offer Letters. At a minimum, an offer letter must contain the following details: o o o o o o o o o
Type of facility being offered Amount of facility Tenor of facility Pricing information (including all fees) Conditions precedent to drawdown Collateral requirements Covenants for drawdown Covenants regulating the use of the facility The source and timing of repayment of interest and principal
5.1.5.1.3 Offer Letters shall be in standard formats produced by the Legal Department. Any Offer Letter that deviates from the standard format must be reviewed by an officer in Legal Department, and such review will be evidenced by the initial of the officer on each page of the offer letter. 5.1.5.2
Advised Facility
5.1.5.2.1 A credit facility made known to the customer in writing through an Offer Letter is an advised facility. Customer’s acceptance of an advised facility must be supported by a Board Resolution. 5.1.5.3
Unadvised Facility
5.1.5.3.1 Unadvised facilities are those that are not disclosed to the customer. Amongst other reasons, an unadvised facility may be used: o To keep client’s account balance within the scope of cover provided by its collateral. o For relationship reasons, to keep the borrower’s account within an approved credit limit and avoid penalty interest rates on excesses over previously approved facilities. 5.1.5.3.2 Approval for unadvised lines must comply with the requirements of this Guide.
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5.1.5.4
Term/Time Loan:
5.1.5.4.1 Term/Time loans are facilities in respect of which there is a clearly defined tenor and repayment schedule. A time loan is usually for tenors of one year or less, while a term loan is for tenors longer than one year. Maturities beyond 7 years are generally discouraged. 5.1.5.4.2 Term/Time loans are normally given to finance specific transactions, capital projects, expansion programs etc. Repayment of term loans shall be tied to the cash generated from such project. Examples of credit products that shall qualify as Term Loans include: v Equipment Financing v New Technology Capital Loan v Working Capital Loan v Asset Replacement 5.1.5.4.3 5.1.5.5
Term loans shall not be given to finance operating expenses.
Revolving Credits:
5.1.5.5.1 Revolving Credits will include shortterm facilities in respect of which repayment (enbloc or in installments as the case may be) shall be required within a fixed period of time. Revolving credits are short term/tenured facilities with predefined cycles that relate to the customer’s business/trading cycle. 5.1.5.5.2 On repayment, the customer may reborrow under same conditions provided there is no material change to his financial position. Approval for revolving credit facilities may be granted subject to the provisions of the bank’s risk management policies. The tenor of revolving credit must not exceed 3 years. 5.1.5.5.3 Qualification for revolving credit facilities shall be limited to customers with established businesses in stable industries and will include product lines such as: v v v v v v v
Contractor Project Finance Distributor Finance Import Finance/Commercial Paper (CP) Custom Duty payment Letter of Credit Financing (LCs) Suppliers Financing Note/Bill discounting
5.1.5.5.4 Manual.
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Specific definitions of these are included in the glossary of this
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5.1.5.6
Overdraft Facilities:
5.1.5.6.1 Overdraft facilities shall be provided to cover the working capital requirements of a business and may also be revolving credits. Maximum tenor of overdraft is 12 months, subject to renewal on application by the customer and appropriate approval in line with the bank’s credit risk management policies. 5.1.5.6.2 Important considerations in respect of overdraft facilities and approved exposure limit shall include: v Profitability of business v Ability of the company to complete its asset conversion cycle v Exposures to other banks/lenders 5.1.5.6.3 Temporary Overdraft accommodation shall be approved for not more than an aggregate period of 30 days. A temporary overdraft that remains outstanding for longer than 30 days shall be classified as a Past Due Loan. 5.1.5.7
Drawings Against Uncleared Effects or Drafts (DAUE/DAUD):
5.1.5.7.1 Temporary accommodation of customers’ requests for withdrawals against third party cheques or other bank drafts which are awaiting clearing where there are insufficient funds to cover amount requested subject to approved limit. This shall be acceptable only under the following conditions: v Drawings under DAUE / DAUD are strictly against third party cheques or bank drafts and not company’s own cheques v No drawings in excess of the approved DAUE / DAUD limits are allowed v Cheques are drawn on persons or organizations that are recognized and/or rated as “low risk” by the bank v DAUE / DAUD shall be cleared up within the applicable clearing period as stipulated by the Central Bank of Nigeria. v Adequate security cover may be required / requested. v Certain individuals have been given approval limits for DAUE / DAUD. Such approval limits are specific to the individuals and cannot be delegated. 5.1.5.8
Bonds and Guarantees:
5.1.5.8.1 Bonds and Guarantees are undertakings by the bank made at the request of a customer to a beneficiary. This will include guarantees issued by the bank to third parties on behalf of a customer. These lines are contingent liabilities and shall require 100% cash cover, a counter indemnity from a first class Bank or adequate acceptable tangible security cover. In the alternative, they will include clauses to make them effective only upon receipt of equivalent cash amount from the beneficiary. Bonds/guarantees may however be issued on a clean basis to better rated obligors (typically February 2008
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multinational companies) that normally borrow clean or against negative pledge and a letter of indemnity. 5.1.5.8.2 These instruments must have the following elements: a. Access Bank’s obligation must contain a specific expiration date or a defined term. The maturity of the underlying contract must exceed the tenor of the guarantee / bond. b. The Bank’s undertaking must be limited to a specific amount c. The obligation to pay must arise upon the fulfillment of certain specified conditions. These may include the presentation of specific documentation which must be unambiguous as to their legal interpretation. d. In the event that the guarantee/bond is called, the obligor must have an unqualified obligation to reimburse the bank on same terms as the bank is expected to perform under the instrument. e. Issuance of guarantees/bonds must be reviewed by the bank’s legal counsel for adequate wording to protect the interests of the bank. f. On expiration, the bond or guarantee must be returned to the bank for cancellation before the underlying security / cash collateral is released. 5.1.5.8.3 Issuance of guarantees to support offshore facilities is strongly discouraged and must be approved at the next higher level than required under the Credit Facilities Approval grid. Such approval shall only be given after due consideration of requirements of all exchange control regulations and mitigation of associated foreign exchange risk. 5.1.5.9
Commercial Papers (CP): 5.1.5.9.1 Commercial Papers are unsecured shortterm promissory notes issued by corporate bodies directly to the investing public (usually through an issuing house such as a bank etc). Typically CPs have tenors between 30 – 180 days. The Bank may also guarantee a CP issuance. 5.1.5.9.2 Guaranteed CPs are direct exposures for the bank. Without the bank’s guarantee, the bank performs an agency role and earns a fee without taking a direct exposure. However the bank is exposed to reputation risk on all CPs it intermediates.
5.1.5.10
Lease Facilities 5.1.5.10.1 A lease facility exists where Access Bank acquires or funds the acquisition of capital assets at a client’s request and then hires or leases the asset back to the client for an agreed periodic rental. Title to the asset remains with the bank until when fully repaid and the client exercises the option to purchase the asset for a predetermined price. 5.1.5.10.2 This facility may be used for a wide range of capital assets including industrial machinery, telecommunications equipment, motor vehicles, etc. Structuring and documentation are very important
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considerations in a lease transaction and must take account of the following factors: flexible pricing; ability of the bank to take effective and prompt possession of the asset in the event of default by the lessor; adequacy of insurance protection etc. These must be documented in a lease agreement and approved by legal counsel.
5.1.5.11
Warehouse Financing 5.1.5.11.1 In this form of financing, the bank takes physical control of the goods financed. Access Bank will only undertake warehouse financing where it takes control of the goods financed using an independent acceptable and reputable warehousing agents. Appointment of acceptable warehousing agents for Access Bank shall be approved by MCC based on recommendation from the Head of Credit Risk Management. 5.1.5.11.2 In general, warehouse financing should only be considered under the following conditions: a. b. c. d.
The goods financed are fast moving consumer goods Maximum tenor is 12 months Release from stocks should be on a FIFO basis Periodic stock taking is required to verify the quantity and quality of goods financed. The frequency may vary with the type of goods. e. The forced sale value of the goods must be adequate to cover the bank’s exposure at all times. 5.1.5.12
Syndications 5.1.5.12.1 Syndications are situations where several banks come together to finance a given transactions due to its size or complexity. Access Bank will participate in such syndications that are led by other banks or by Access Bank. Regardless of the role of the bank, syndicated facilities shall be subject to the same high standards of credit analysis, documentation, client contact and responsibility. Access Bank will only assume lead roles in syndications for which it has the expertise and capacity (capital, industry knowledge, technical expertise, credit analysis skills, documentation capability etc) to manage fully.
5.1.5.13
Policy Loans 5.1.5.13.1 These are exceptional or unsecured credit extensions to certain companies and/or individuals having special relationships with the bank, some of which are already subject to certain regulatory restrictions. These include, but are not limited to, the following:
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a. Unsecured credit to bank directors; to companies where bank directors are also directors; or companies owned or controlled by close associates or relatives of directors of the bank. Loans in this category must be approved by the Board prior to drawdown and also mentioned at Board Meetings for ratification. b. Politically sensitive credits c. Unsecured credits to executives of client companies; executives of other banks or highly connected individuals in business or government circles. 5.1.5.13.2 Relationship Managers must exercise due care in proposing such facilities and ensure that a viable first way out exists. All loans in these categories must be approved by the GMD/GDMD irrespective of the amount involved (in addition to other approvals that may be required from MCC or Board etc). 5.1.5.14
Agricultural Loans 5.1.5.14.1 Agricultural loans are complex and high risk, given the vulnerability to weather, pests, disease and other uncontrollable factors. Specialist skills are required for appraisal of such loan extensions; which must take account of the following factors: a. Any government incentive scheme b. Any tax benefits for agricultural lending c. Any regulatory requirements. 5.1.5.14.2 Due to the long maturity period of certain agricultural products, long moratorium periods that may be imposed by regulatory authorities, and environmental risks, tenors of up to 8 years may be allowed for tree cops. 5.1.5.14.3 Evaluation of requirements for collateral on agricultural loans will follow the norm for credit extensions. However special efforts should be made to obtain acceptable guarantees from public or private sources external to the project and independent of the project cash flows.
5.1.5.15
Loans to Staff 5.1.5.15.1 Loans to staff will comply with the guidelines stated in the Staff Loan Policy, which shall be subject to periodic review by the Board.
5.1.5.16
Local Placements and Takings from Banks 5.1.5.16.1 Access Bank will only place funds with banks for which there are approved placement lines. In general, placements should be for tenors of less than 1 year. While there are no limits on takings from other banks, care should be taken to avoid any concentration risks.
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5.1.5.17
Foreign Exchange Limits 5.1.5.17.1 Access Bank’s foreign exchange limits and position limits shall be guided by the requirements of the Market Risk Policy manual.
5.1.5.18
Credit Extension to Independent Accountants 5.1.5.18.1 To avoid any potential conflict of interest situation, Access Bank shall not extend credit to its principal independent accounting firm or its partners, nor shall the bank extend credit to any other accounting firm or their partners who are regularly engaged to audit the financial statements and/or affairs of the bank or its branches/subsidiaries/affiliates.
5.1.5.19
Undesirable Lines of Business 5.1.5.19.1 Financing certain lines of business is undesirable for the reputation of the bank and therefore the bank’s policy is to avoid transactions in such lines of business. Examples include, but are not limited to, armaments and gambling. MCC may identify other lines of business that fall under this classification. Approval of the Board of Directors is required for any loans to these sectors.
5.1.5.20
Other Lending Products: 5.1.5.20.1 Other lending products shall include structured credits for consumer purchase, which are mostly short to medium term funding, to meet the following needs: o o o o o o o
Vehicle purchases Vehicle refurbishment House rent Hire Purchases Consumer durables (e.g. electronics, furniture) Shares acquisition Others (education, travel etc.)
5.1.5.20.1 5.1.5.21
Longer term funding shall be provided for Mortgage facilities.
New Lending Products and Services Approval: 5.1.5.21.1 Expansion of Access Bank’s lending product offerings in form of new lending products and/or services shall be subject to approval by the Management Credit Committee. In response to identified market opportunities, a proposal clearly outlining such new lending product and service offering shall be made by a customerfacing business unit as product sponsor incorporating comments and signoffs from Credit Risk Management and Legal, and presented to the Management Credit Committee. Management Credit Committee may also require signoffs from other risk areas as determined necessary (e.g. reputation, branding, compliance etc).
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5.1.5.21.2 Such documentation and presentation shall show comprehensive analysis of market opportunity, revenue generation potential, inherent credit risks, risk mitigating strategies, appropriate pricing strategies and the expected return on such product and service offerings to the bank.
5.1.6 Pricing Structure 5.1.6.1
The bank shall establish competitive approach for determining appropriate pricing for lending products and service offerings. Pricing strategy shall be based on the following: § Cost of funds § Cost of administering and servicing the lending relationships § Target margin (Information on funding costs and cost of services shall be provided periodically by the Assets and Liabilities function of the bank.) § Bank risk and return preferences § Industry and customer specific risks § Target yield (Return on Lending)
5.1.6.2
Considerations in the margins to be applied in estimating the lending rate are: § Desired profitability of target market segment § Desired profitability per customer § Lending rates of peer banks § Collateral business opportunities
5.1.6.3
The Asset and Liability Management Committee will periodically review credit fees and services charges to ensure compliance with regulatory requirements and competitiveness in the prevailing environment and recommend credit fees/services charges rates to Management Credit Committee for approval.
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5.1.7 Credit Collateral Guidelines 5.1.7.1
To minimize the risk of credit loss to the bank in the event of decline in quality or delinquency, there shall be requirement for appropriate collaterisation of all credit exposures. Guidelines for acceptability of credit collateral shall be approved by the Management Credit Committee and shall include clear unambiguous articulation of: § Acceptable collateral in respect of each credit product including description, location restrictions in respect of landed property, guidelines in respect of minimum realizable value of such collateral; § Required documentation /perfection of collateral § Conditions for waivers of collateral requirement and guidelines for approval of collateral waiver § Acceptability of cash and other forms of collateral denominated in foreign currency.
5.1.7.2
Perfected legal mortgage in the name of Access Bank Plc shall be a minimum requirement for all items pledged as security for credit facilities. Additional criteria including insurance cover as may be defined in the bank’s credit risk management policy provisions shall be met. It is Access Bank policy that all credit extensions to corporate obligors shall be secured by allassets debenture. Exceptions to this rule must be clearly documented and approved by approval authority with covering limit for the proposed facility.
5.1.7.3
Collateral Acceptability 5.1.7.3.1 The guiding principles behind collateral acceptability are adequacy and realisability. Collateral acceptable as security in respect of approved credit exposures shall include: · Mortgage on Landed Property · Cash Deposit · Stocks/Share Certificates of quoted blue chip companies · Guarantees · Charge on assets (Fixed and/or Floating) · Shipping Documents (for imports) · Negative Pledges · Bankers Acceptance · Life Assurance Policies · Lien on Asset being financed · Tripartite Field Warehousing Agreement · Stock Hypothecation
5.1.7.4
Mortgage on Landed Property 5.1.7.4.1 Acceptability of mortgage on landed property as collateral for credit exposures shall be limited to property situation in ü Highly industrialized and/or commercialized areas or ü High value residential areas
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5.1.7.4.2 The expected forced sale value (EFSV) of such landed property must be adequate to cover not less than 120% of loan amount and a minimum of 12 months interest at the bank’s approved lending rate. 5.1.7.4.3 The following landed property shall not be acceptable as collateral ü property with less than 15 years remaining ground lease ü uncompleted building (except in mortgage facilities) ü country home in rural areas ü churches, mosques or places for religious assembly or worship ü cultural/communityowned property, houses or palaces owned by traditional rulers or local chiefs 5.1.7.4.4 Undeveloped land in prime locations like Abuja, Victoria Island and Lekki can also be considered. 5.1.7.4.5 For facilities over N50 million, EFSV must be determined by a professional estate valuer retained by the bank but paid for by the customer. 5.1.7.5
Cash Deposit 5.1.7.5.1 Cash deposits domiciled in properly restricted accounts with the bank shall be acceptable as collateral in respect of all credit products and services. In respect of cash collateral, there shall be a requirement that such cash deposited be properly segregated and placed in escrow, and not subject to any other charge to any other lender. However, in exceptional cases where otherwise agreed by the bank, this requirement may be waived in instances where the account balance can conveniently accommodate such lien by another bank.
5.1.7.6
Shares Certificates 5.1.7.6.1 Acceptability of stocks and shares of companies as collateral shall be limited to selected blue chip companies quoted on the Nigerian Stock Exchange. The assessed market value of such shares shall be based on average value of such shares over a 12month period as indicated on the Stock Exchange Daily Official List (“SEDOL”) and shall also reflect the most current market perception of expected future performance of such shares on the Stock Exchange. 5.1.7.6.2 As a guideline, the value of the collateral shall be determined by applying a minimum of between 30% and 50% discount on the market value. At a minimum, such collateral value shall be adequate to ensure full recovery of the bank’s principal credit exposure and also provide minimum of 12 months interest cover at the bank’s approved lending rate.
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5.1.7.7
Guarantees 5.1.7.7.1
Personal Guarantee, Joint and Several Guarantees of Directors
5.1.7.7.1.1 Personal/Joint and Several Guarantees of Directors shall only be acceptable as additional security to some other forms of tangible collateral. Persons from whom personal guarantees may be accepted must be high networth individuals with firstrate credit history and excellent track record as upstanding members of the society. The bank shall conduct credit checks to assess and confirm net worth. 5.1.7.7.2
Corporate Guarantee
5.1.7.7.2.1 Corporate Guarantees shall only be acceptable under the following circumstances: o Crosscorporate guarantee of a subsidiary company for a credit line approved for the company. o Corporate guarantee of a third party company though not necessarily a subsidiary or sister company, provided there is commercial justification. o Corporate guarantee for employee credit under the employees’ loan scheme. 5.1.7.7.3
Bank Guarantee
5.1.7.7.3.1 For the purposes of the law, prime bank guarantees shall be considered acceptable security. A bank is considered as a prime bank if it has a highrisk rating based on Access Bank’s risk rating system. 5.1.7.8
Life Assurance Policies 5.1.7.8.1 Acceptability of life assurance policies as credit collateral shall be limited to personal credits such as mortgages, personal loans etc. Just as for personal guarantees, life assurance policies cannot stand alone as security for facilities, but must be additional to some other forms of tangible collateral. 5.1.7.8.2 Access Bank shall on an annual basis conduct a due diligence assessment of registered insurance companies and maintain a list of insurance companies that shall be acceptable for the purpose of underwriting policies that shall be acceptable as collateral for credit exposures. 5.1.7.8.3 Conditions for Life Insurance Policy as security shall include: v The issuing company must be properly registered under the Insurance Act and shall be included in the list of insurance companies preapproved by the bank as acceptable for underwriting policies acceptable as credit collateral.
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v The surrender value of such policy must be easily ascertained and should be adequate to ensure full recovery of 12 months interest cover at the bank’s approved lending rate. v The credit obligor shall provide an undertaking to ensure that the policy is in force (i.e. premium payments should be up to date through the tenure of the credit) v There shall be no restrictions on assignability of the policy and such benefits shall be duly assigned to Access Bank. v Age of the assured must be admitted. v The beneficiary clause must clearly indicate that only the assured, his administrators, executors or assigns are beneficiaries to the policy. 5.1.7.9
Negative Pledge 5.1.7.9.1 Certificate of Negative Pledge confirmed by borrower’s external auditor not to charge assets to any third party without the consent of the bank shall be accepted as security only from bank customers with obligor risk rating as approved by the Board.
5.1.7.10
Charge on Assets (Fixed or Floating) 5.1.7.10.1 Fixed or floating charge on assets of the borrower will be deemed acceptable for nonspecialized equipment in respect of which a realizable market value can be established. 5.1.7.10.2 Acceptability of a charge on assets as collateral shall be subject to confirmation that such assets are not subject to an already existing charge to another lender.
5.1.7.11
Lien on Assets 5.1.7.11.1 Lien on assets financed by the bank shall be acceptable as credit collateral for such exposure as is created by the asset finance lending. The terms of the lien shall be general and ensure that the bank shall be entitled to take possession of and hold the debtor’s goods pending payment of an obligation in connection to a credit availed to a customer.
5.1.7.12
Shipping Documents 5.1.7.12.1 Domiciliation of Bill of Lading and other such transaction documents with the bank shall be acceptable as credit collateral in respect of import finance facilities and other international trade transactions involving the movement of goods.
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5.1.8
Collateral Documentation / Perfection Requirements
5.1.8.1
To ensure ease of realization of collateral in the event of nonperformance of credit, all collateral documentation requirements shall be met before availment of approved credit facilities.
5.1.8.2
Minimum documentation requirements in respect of each collateral type that must be fulfilled before availment of approved credit facilities are outlined below. Note that this list is not exhaustive and is subject to change as advised by Legal Department.
COLLATERAL Mortgage on landed property (Fresh perfection/up stamping)
DOCUMENTATION PERFECTION o Certificate of Occupancy o Deed of o Valuation report from bank recognized mortgage/debenture professional property values Access Bank o Certificate of good title from search report o Governor’s consent o Current Tax Clearance Certificate (TCC) o Stamp of the company o Registration At Land o Annual Returns Receipts of surety Registry/ Corporate o Annual Returns Receipts of company Commission o Property Rate receipts o Legal Mortgage or o Ground Rent receipts Tripartite Legal Mor o Any other documents as required by Legal Services, depending on location o Signed blank deed of assignment o Signed sale agreement Charge on Assets o Certificate of good title Mortgage Debenture or (Fixed of Floating) o Current TCC of company All Assets Debenture (Fresh perfection or o Copy of ground rent receipt upstamping) o Copy of Tenement rate receipt o Copy of current Annual Returns receipt of the company o Other documents as may be required from Legal Services, depending on location Stocks and Shares o Transfer Form 2002N o Execution of the ass Certificates o Memorandum of Deposit form 482 by the shareholder o CSCS form o Verification of share o Letter of consent from the shareholder signature on transfe Life Assurance Policy o Original Life Policy o Notice to the insura company of the ban interest as an assig confirmation of the s assured, status of p payment, surrender maturity date and a encumbrance. February 2008
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5.1.9
General Restrictions on Collateral Acceptability
5.1.9.1
Insurance 5.1.9.1.1 All assets and items pledged to the bank as credit collateral must be appropriately covered by a valid insurance policy throughout the duration of the credit. 5.1.9.1.2 A comprehensive insurance program shall be in place and maintained throughout the life of the credit exposure. Risks covered by the policy should include: Property/Real Estate fire, earthquake, tornado, flood etc. Equipment theft, fire, burglary etc. Furniture and fixtures theft, fire, burglary etc. Inventory theft, fire, burglary etc. 5.1.9.1.3 Such insurance cover shall be provided by an insurance company properly registered under the Insurance Act and shall be limited to policies issued by insurance companies preapproved by the bank as acceptable for underwriting policies acceptable as credit collateral. 5.1.9.1.4
5.1.9.2
Exceptions to the requirement for insurance cover shall include: v Cash Collateral v Guarantees v Negative Pledges
Realizable Value 5.1.9.2.1 Ease of sale of collateral shall be a major consideration in respect of collateral acceptability. As such, specialized equipment with limited alternative utility shall not be acceptable as credit collateral. Also, landed property in noncommercial or industrial areas shall not be acceptable as credit collateral for bank lending (also see section 5.1.4.1 on Collateral Acceptability). 5.1.9.2.2 Collateral value must be appreciating or at least stable. Estimate of forced sale value of the collateral item(s) should be adequate to ensure full recovery of the bank’s principal credit exposure and also provide a minimum of 12 months interest at the bank’s approved lending rate after deduction of all incidental charges and fees.
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5.1.10
Regulatory Considerations
5.1. 10.1
Access Bank and its staff will ensure compliance with all laws regulating financial institutions in the countries where it operates. Being a Nigerian bank, Access Bank Plc is subject to laws and regulations issued by the Central Bank of Nigeria, or other agencies of the Federal Republic of Nigeria that are established for the regulation of financial institutions. The main laws impacting our core banking activities are: 1. 2. 3. 4. 5. 6.
5.1.10.2
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Banks & Other Financial Institutions Act, 1991 (BOFIA) Failed Banks Act, 1994 Economic & Financial Crimes Commission Act Money Laundering Act 2004 CBN Act (which empowers it to regulate financial institutions) Other miscellaneous economic or financial crime regulations.
Major provisions of these laws and specific regulations that govern the extension of credits at Access Bank include, but are not limited to the following requirements: ·
The total exposure to one obligor i.e. any single borrower or related group of borrowers at any given time shall be limited to 20% of shareholders funds of the bank (unimpaired by losses).
·
Direct or indirect interests of directors, managers and officers of the bank in any advance, loan or facility must be declared and shall not conflict with the corporate interests of the bank and where appropriate, authorization must be in accordance with the rules and regulations of the bank. It is an offence under BOFIA for bank staff to fail to declare the nature of their interest in such loan requests and offenders are liable to a fine and up to 3 years imprisonment on conviction.
·
Access Bank shall not, without the prior approval in writing of Central Bank, grant any advance, loan or credit facilities against the security of its own shares; or any unsecured advances, loans or credit facilities unless authorized in accordance with Access Bank’s rules and regulations, and where any such rules and regulations require adequate security, such security shall be provided or, as the case may be, deposited with the bank.
·
Under the Failed Banks Act, where the information and details on the security pledged for a loan …….. is impossible to locate; or no the security is pledged at all; or the identity of the debtor is difficult to locate; or the debtor is difficult to locate; or the debtor is found to be nonexistent, fake or fictitious or in any way unidentifiable; the directors, shareholders, partners……managers, officers and other employees of the failed bank who in the pursuance of their duties were found to be connected in any way with the granting of the loan which has become irrecoverable shall be held liable. Credit Risk Management Policy Guide & Portfolio Management Plan
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5.1.10.3
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·
The Failed Banks Act further states that any director, manager or officer or employee of a bank who (a) knowingly, recklessly, negligently, willfully or otherwise grants, approves the grant or is otherwise connected with the grant or approval of a loan, advance …..or credit facility to any person (i) without adequate security contrary to the accepted practice or the bank’s regulations or (ii) with no security or collateral where such security….is normally required in accordance with the bank’s regulations or (iii) without perfecting through his negligence or otherwise a security or collateral obtained or (b)….connected with granting a loan above his limit or (c)….in contravention of a law or regulation in force…or (d) receives personal gratification….or (e) grants an interest waiver when the debtor has capacity to pay; is guilty of an offence under the Act and liable to up to 5 years prison sentence.
·
The permission of the Federal Minister of Finance shall be required for granting loans of any nature or lending securities to anybody or corporate residents in Nigeria, which is by any means controlled directly or indirectly by nonresidents. This applied equally to transactions with nonresident individuals, firms, or companies. However, the approval of the Federal Minister of Finance is not required for Overdrafts granted in Nigeria to foreigncontrolled companies for the purpose of financing imports into and exports from Nigeria.
Note that this is not an exhaustive listing of regulatory issues surrounding credit extension. Refer to the compendium of laws prepared by the Legal Department for further details on the requirements of various laws that affect Access Bank and its employees. All staff of Access Bank must be aware of these laws / regulations and ensure compliance.
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5.2 Operational Policies 5.2.1. Operational policies are defined for the following phases of Access Bank’s integrated approach to risk exposure creation and management: § Exposure Development and Creation § Exposure Management § Delinquency Management/Loan Workout § Credit Recovery 5.2.1.1
Exposure Development and Creation
5.2.1.1.1
This phase consists of all the activities involved in creating a credit risk exposure and involves the following: 5.2.1.1.1.1 Preliminary Credit 5.2.1.1.1.1.1 Preliminary screeening of requests for credit facilities against approved target market definition and Risk Acceptance Criteria 5.2.1.1.1.2 Credit Analysis 5.2.1.1.1.2.1 Detailed credit analysis of facility in line with the bank’s credit risk analysis requirements and standards resulting in a credit risk rating and credit approval recommendation. 5.2.1.1.1.3 Credit Approval 5.2.1.1.1.3.1 Risk triggered approval of facility requests at the appropriate credit approval authority in line with the bank’s risk management policies. 5.2.1.1.1.4 Credit Documentation 5.2.1.1.1.4.1 Preavailment documentation of approved credit facilities including perfection of credit collateral in line with the bank’s risk management policies. 5.2.1.1.1.5 Credit Availment 5.2.1.1.1.5.1 Availment/drawdown on approved credit facilities in line with the bank’s risk management policies.
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5.2.1.2
Preliminary Credit Screening 5.2.1.2.1 There is a requirement for preliminary screening of all credit facility requests against the bank’s target and risk acceptance criteria. Preliminary credit screening shall be the responsibility of the relevant customerfacing market/relationship officer and shall involve a largely high level and peripheral analysis of the acceptability of credit facility against credit criteria, and facilitates early identification of unacceptable risk exposures and / or priority credits. 5.2.1.2.2 In the even that the outcome of the preliminary credit screening of a request is a conclusion that such facility does not satisfy the target market and risk acceptance criteria, the facility request shall be rejected at this stage and such rejection communicated in writing to the customer. All recommendations for denial of credit facility request shall require endorsement by the group head of the relevant customerfacing business unit. 5.2.1.2.3 Only facility requests that meet the articulated acceptance criteria shall be further processed through the exposure development and creation procedures. 5.2.1.2.4 However, if in the opinion of the relationship manager, there is sufficient mitigation to warrant further consideration of a facility request that does not meet the requirements of the bank, such exception shall be comprehensively documented and a case presented to the group head of the customerfacing business unit. 5.2.1.2.5 Preliminary screening of credit requests shall be completed within 1 working day of receipt of a credit facility request.
5.2.1.3
Credit Analysis 5.2.1.3.1 Detailed analysis of credit risk shall be required in respect of credit facility requests as a basis for informed credit approval decision. This role shall be performed by credit analysts within each marketing team. Relationship Managers must always display sufficient understanding of critical issues concerning their clients, including KYC requirements.
5.2.1.4.
Credit Risk Evaluation 5.2.1.4.1 Only facility requests that satisfy the articulated target market and risk acceptance criteria shall be further analyzed in accordance with the bank’s risk management policies. Detailed credit risk evaluation shall entail comprehensive evaluation of uptodate, accurate and complete data and information as a basis for a decision on the viability, feasibility and overall acceptability of a credit facility request. Credit risk evaluation shall involve
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detailed consideration of the facility request, the customer’s industry / business, financial position, credit history, management capability, proposed credit collateral as a basis for identifying credit risks inherent in the facility request. 5.2.1.4.2 Documentation of the detailed credit analysis shall be such as address the following issues: This section may include – as appropriate to the size and nature of the relationship – the following points: o Purpose of credit facility(ies) o Summary of terms, including key covenants and other indebtedness permitted o Assessment of major risks and mitigants o Assessment of structure and repayment terms o Expected primary source of repayments. o Collateral evaluation, including acceptability, adequacy, degree of independence of valuation and consideration of potential value erosion. o Financial projections appropriate to the tenor and structure of the transaction, including downside sensitivity analysis that, at a minimum, is sufficient to cause the obligor to break covenants. o Credit Risk rating and discussion of any credit risk migration. o Industry/market assessment o Viability of business proposal o Current financial position/performance o Credit History o Banking relationships including account turnover/and non credit activity. o Quality of owners / key stakeholders o Management capability 5.2.1.4.3 Detailed credit analysis shall be conducted by credit analysts and documented on the Facility Approval Memorandum (FAM). The primary outcome of the credit analysis process shall be the credit risk rating and an approval / rejection recommendation of the facility request. 5.2.1.4.4 The following components must be included as part of a Full Credit Review review: 1. Facility Approval Memorandum 2. Target Market / Risk Acceptance Criteria screen 3. Financial spreads (including projections where term loans are included in total facilities) 4. Management Assessment Form (for annual reviews) 5. Risk Rating document 5.2.1.4.5 Approval recommendations shall clearly outline proposals on appropriate structure and terms for the credit facility including recommended facility amount, credit terms, pricing, collateralization and other conditions. In determining the appropriate structure for a credit facility, the analyst shall take February 2008
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proper care to ensure that repayment terms, collateralization and price are appropriate to the particular circumstances of the customer and the purpose for which the credit is availed. 5.2.1.5
Facility Renewals At the request of an existing customer, a facility may be renewed in accordance with the bank’s laid down credit risk creation and management policies and procedures.
5.2.1.5.1 Important consideration for renewal of approved facilities shall include the following among others: o continued viability of business/project o evidence of future cashflow to meet interest/principal payment obligations o historical performance of the company over a minimum of three years o account turnover / revenue to the bank o extent of utilization of facility(ies) / swing on the current account o obligor’s track record of loan / interest servicing o status of collateral(s) including completeness of documentation, status of perfection, current valuation o Micro and macro economic considerations 5.2.1.6
Credit Risk Ratings 5.2.1.6.1 Risk ratings shall be assigned to each facility to indicate assessment of credit risk inherent in the facility and the overall acceptability of the credit exposure. Standard risk rating criteria shall be defined to provide a uniform basis for comparing all facility proposals regardless of the nature, type or location of the credit facility. 5.2.1.6.2 Guidelines for facility risk rating and approval shall be defined and approved by the Management Credit Committee on the recommendation of the Head of Credit Risk Management. 5.2.1.6.3 Detailed credit analysis of facility requests shall be completed within 2 and 3 working days of receipt of credit facility request and complete uptodate information required for detailed analysis.
5.2.1.7
Credit Approval 5.2.1.7.1 Credit facilities shall require approval in writing at the appropriate level in line with credit approval authority defined in this document. Approval of credit facilities shall be documented on the Facility Approval Memorandum (FAM).
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5.2.1.8
Credit Offer and Acceptance 5.2.1.8.1 On approval, a “credit facility offer” including terms and conditions shall be communicated in writing to the customer, by the relationship manager only after appropriate approval in writing in line with the bank’s risk management policies. A formal acceptance of the “credit facility offer” including credit terms and conditions in writing shall be required. 5.2.1.8.2 Acceptance of the bank’s offer shall be required within 30 days of a facility offer date and conditions met within 90 days. Credit offer shall be deemed to have lapsed if acceptance is not received within the above time limit.
5.2.1.9
Credit Documentation 5.2.1.9.1 The essential steps in documenting approved credit facilities and the resulting exposure shall include: ·
A credit facility file shall be established and maintained in respect of each approved credit facility. The relationship manager with responsibility for the customer relationship shall liaise with the customer to obtain the required documentation, sign offs and assignments to ensure complete and legally enforceable documentation on a timely basis. In the event that a single bank customer has multiple exposures and facilities, a single credit file shall be maintained to provide a single point of information on all credit dealings with the bank.
·
The Credit Administration function shall be responsible for establishing the credit file and confirming compliance with all pre availment conditions including required documentation for perfection of security before availment on the approved facility.
·
Relationship Managers should maintain backup files for containing documentation for all credit facilities extended to their customers.
Basic considerations in respect of credit documentation include: · · · ·
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Validity of documentation under appropriate governing law Evidence of the authority of signers to execute documentation Guarantees, as may be required, executed on standard forms. Required registration of such guarantees must be completed. In respect of secured financings, all necessary steps to create, perfect and protect the validity, priority and enforceability of the security interest, lien or charge, as appropriate, in favour of the bank must be completed on or prior to the date of the initial advance or draw down.
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·
5.2.1.10
Default, early termination or material adverse change clauses shall be clearly articulated to protect the bank in the event of actual or possible adverse changes in the condition of the obligor.
Credit Availment
5.2.1.10.1 Availment and draw down on approval credit facility shall be subject to confirmation by the Credit Administration function that all preavailment conditions including requirement for credit documentation are completed. 5.2.1.10.2 No advance or draw down shall be permitted until all documentation is completed, executed and delivered. And all requirements for, registration and stamping as may be required and all other conditions precedent in the agreements have been met. 5.2.1.10.3 No advance or draw down shall be permitted until all necessary collateral, guarantee or support is held in accordance with the terms outlined in the approval document or in the agreement with the customer. 5.2.1.10.4 Deferrals in respect of full compliance with facility conditions shall require approval by the respective Executive Director. Such approval shall be evidenced in writing and signed by the Executive Director including clear definition of the deferral period. However deferral of any security document will require the approval of the Group Deputy Managing Director for facilities under N1bn and the Group Managing Director for facilities above N1bn. The relationship manager is responsible to ensure that such deferred conditions or security documents are met / or submitted within this period, and the Credit Administration function shall monitor all such deferrals to ensure that they are performed within the approved time period. Credit Administration shall on a monthly basis prepare a report on deferrals and the status clearly identifying defaults for circulation to Executive Management of the bank, with specific attention of the GMD/GDMD for appropriate action. 5.2.1.10.5 Waivers of any preavailment condition included in the credit approval shall require approval in writing at the appropriate approval credit authority level.
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5.2.2. Exposure Management 5.2.2.1
This is the second phase in the Access Bank Credit Management Framework and consists of all the activities involved in managing existing credit risk exposures to minimize incidence of decline in credit quality and loss to the bank arising from such credit delinquency.
5.2.2.2
Exposure management shall entail, on an ongoing basis: v monitoring performance and quality of individual credit exposures v periodic exposure quality review and exposure quality / performance classification in accordance with the bank’s credit quality risk classification criteria v credit collateral management to ensure that collateralization remains adequate and realizable in case of credit default v prompt and timely identification of decline in quality / performance of a credit exposure v manage delinquency in nonperforming credit facilities v restructuring credit exposures as may be required
5.2.2.3
Indepth understanding of the business environment and deep knowledge of the customer and customer business is necessary for effective credit exposure management.
5.2.2.4
Facility Performance Monitoring 5.2.2.4.1 The relationship manager with responsibility for each customer relationship shall on an ongoing basis monitor the performance of individual credit facilities and confirm adherence to credit terms and conditions. 5.2.2.4.2
These shall include:
o reviewing credit facility performance to confirm adherence to credit schedule of interest and principal repayment o evaluating the impact of industry and market factors including competition, demand for products, availability of supplies, government regulations and legislation, industrial relations climate etc. on the customer and customer’s financial position o confirming status and adequacy of collateral and legal documentation o evaluating continuity and competence of management and presence of global affiliates
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5.2.2.4.3 Changes in market position and other factors that affect or have a potential to affect the quality and/or performance of a credit exposure shall be promptly identified and potential impact objectively evaluated. 5.2.2.4.4 Exposure Quality review will be triggered by the identification of a decline or potential for decline in the quality of the credit facility. 5.2.2.4.5 The Management Credit Committee of the bank shall also institute a periodic review of exposures above a defined threshold to evaluate the quality of the portfolio and identify any trends. At a minimum these portfolio reviews shall be performed quarterly.
5.2.2.5
Exposure Quality Classifications 5.2.2.5.1 The objective of these guidelines is to define management criteria for the review and classification of existing risk exposure to ensure prompt identification and proper management of decline in credit quality. 5.2.2.5.2 The overall responsibility of sustaining the quality of individual credit risk exposures is primarily that of the Relationship Management. This shall be achieved by: o Regular interaction with the customer o Continuous assessment of the collectability of the credit o Documentation of observations and recommended action 5.2.2.5.3 The Relationship Manager shall be responsible for credit quality review of all outstanding risk exposures on a continuous basis. The review shall be aimed at evaluating existing or potential problems of validity, completeness, accuracy or collectability of these exposures, and prompt identification of potential for decline or actual decline. 5.2.2.5.4 Credit Risk Management Unit will periodically (weekly) report all temporary overdrafts and excesses over approved limits for appropriate action. 5.2.2.5.5 Credit Risk Management will also be responsible for conducting planned periodic reviews of the quality of the Bank’s credit risk asset portfolio. 5.2.2.5.6 The bank wide credit portfolio will be reviewed on a quarterly basis in compliance with Prudential Guidelines. 5.2.2.5.7 Detailed reviews of each credit exposure will be prepared by the Relationship Manager on a quarterly basis based on an objective evaluation of current uptodate information and classified to indicate performance based on the following criteria:
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· · · · · · · · ·
Demand for products or services Evaluation of customer’s financial position Adherence to credit schedule of interest and principal repayment Status and adequacy of collateral and legal documentation Continuity of management and presence of global affiliates Impact of government regulations and legislation Industry relations climate Perceived industry risk/market position Performance against previously established early warning triggers.
5.2.2.5.8 Every credit review will be documented using the bank’s Credit Call Memorandum and should include as assessment of the stability of the customer’s risk rating outlook as either stable, improving or declining. Importantly, it must indicate the performance of the company against previously established early warning triggers. 5.2.2.5.9 Decline in the quality of the Risk exposure shall be brought to the attention of the business ED and the Head of Credit Risk Management, who will jointly decide if the situation should be escalated to the Chairman of Criticized Assets Committee (or his designee). Where this is the case, it shall be done within one week of such development. 5.2.2.6
Credit Collateral Management 5.2.2.6.1 Management of credit collateral shall be the joint responsibility of the customerfacing relationship management team, Credit Risk Management and Legal Department. The relationship management team shall ensure that all the documents, sign offs and assignments required by Legal Department for collateral documentation and perfection are obtained and are made available promptly. Credit Risk Management Unit shall ensure that all pre and post availment conditions relating to collateral are met. 5.2.2.6.2 In the event that the collateral for a credit facility is a mortgage on landed property, favourable search reports (report / certificate of good title) shall be a condition precedent to final approval for availment of the credit facility requests. The cost of conducting such searches shall be borne by the obligor and prior consent to incur such expenditure must be obtained on the application form. 5.2.2.6.3 A collateral management plan shall be required for each approved facility to indicate predetermined intervals for review of the credit collateral. Periodic inspections must be made to ensure the existence and adequacy of all collateral security in respect of outstanding credit exposures. Such inspections shall include confirmation of existence, examination of security agreements to determine enforceability of liens, verification of
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adequate insurance protection, proper legal registration (and renewal of registration, and the adequacy of overall safeguards). 5.2.2.6.4 Credit Risk Management Unit shall be responsible for developing and implementing collateral management plan in respect of each facility. 5.2.2.6.5 In the event of noncompliance with collateralization conditions or concerns about the appropriateness, adequacy or realizability of existing collateral conditions, an exception report shall be triggered to bring such to the attention of the Chairman, Criticized Assets Committee through the Head of Credit Risk Management within one week of such development. 5.2.2.7
Delinquency Identification 5.2.2.7.1 It is expected that ongoing monitoring of credit quality and performance by relationship managers will enable prompt identification of delinquency or potential for delinquency of credit exposures. 5.2.2.7.2 Delinquency in credit quality and performance could also be identified as a result of a downgrade in Credit Risk Rating. 5.2.2.7.3 Identification of delinquency or potential for delinquency in a credit facility shall trigger an exception to bring such delinquency to the attention of the Chairman, Criticized Assets Committee through the Head of Credit Risk Management within one week of such development. 5.2.2.7.4 The Credit Risk Management function shall maintain a watch list of delinquent facilities for circulation to the Chairman of Criticized Assets Committee on a monthly basis.
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5.2.3. Delinquency Management/Loan Workout 5.2.3.1
The main objective of this section is to clearly identify procedures for managing decline in credit quality in order to minimize the bank’s exposure to credit loss as a result of delinquency.
5.2.3.2
A formal delinquency notice shall be made to the customer within 10 working days of default to demand payment on overdue installments. A second notice shall be made after 20 working days of the first notice in the event of nonperformance.
5.2.3.3
A Credit Watch list of nonperforming/delinquent credits shall be prepared on a monthly basis for circulation to the Chairman, Criticized Assets Committee, giving details of status / position on identified exposures.
5.2.3.4
The information on the Watch list shall include, in respect of each non performing exposure, analysis of: v v v v v
5.2.3.5
Exposure amount Description, adequacy and realizability of credit collateral Financial position of the borrower Potential of recovery (i.e. likely, possible, hopeless) Proposed plan of delinquency management (i.e. restructure (Risk Analysis) or Write off (Credit Recovery).
In the event of delinquency and / or decline in credit quality and performance, initial responsibility for managing the credit exposure and turn around / improve performance shall remain with the relationship manager. However, in the event that satisfactory improvement in quality and performance of the exposure is not achieved within 180 days, a restructuring of facilities shall be considered by the relationship manager. In the event that satisfactory improvement still does not occur within 12 months, the responsibility for delinquency management shall be referred to the Remedial Assets Unit.
5.2.3.6
Credit facilities shall be classified as Remedial Accounts after 360 days.
5.2.3.7
Interest accruals on nonperforming exposures shall be suspended and provisions for credit loss made on a prompt basis in accordance with Prudential Guidelines set by the regulatory authorities and the bank’s credit loss provision policy.
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5.2.4
Credit Facility Restructuring / Loan Workout
5.2.4.1
As part of ongoing exposure management, credit facilities may be restructured: v At the request of the obligor requiring a revision of the credit terms and conditions. v On identification of need to restructure based on performance of the facility.
5.2.4.2
The relationship manager with responsibility for the customer relationship shall be responsible for developing a proposal for a review of credit facility structure. Such proposal shall be presented to Credit Risk Management for review and subject to approval in line with the bank’s credit approval authority guidelines.
5.2.4.3
Where a proposed plan to restructure a credit exposure is presented, detailed credit risk analysis of the proposed credit structure shall be required. The outcome of the risk analysis shall be an assessment of risk inherent in the credit exposure based on the revised credit structure including proposed credit pricing and repayment terms.
5.2.4.4
Such proposal shall be presented to Credit Risk Management for review and subject to approval in line with the bank’s credit approval authority guidelines.
5.2.5
Loan Loss Provisioning
5.2.5.1
This involves prudent provisioning for anticipated loss on nonperforming credit facilities. As soon as credit facility is identified as delinquent, adequate loan loss provisioning shall be made in accordance with the requirements of the prudential guidelines and the bank’s credit policy as follows: § Interest on credit past due for 90 days will be suspended, credited to “Interest in Suspense Account” and recognized only on cash basis. § Principal installments past due for 90 days will be fully provided for and recognized on cash basis only. § 10% provision on outstanding principal amount not yet due will be made in the bank’s books where the exposure is classified as “Substandard” in accordance with the bank’s credit classification policy. § 50% provision on outstanding principal amount not yet due will be made in the bank’s books where the exposure is classified as “Doubtful”. § 100% provision on outstanding amounts will be made in the bank’s books for “Lost” facilities. § The bank will also make a general provision of at least 1% of outstanding credit facility balances not specifically provided for.
5.2.5.2
February 2008
Interest due on nonperforming credits will be suspended, credited to “Interest in Suspense Account” and recognized only on cash basis.
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5.2.6. Credit Recovery 5.2.6.1
This is the final phase of the Access Bank credit risk management framework. The phase consists of all the activities after a facility has been deemed lost and involves managing such facilities to ensure that the loss to the bank is minimized. This includes: § credit writeoff and / or interest waivers on nonperforming exposures § reinstatement of previously writtenoff credit amounts on recovery of cash from the customers.
5.2.7
Interest and Charge Waivers
5.2.7.1
On application by the obligor and after due consideration of the options available to the bank in respect of nonperforming exposures, it may be determined that it is in the best interest of the bank to accept less than the full value of the outstanding amount in settlement of a debt or some other non cash asset as repayment. In this respect, waivers of interest and/or credit charge shall be considered by the bank. Proposal for waivers will be considered only after complete evaluation of all options for the Bank and full discussion with Legal Counsel. Consideration of waivers of interest and/or credit charge shall be limited to credit exposures classified as lost (i.e. after prospect of full recovery are dim and there is no realizable security). Discussions and negotiation in respect of repayment / waiver terms shall be the responsibility of Remedial Asset Unit of Credit Risk Management.
5.2.7.2
Waiver arrangement will represent final settlement terms. New facility will only be granted to borrowers who have enjoyed prior waivers on full settlement of previously granted waivers.
5.2.7.3
All waivers of interest and charges shall require approval of the GMD or GDMD. Approval of interest and charges waivers shall be documented in writing and properly initialed by the approving authority.
5.2.8. Bad Debt Writeoff 5.2.8.1
After full evaluation of a nonperforming exposure, in the event that either one or all of the following conditions apply, such exposure shall be recommended for writeoff: v Continued contact with customer is impossible. v Recovery cost is expected to be higher than the outstanding debt. v Amount realized from realization of credit collateral security leaves a balance of the debt. v It is reasonably determined that no further recovery on the facility is possible.
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5.2.8.2
All credit facility writeoffs shall require written endorsement at the appropriate level as defined by the bank. Writeoffs require approval by the Board of Directors and the Central Bank.
5.2.9 Erroneous Charges or Interest 5.2.9.1
In cases of erroneous interest or charges debited to a customer’s account, the Management of the bank is authorized to approve reversals of such erroneous charges or interest. Reversals of interest and charges shall be approved by the GMD or GDMD.
5.2.10 Recoveries and Credit WriteBack 5.2.10.1
February 2008
Whenever amounts are recovered on previously written off credit exposures, such credit facility shall be reclassified as performing and the amount recovered recognized on a cash basis only.
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5.3 Portfolio Management Policies 5.3.1 Objectives 5.3.1.1
To ensure optimal earnings through high quality risk portfolio, deliberate portfolio strategy, planning, performance assessment and reporting will be emphasized. Concentrations of exposures to industry/market sectors and by exposure type will be limited in line with the bank’s risk and return preferences.
5.3.1.2
Portfolio management is an integral part of the credit process and shall apply to all businesses of the bank and include all risk assets’ exposures. The Executive Committee (Credit) shall articulate risk and return preferences that will influence risk asset behaviour in the bank. On the recommendation of the Executive Director (Risk and Management Control), the Executive Committee (Credit) shall approve at the corporate level and for each business unit target risk portfolio and risk acceptance criteria. Annually and subject to quarterly reviews, Credit Risk Management shall articulate a desired credit portfolio mix for Board Credit Committee approval.
5.3.1.3
Portfolio Management is an integral part of the credit process that enables Access Bank to limit concentrations, reduce volatility, increase liquidity and achieve optimum earnings. It does so by incorporating portfolio strategy and planning, performance assessment and reporting functions into one comprehensive management process.
5.3.1.4
Responsibility for Portfolio Management lies primarily with Credit Risk Management on behalf of the Business.
5.3.1.5
It is the objective that substantially all of Access Bank’s credit exposure is covered by one or more of the following Portfolio Management Processes, which may include Industry Reviews, Country or Region Reviews, Product Reviews, Risk Rating Limit Exception Reviews, High Risk Reviews, etc.
5.3.1.6
Each Portfolio Management Process should incorporate the following components, as applicable. · · · · · ·
February 2008
Setting portfolio targets and concentrations. Establishing target market, risk acceptance criteria and/or Key Success Factors (or equivalent). Monitoring the portfolio risk profile, riskadjusted returns, risk concentrations, and economic/market/competitive data. Identifying and analyzing trends and concentrations that could affect the risk and performance of the portfolio. Performing stress testing, as appropriate to the Business or the portfolio. Coordinating and communicating with the business and senior risk management on portfolio issues.
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5.3.2 Minimum Review Standards 5.3.2.1
All Portfolio Management Processes should include an annual review by Credit Risk Management. The review must be documented, and must include, at a minimum: · · ·
5.3.2.2
Portfolio composition visàvis targets or limits; Noteworthy trends or risk concentrations; Riskadjusted returns.
In addition, at the determination of the Board Credit Committee or Management Credit Committee, certain Portfolios will be subject to periodic review by the Head of Credit Risk Management.
5.3.3 Management Reporting ·
·
·
·
·
It is critical to the successful implementation of these credit policies that the comprehensive set of credit risk data generated by the businesses is identified and communicated throughout the applicable businesses, Credit Risk Management and senior management. It is the responsibility of Credit Risk Management to define, construct and maintain an independent credit risk reporting framework that effectively, consistently and meaningfully communicates portfolio exposures. The credit risk data and other data used to populate the independent credit risk reports should be from independent systems, or should be subject to a reconcilement process to ensure integrity. It is the responsibility of the risktaking businesses to ensure that all credit risk data is reported into the independent credit risk systems, and that it is timely, accurate and complete. It is the responsibility of the business to assist in the quality control process by reviewing the reports for reasonableness, consistency and completeness.
5.3.4. Industry Selection and Prioritization 5.3.4.1
Our portfolio concentration limits will continue to be based on outlook and growth prospects, strategic importance of the industry and opportunities available to Access Bank. Consequently, Access Bank will lend to companies falling within a defined target market.
5.3.4.2
Portfolio limits in Access Bank are judgmentally determined based on the attractiveness and importance of various industries to the economy, the quality of obligors and management’s appetite for exposures in these industries. Access Bank will continuously employ techniques to optimize the performance of its credit portfolio with the objective of maximizing returns while minimizing risk.
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5.3.4.3
We identify NonTarget Market sectors as those that evidence: negative growth trend or trend towards obsolescence, no banking potential, major risk areas, like event risk or nonTarget Market for Access Bank. Exceptions need to be strongly justified and should be limited to leaders in their field.
5.3.4.4
We intend to AVOID exposures to nonTarget Market or high risk names such as: 1. 2. 3. 4. 5.
Entertainment / News Armament Gambling Mining Hazardous industries (e.g. health damaging or environmentally unfriendly businesses) 6. Religious bodies 7. Commodity traders, 5.3.4.5
These are generally highly volatile sectors. Above list is not exhaustive and may be reviewed periodically.
5.3.5 Target Market and Risk Acceptance Criteria (TM/RAC) 5.3.5.1
Two wellestablished techniques for expressing risk appetite and which shall play critical roles in portfolio management in Access Bank are “Target market definition” and “Risk acceptance criteria”.
5.3.5.2
The target market definition shall articulate clearly acceptable and desirable profile of customers for the various credit product and service offerings in the bank. Risk acceptance criteria specify the terms and conditions for extension of credit and creation of risk exposure.
5.3.5.3
For credit programbased transactions, articulation of target market and risk acceptance criteria shall form part of the credit program documentation and approval process.
5.3.5.4
For individual/business creditbased transactions, target market and risk acceptance guidelines must be outlined by the marketfacing business unit, and endorsed by Credit Risk Management for approval by the Management Credit Committee.
5.3.5.5
Guidelines shall specify the dimension for desirable credits as follows: § Target market guidelines: o Industry or business o Location/geography o Size of borrower/customer o Financial profile o Risk rating
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o Management’s background, experience and skills profile o Years in business o Reputation § Risk Acceptance Criteria guidelines: o Forms of credit extension o Pricing or returns o Covenants and documentation o Tenor o Security 5.3.5.6
These guidelines may stand on their own or may be part of annual operating or industry reviews, and should be communicated to officers within the bank in addition to the Board Credit Committee and Management Credit Committee.
5.3.6 Target Market Definitions 5.3.6.1
The target market segment and focus areas for each marketfacing business unit is broadly summarized as follows:
BUSINESS UNIT Institutional Bank
Commercial Bank
TARGET MARKET · Oil and Gas · Telecom · Communication · Power · Top Corporates and multinationals · Structured Middle Market · Public Sector (Federal) · Financial Institutions Unstructured Businesses
Retail and Consumer finance
State governments and parastatals
Consumer Banking
Individuals
Private Banking
High net worth individuals and mass affluent Mass Market
Retail Banking SME and special products Agricultural Finance
February 2008
MARKET FOCUS Wellstructured corporate organizatio and financial institutions (including n bank financial institutions)
Annual sales turnover of N100 millio above
Mortgages/Consumer Finance for individuals earning > = N500,000 Minimum net worth of N50 million
Individuals and business with annua sales turnover of N100 million and be
Government assisted programs, enterprises Small, medium and large scale farmers and agricultural produce marketers and processors
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5.3.7 Risk Acceptance Criteria and Portfolio Guidelines 5.3.7.1
Within the above defined target market, Access Bank shall deploy a selective approach in determining the specific entities and individuals to lend to. Risk Acceptance Criteria (RAC) shall be defined as carefully planned environmental and competitive benchmarks designed in line with the predetermined risk appetite of the bank.
5.3.7.2
Below are parameters which shall serve as guidelines for defining RAC at Access Bank. Each SBU shall be required to apply these guidelines in the definition of RAC for their defined target market. These should be reviewed / revised periodically against any environmental changes and other factors that may necessitate their revision.
5.3.7.3 Quantitative Parameters o Current and potential market position/share of industry o Strong financial ratios (debt/equity ratio etc.) o Evidence of Operating Cash Generation/alternative sources of repayment o Account turnover visàvis existing facilities o Expected/earned revenue (Effective yield) o Related Accounts o Commitment to other banks etc. 5.3.7.4 Qualitative Parameters o Favourable indicators based on industry analysis (using Porters Five Forces or other models) o Demand for product o Operating cost structure o Experience and sophistication of management/prime mover o Fluidity and speed of decisionmaking process o Internal efficiency factors o Type and Availability of security o Other regulatory environmental factors (macro and micro risks etc.)
5.3.7.5
To guide preliminary screening of credit requests, the following TM/RAC screens are defined for Access Bank: (a) General Corporate Trading/Manufacturing (b) Financial Institutions (Banks)
5.3.7.6
This screen shall guide all extensions of credit to standalone business entities. For extensions of credit under credit programs, distinct TMRAC screens shall be defined within the credit programs.
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5.3.7.7
TM/RACs will customarily be generated for individual entities within a group (i.e. per obligor) with only certain criterion assessed on a group basis (Risk Rating, Account Profitability and Relationship Returns) to capture the conglomerate structure of local companies. Exceptions to this rule are only cases where written irrevocable crosscorporate guarantees are in place for all consolidated obligors, and they are all in the same line of business. In this case only one TM/RAC may be employed.
5.3.7.8
In the section that follows, we give the rationale for each criterion in the various TMRAC screens we will use in the bank.
5.3.8 General Corporate Target Market Screen 5.3.8.1
The TM screen for borrowers in the Institutional Bank is as shown below. Obligors are separated into Tiers I, II and III reflecting the level of risk with each tier. The tiering shall be a fundamental determinant of pricing and a foundation for loanpricing model in Access Bank:
CRITERIA 1. KYC, Reputation and integrity 2. Acceptable Industry 3. Risk Rating 4. Minimum sales 5. Financials Audited
6. Net margin (min) (Trading/Manufacturing) 7. Current Ratio (min) 8. Leverage (max) (Trading/Manf or cap intensive) 9. Debt service Coverage* 10. Account Profitability 11. Key Success factors 12. Industry experience
REQUIRED Tier REQUIRED Tier REQUIRED Tier I II III Required Acceptable Industry N10bn N5.0bn N1bn Minimum 3 years Minimum 3 years Minimum 3 years by approved by approved audited auditors auditors
2.5% / 4.0% 01:01
1.5% / 3.0% 01:01
2.0% / 2.0% 01:01
2.5 / 2.0
3.5 / 2.5 4.5 / 3.0 > 1 N100mm N50mm N5mm At least 75 % At least 60% At least 50% score score score 10 years or more 5 years or more 3 years or more
13. Management Rating *calculated as (Operating EBITDA/(Interest + Principal Repayment)
5.3.8.2
February 2008
The risk rating criteria shall be defined for each Tier upon approval of a revised Risk Rating Policy under development for Access Bank. Assessment of management rating shall be judgmental but guided by the Management Assessment Form attached in the Appendix.
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Risk Acceptance Criteria CRITERIA
REQUIRED Tier I
REQUIRED Tier II
7 years
5 years
1. Maximum Tenor
REQUIRED Tier III 3 year
2. Aggregate Exposure Limit (ex. cash secured)
Lower of Single Lower of N1.5bn or Obligor Limit or 120 120 days of sales days of sales
Lower of: N150mm or 120 days of sales
Loans
Max 50% of Total Facilities
Max 50% of Total Facilities
Max 50% of Total Facilities
3. Products
Overdraft
Overdraft
Overdraft
Trade
Trade
Trade
Guarantees/Bonds
Guarantees/Bonds
Guarantees/Bonds
Term Loans
Term Loans
Term Loans
(FCY exposure only for exporters).
(FCY exposure only for exporters).
(FCY exposure only for exporters).
Required
Required
Required
Pari Passu
Pari Passu.
Pari Passu
4. Security
Negative pledge (where applicable) 5. Return on Risk (Yield) (obligor must fail on both to return an exception) OR Min Total AP/Av. Exposure
5%
8%
10%
Þ Any name must pass TM criteria nos. 3 & 4 to qualify for the respective Tier. Þ More than 3 TM deviations downgrades the obligor to the next lower Tier. Þ All customers with sales turnover of less than N1bn will automatically default to Tier IV (which is where majority of Commercial Bank obligors will fall into). 5.3.8.3
Ownership Issues – KYC, Reputation & Integrity 5.3.8.3.1 This criterion helps us to filter out companies whose sponsors do not have a good reputation, who might pose KYC/AML/Franchise or extra ordinary ownership risks to the bank.
5.3.8.4 Approved Industry
5.3.8.4.1 Target market names belong to a predeveloped set of industries, defined in Industry Selection & Prioritization above as ‘Target Industries’. Selection criteria for approved industries include longterm survival and viability, acceptable risk profile, and available banking opportunities. This criterion is also February 2008
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being proposed to filter out obligors operating in highrisk industries such as real estate and commodity trading. 5.3.8.5
Risk Rating (Group Risk Rating for Economic Groups) 5.3.8.5.1 Risk ratings for corporate borrowers in the Institutional Bank shall be primarily determined using the Moody’s KMV Risk Advisor. The Judgmental Scorecard may be used in exceptional cases. Minimum risk ratings for each Tier shall be determined in consultation with the business. Risk acceptance criteria associated with Tier II & III obligors are inevitably tighter and more structured to maintain portfolio quality. For economic groups, the Risk Rating criterion will be determined using a Weighted Average Probability of Default process in line with CIB Risk Rating policy. 5.3.8.5.1
5.3.8.6
Group Sales 5.3.8.6.1 The sales criterion provides comfort through scale and dominance, as well as ensuring adequate wallet size. Obligors that meet the benchmarks are expected to have a need for a variety of products that would maximize crosssell potential.
Please note: 5.3.8.6.2 For obligors that are startups where no financial statements exist, this criterion should show as a deviation (i.e. Financial projections should not be used). 5.3.8.6.3 Startup companies that are affiliated to an existing group relationship with ACCESS BANK and are being established in a related industry to the group‘s core business will be considered TM regardless of number of TM deviations. 5.3.8.7
Auditors 5.3.8.7.1 This criterion ensures that obligors are audited by competent and reputable firms, which attests to the quality of financial information disclosed, and hence the quality of credit analysis and risk profile generated. The list of acceptable auditors shall be approved by the Head of Credit Risk Management in conjunction with the business group heads. The Head of Credit Risk Management may approve the use of any auditor not on the approved list.
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5.3.8.8
Financial Criteria 5.3.8.8.1 Four different criteria will be used, reflecting the most meaningful ratios; Net Margin, Current Ratio, Financial Leverage, and Debt Service Coverage. The ratios selected are meant to capture the operating, liquidity, solvency and cash flow performance of individual obligors. Different levels have been set for manufacturing and trading businesses, to recognize their different operating characteristics.
Please note: 5.3.8.8.2 All quantitative TM criteria will be based upon most recent fullyear audited financials available. In case of audited financials being outdated, unaudited or management financials may be used for information purposes only, and this must be clearly stated. For obligors of a startup nature where no financial statements exist, this criterion should show as a deviation (i.e. Financial projections should not be used). 5.3.8.9
Account Profitability 5.3.8.9.1
5.3.8.10
Suitable returns must accompany every credit extension.
Key Success Factors 5.3.8.10.1 Minimum score have been set for KSFs for the different obligor Tiers. This criterion is to ensure that obligors are industry ‘survivors’ and can withstand adverse future developments. KSFs have been set for each industry / segment independently, reflecting the unique risks and market dynamics involved and are listed at the end of this document. Note that determination of obligor scoring on this criterion will be largely judgmental.
5.3.8.11
Industry Experience 5.3.8.11.1 The minimum years of experience criterion is meant to test that the organization has in fact survived a varied economic life span. For Tier I names, where we have larger exposure appetite, a minimum of 10 years industry experience has been set to establish the obligor’s economic resilience. For obligors belonging to an economic group, years in business should be measured on a group basis to reflect actual experience.
5.3.8.12
Management Rating 5.3.8.12.1 Obligors are not to have a rating of worse than 3.0 (on a scale of 5.0) across all industries / segments. This rating is developed through a
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Management Assessment Form, reflecting important management attributes such as reputation, experience, competence and depth. The Management Assessment is an integral part of the CA process. 5.3.9 Risk Acceptance Criteria 5.3.9.1
As previously discussed, RACs are driven by the allocated tier of the borrower which in turn is based on final ORR and sales turnover. 5.3.9.1.1 Product Offering & Tenor Products to be offered mainly reflect the following factors: § Obligor risk profile as exemplified by Tier § Access Bank’s key strengths / competencies. 5.3.9.1.2 In general, products offered are working capital, term and guarantees/bonds. 5.3.9.1.3 Tenors to be offered reflect Access Bank’s credit / business appetite. Obligors have been Tiered based on Risk Rating and sales turnover, to reflect their unique credit profiles. Maximum tenors have therefore been set at 7years, 5years and 3year for Tier I, II & III obligors respectively.
5.3.9.2
Maximum Aggregate Lending Exposure 5.3.9.2.1 Security shall be taken for all exposure in line with the requirements of this Manual, and in such a way that ensures that Access Bank is Pari Passu with other lenders. Negative pledge might also be taken, subject to being on equal standing with other lenders. This must be established by a search at the Corporate Affairs Commission. Where we are extending term facilities to finance specific assets, we will take a charge over those assets. 5.3.9.2.2 Aggregate exposure (direct and contingent) limits have been set to avoid large unmanageable levels of exposure to obligors disproportionate to their risk profile. A lending exposure cap is set as the lower of an absolute level of exposure or 120 days of obligor’s sales turnover. Where term loans have been taken, or are proposed, to finance CAPEX, and the CAPEX is yet to start contributing to the obligor’s sales turnover, this criterion will usually result in a RAC exception.
Please Note: 5.3.9.2.3
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Facilities secured by Cash are excluded from the calculation.
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5.3.9.3
Currency 5.3.9.3.1 Despite the evident stability in the exchange rate over the last 5 years, to mitigate against any possible foreign exchange risk, FCY exposure will only be made available to obligors who earn foreign currency i.e. exporters only. Any exception to this policy shall be suitably justified in the credit memorandum.
5.3.9.4
Maximum loans per borrower 5.3.9.4.1 Not to exceed 50% of aggregate clean exposure for all Tiers. This criterion is to avoid a concentration risk should the credit profile of obligors deteriorate.
Please Note: q Fully cash collateralized facilities, loans to finance specific assets, and facilities for import/trade finance are not included in the definition of loans.
5.3.9.5
Security 5.3.9.5.1 Refer to previous discussion on Maximum Aggregate Lending Exposure. We may lend clean to some Tier I names in line with market practice. Long term facilities to Tier II and III names must always be secured by the assets financed, reflecting their riskier profile.
5.3.9.6
Return on Risk 5.3.9.6.1 This criterion is to ensure that the yield on utilization of the bank’s risk capital meets institutional hurdle rates as may be set from time to time.
5.3.10
TM/RAC Deviation Approval Process
5.3.10.1
We will not deal with a nonTM name, except with the approval of the supervising ED + Head of Credit Risk Management + GMD or GDMD
5.3.10.2
Maximum number of TM exceptions allowed in any Tier is 3, otherwise the name becomes nonTM.
5.3.10.3
Oil & Gas Names
5.3.10.4
Certain Oil & Gas names have unique characteristics, which will result in material exceptions in the General Corporate TMRAC screen. Therefore we are willing to allow certain TM deviations for the major Oil & Gas names relating to financial ratios. The key differences are in respect to leverage and funding structures of the major oil and gas producers in Nigeria, who are mainly well established multinational names. These obligors are generally
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managed with focus on cash flows and profitability with limited attention paid to the balance sheet profile of the local operating entity. As a result, high levels of funding mismatches, evidenced by negative current ratios, 100% dividend payouts and high leverages are common. We are comfortable because: • The high levels of inherent profitability allow these names to sustain higher levels of leverage, compared with what would normally be considered prudent in an emerging market environment. • High levels of intercompany funding and support also allow a greater level of comfort with both leverage as well as funding mismatches. Refinancing risk in a situation with large levels of intercompany funding from the Parent is considered low. • Moreover, the largest local banks have major risk appetite for the top tier energy names which allows them to access a large pool of funding and limited concern by the lenders over higher leverages and funding mismatches. The high leverage levels and funding mismatches are mitigated by the inherently strong cash flows and business fundamentals of the tier I/II names. • There is also a distinction in the Net Margin criteria between E&P names and Marketing names due to the difference in their operating and financial model. 5.3.10.5
FI TM RAC screens Banks
5.3.10.6
The FI landscape in Nigeria experienced dramatic changes since the Dec 2005 deadline set by the Central Bank of Nigeria for banks to recapitalize to N25bn (from previous N2bn). Banks have all since exceeded this minimum level, with several attaining N100bn capitalization. Consequently, these banks are much stronger, safer and important to the financial system. Our exposure thresholds have been set to take account of the new reality of the banking environment to enable us maximize the opportunities from the increased capital bases of banks. We will have three tiers of banks, with the Tier determined by a combination of Management Reputation & Integrity, Agusto Rating, Total Assets & Contingents.
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Target Market Criteria CRITERIA
REQUIRED Tier I REQUIRED Tier II REQUIRED Tier III
1. KYC 2. Management reputation and integrity 3. Agusto Rating 4. Total assets & contingents N'bn 5. Financials Audited by Top Auditors 6. Capital adequacy ratio % (min) 7. Liquidity ratio % (min) 8. Weighted average cost of funds % 9. Min. Account Profitability (N'mm)
Required At least 2 positive checking, none negative 500 16% 5%
250 Minimum 3 years 14% 40% 10%
< 250 12% 15%
Risk Acceptance Criteria CAPS
REQUIRED Tier I REQUIRED Tier II REQUIRED Tier III
1. Exposure cap (Cash coll & OBB)
100% of Total Net Worth 3 years 14 days 75% of Total Net Worth 3 years 20% of Total Net Worth 90 days
Tenor: Cash Coll Tenor: OBB 2. Exposure CAP (Clean) Tenor 3. Exposure CAP for OSTBT & Clean Placements Tenor
75% of Total Net Worth 2 years 14 days 50% of Total Net Worth 2 years 10% of Total Net Worth 60 days
25% of Total Net Worth 1 year 14 days 10% of Total Net Worth 1 year 1% of Total Net Worth 14 days
Þ Any name must pass TM criteria nos. 3 & 4 to qualify for the respective Tier. Þ More than 3 TM deviations downgrades the obligor to the next lower Tier. 5.3.10.7
KYC, Management Reputation & Integrity The recapitalization exercise has generally improved this criterion.
5.3.10.8
Agusto / Fitch / GCR Rating Agusto / Fitch / GCR ratings are a good indication of the risk quality of Nigerian banks. Therefore we will use these ratings as a basis for comparing the risks of each of our bank obligors.
5.3.10.9
Total Assets & Contingents This criterion gives us an indication of the size of the bank.
5.3.10.10
Weighted Average Cost of Funds This criterion recognizes that the ability of banks to improve profit margins is strongly dependent on their ability to differentiate themselves through lower funding costs.
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5.3.10.11
FI TM/RAC Deviation Approval Process 5.3.10.11.1 We will not deal with a nonTM name, except with the approval of the business ED + Head CRM + GMD or GDMD. Maximum number of TM exceptions allowed in any Tier is 3, otherwise the name becomes nonTM. 5.3.10.11.2
5.3.10.12
NonBank FI (Stockbrokers) Exposure to stockbrokers shall be guided by a credit program, and shall be subject to aggregate exposure limit set for this category of borrowers.
5.3.11
Key Success Factors for Select Industries KSFs have been set for some select industries below, where there is significant exposure. Additional industry specific KSFs shall be largely derived from industry studies. The derivation of individual obligor score against each KSF (required in the TM screen) will be largely judgmental. Where possible it shall be aided with some analytical evaluation. Generic KSFs have also been identified for general use.
5.3.11.1
Oil Marketing 1. 2. 3. 4. 5.
5.3.11.2
Oil Exploration and Production 1. 2. 3. 4.
5.3.11.3
Size and scope of operations Cost Structure Management Strategy Financial Flexibility
Telecommunications (Fixed & Mobile) 1. 2. 3. 4. 5.
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Reserve Characteristics Cost Structure Management Strategy Financial Flexibility
Oil Service 1. 2. 3. 4.
5.3.11.4
Operating Characteristics Market Share Cost Structure Management Strategy Financial Flexibility
Management Strength Marketing/Competitive Strength Financial Flexibility Operations and Cost Controls Regulatory Environment
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5.3.11.5
Financial Institutions 1. Capital Adequacy 2. Operating Efficiency 3. Credit Culture 4. Quality of Management
5.3.11.6
Food, Beverages and Tobacco 1. 2. 3. 4.
5.3.11.7
Cement 1. 2. 3. 4. 5.
5.3.11.8
Marketing Expertise/Diversified Portfolio Low Cost/Cost Efficiencies/Backward Integration Financial Flexibility Parent Support/Competent Management
Access to Raw Materials Financial Flexibility Management Strength Market Dominance LowCost Provider
Generic KSFs for Other Industries 1. Financial Flexibility – Indicated by ORR 2. Marketing Expertise/Market Share/Demand for Products – Indicated by market share 3. Access to Raw Materials (for manufacturers) – Indicated by gross margin 4. Management/Parent Support – Indicated by pretax operating profit/parent ownership 5. Operating Efficiency/Technology – Indicated by operating profit margin
5.3.11.9
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Rationale for Generic KSFs for other Industries Financial Flexibility – This mainly measures access to capital, which is dependent on the financial strength of the company. Marketing Expertise/Market Share/Demand for Products – This mainly assesses a company’s market dominance or lack of it. A proxy for this KSF is the obligor’s market share. Access to Raw Materials – For manufacturers, ready access to competitively priced raw materials is important. A proxy for this is gross margin trend. Management/Parent Support – This KSF focuses on measuring the performance of management, given the company’s assets and the market environments in which it operates. A proxy for this is the pretax operating profit trend. Operating Efficiency/Technology – This focuses on the efficiency of operations of the obligor. A proxy for this is the operating profit margin trend.
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5.3.12.
Concentration Limits / Aggregate Exposure Ceilings
5.3.12.1
Concentration limits / aggregate exposure ceilings shall be defined in terms of target markets and risk acceptance criteria defined above. Concentration limits / aggregate exposure ceilings shall relate to collection of credits with common risk characteristics, or where macroeconomic or market developments can have similar impact on a group of credits.
5.3.12.2
Concentration limits / aggregate exposure ceilings may also be defined by aggregating credits sharing other dimensions, such as dependency on particular economic variables (e.g. oil prices, interest rate levels, consumer spending); similarity of credit terms or quality (e.g. tenor, type of security, risk rating, growth rate); or in terms of a dimension which is especially important to a particular business.
5.3.12.3
A credit risk concentration is more than an aggregation of exposures to one borrower, related parties and/or subsidiaries.
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6.0.
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Risk Administration
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6.1 Administration of Existing Exposures 6.1.1 Customer Meetings and Call Reports 6.1.1.1
6.1.1.2
To provide relevant, uptodate and reliable informed ongoing management of exposure quality and overall business condition of the obligor and relationship with Access Bank, it is critical that marketing/relationship management officers maintain direct contact with customers through periodic visits to business locations as well as at the Bank premises. The frequency of these visits shall be riskdifferentiated, such that riskier obligors or large exposures are more frequent than for lessrisky obligors of smaller exposures. The Head of Credit Risk Management shall establish a calling policy to guide this process, as well as define minimum information that must be contained in a credit call report. All pertinent information derived from such credit calls shall be properly documented and circulated to the business head and Credit Risk Management; and shall be included in the customer credit file. The documentation of the credit call shall follow a predefined format.
Credit calls are an important part of ongoing monitoring of performance of facilities after they are disbursed and help the bank to quickly identify problem credits and initiate appropriate corrective actions. It is the responsibility of the relationship manager to ensure that these calls are carried out at the specified frequency. This activity shall be auditable.
6.1.2 Credit Checking 6.1.2.1
The gathering of bank and trade checking shall be an important component of the continuing assessment of obligors and confirmation that the business remains a ‘going concern’. Rules and procedures for requesting and supplying credit information shall be articulated by Credit Risk Management.
6.1.3 Financial Information 6.1.3.1
In the ongoing administration of the quality and performance of loans and other types of credit exposure, periodic analysis of uptodate financial information shall be a fundamental requirement.
6.1.3.2
While the availability of reliable, complete and uptodate financial information on the customer on a timely basis could be a limitation, the objective shall be, and every effort made to obtain as much as possible, such information that will enable informed evaluation and conclude on the quality of the exposure and identify risk of decline in performance and quality.
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6.1.4 Collateral Inspection / Site Visits 6.1.4.1
At the minimum, annual physical verification shall be conducted to confirm the existence and adequacy of all collateral held as security in respect of credit exposures by the relationship manager and Credit Risk Management (probably at the time of annual review of facilities). Such inspections shall include the physical inspection, examination of security agreements to determine enforceability of liens, verification of appropriate and adequate insurance protection, proper legal registration (and renewal of registration), and the adequacy of overall safeguards.
6.1.4.2
Prior to disbursement of funds under a term loan, there must be a documented site visit by the relationship manager.
6.1.5 Collateral Evaluation 6.1.5.1
Depending on the nature of such collateral, any collateral held as security in respect of credit exposures shall be revalued on pre determined periodic basis using appropriate systems and shall be no less frequent than once a year. Such revaluation shall confirm the continuing appropriateness of and adequacy of the forced sale value of collateral on the open market to cover the bank’s exposure. Collateral valuation shall be conducted by outside professional appraisers where necessary and / or dictated by industry practice or legal requirements, as in the case of property / real estate.
6.1.5.2
Where obligations are secured by marketable securities, which are critical to the repayment of the obligation, a predetermined “stop loss” or “sell point” shall be established (under clear advice to the obligor) and the securities should be liquidated if the value falls to the “stop loss” (unless additional and satisfactory security is provided).
6.1.6 Documentation Lodging, Review and Followup 6.1.6.1
All legal documentation in respect of approved credit exposures shall be held in an appropriately secured bank vault or a location of equivalent security and safety. Existence and location of such legal documentation shall be indicated in the credit file by an initialed receipt by the bank officer with responsibility for custody of such documentation.
6.1.6.2
Documentation and collateral must agree with that specified in the approval document as well as the agreement executed with the customer.
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6.1.6.3
An annual physical verification of all credit documentation to confirm existence and continuing enforceability shall be conducted by the Credit Administration function in conjunction with Legal Department.
6.1.7 Covenant CheckOff List 6.1.7.1
The Risk Management function and the relevant approval authority must review all outstanding credit transactions and commitments at least annually. The review shall be accompanied by a covenant checkoff list, which must be signed off by the officer responsible for carrying out the review.
6.1.8 Release of Collateral, Guidelines and Support 6.1.8.1
Upon confirmation of full repayment of the credit facility and liquidation of the bank’s exposure, all collateral, guarantee or support for any type of credit transaction shall be released to the customer in accordance with agreed terms and conditions.
6.1.8.2
Release of collateral, guarantee or support shall require approval by the Head of Credit Risk Management on confirmation of full payment of the credit facility.
6.1.9 Annual Review of Exposure Quality and Performance Grading 6.1.9.1
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Obligor and facility exposure quality and performance grades shall be reviewed annually and revised to reflect changes as may be required. Exposure quality and performance reviews shall be conducted by the Risk Management function.
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6.2
Maintenance of Credit Information
6.2.1 File Management 6.2.1.1
Credit files are the official records, correspondence and interaction between the bank and customers in respect of credit relationships and exposures. Appropriate care must be taken to ensure that credit files are maintained uptodate on an ongoing basis and contain accurate and reliable information to establish a trail in respect of the establishment, change and current status of a credit relationship. The credit file serves as the primary information source for decisionmaking on credits and customer relationships.
6.2.1.2
Credit files must contain at a minimum:
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a)
Credit Creation Documents v Preliminary Credit Screening form v Credit Application form v Credit Appraisal Analysis form
b)
Credit Approval Documents v Credit Appraisal form v Credit Offer Letter / Acceptance v Classified Credit Memoranda
c)
Financial Statement v Most recent audited and/or management statement of accounts v A note as to where statements that may be relevant, but are too bulky are located.
d)
Memoranda and Correspondence v Memoranda and correspondence detailing the history of the relationship with the customer, present status, and substantive contact with the borrower. These shall include all customer correspondence, call memos and reports, collateral documentation, internal memoranda. v Exposure quality and performance classification. v The latest Classified Assets Management report in which the action place and loan loss recovery program are summarized (if applicable).
e)
Revolving Credit and Term Loan Summaries v Summary of basic covenants v A note as to the location of the term loan summary, covenant checkoff list and nondefault certificates (if applicable), together with any memoranda or correspondence regarding compliance with covenants, if
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they are relevant but too bulky to be included in the file with other materials. 6.2.1.3
All files must be reviewed periodically and culled as may be required of outdated or irrelevant information and only essential material retained. Information of an unfavourable nature, such as a significant problem in the relationship should be permanently retained and marked on the memoranda or documents.
6.2.1.4
The marketing / customer relationship officer shall be responsible for creating a credit file at the beginning of a credit relationship. All documentation / correspondence generated during the credit cycle will be filed in the appropriate section of the credit file by the originating department.
6.2.1.5
Separate files will be kept for security documents (debenture deeds, certificate of titles) as may be required.
6.2.1.6
Each customer credit file shall be made up of two (2) components. All credit documents originating from the bank shall be (domiciled on a Customer Credit Information Database on the bank’s intranet), which shall be accessible to both credit risk management and relationship management function. All paperbased credit documents such as customer correspondences shall be maintained in hard copy in the customer’s credit file.
6.2.1.7
Credit Risk Management shall be responsible for safe custody of credit files and maintaining records of file movement and use in and out of the file room.
6.2.1.8
Credit files are highly confidential in nature, and should be kept secure at all times. Access to credit files shall be properly restricted to authorized officers of the bank. It is expected that credit files shall never be removed from the official bank premises, except with the express permission of Credit Risk Management.
6.2.2 Risk Reporting 6.2.2.1
Access Bank Credit Risk Management shall provide accurate, timely and complete credit reporting on obligor and portfolio basis for informed management decisionmaking.
6.2.2.2
The following categories of reports will be produced in the indicated frequencies:
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Credit Compliance Reporting Name of report Recipients Unauthorized overdraft Business units / report MCC Excess over approved Business units / limit MCC Expiring Facilities Business units Expired Facilities Business units Central Liability Report Business units Maturing obligations Business units report Review of security MCC documentation
Frequency Daily Daily Monthly Weekly Monthly Monthly Annual
Performance and Portfolio Reporting Portfolio Review Report MCC Collateral Review MCC
Quarterly Annual (or as specified in the credit approval Recovery Status Report MCC Monthly Recoveries Made MCC Quarterly Account throughput Business units / Quarterly (or more reporting MCC frequently) Reserves & Writeoffs CAC Quarterly Additional reports may be introduced as required. 6.2.3 Background Information 6.2.3.1
The maintenance and annual updating of certain background information on customers and prospective customers are essential. All background information should be recorded in a readily retrievable format and should include pertinent facts such as: o Full legal name of customer o Legal address (and mailing address, if different) o Legal status e.g. public limited company, partnership etc. o Details of Management o Ownership o Brief historical facts e.g. registration number, date of incorporation etc. o Nature of customer’s principal business(s) o Other basic information as deemed appropriate o All other information to satisfy KYC requirements for the customer.
6.2.3.2
Responsibility for supplying the above information shall lie with the respective relationship managers in the marketfacing business units.
6.2.3.3
Responsibility for maintaining the above information in credit reporting systems shall lie with Credit Risk Management.
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7.0.
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Addenda
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Appendices Appendix 1 Facility Summary / Approval Memorandum Template Appendix 2 Credit Call Memorandum Template (To be issued) Appendix 3 Management Assessment Form Glossary (being prepared)
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Appendix 1 Facility Approval Memorandum Template Country:
Date:
Branch / Unit:
MIS CODE
Review Type
Initial / Annual / Interim
RELATIONSHIP SUMMARY Borrower: Location: Business: Next Annual Review Date: Exchange rate used: NgNxxxxx/USD
Obligor Risk Rating: Ownership: Classification:
GROUP FACILITY SUMMARY Facility
LLL Impact
Ccy
Current Proposed Change Amt (‘000) Amt (‘000) (‘000)
Direct Facilities:
Total Direct Contingent Facilities:
Total Contingents Total Facilities Legal Lending Limit (NgN’000) LLL Impact of Proposed Facilities Any LLL violation? (Yes / No) Directorrelated? (Yes/No)
GROUP EXPOSURE SUMMARY as at xx/xx/xxxx Facility
Ccy
Current Amt (‘000)
Maturity
Total (Naira equivalent)
SECURITY / SUPPORT STRUCTURE Facility
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Security / Support
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Tenor
SIGNIFICANT EXPOSURE DETAILS For Annual Reviews, give a brief description of purpose of each facility and their significant details (e.g. pricing, tenor, change in security/support, status of repayments, etc) For Initial & Interim Reviews, give a detailed description of the new facility (ies) and its significant details (e.g. purpose, tenor, security / support, repayment plan etc). For Annual Reviews, it is particularly important to note any significant or noteworthy exposures, such as, but not limited to: · Holding company exposure · Credits with material RAC and/or policy exceptions or sectoral limits. State if there is any violation of Legal Lending Limit and the plan to bring exposure back within LLL and time to achieve this. · Any significant free standing subsidiary exposure (> 20% of group facilities) · Security / support situation. Give full details of stocks used to secure any facility (ies), including margin requirements and stoploss (where applicable). Give full address / location of any buildings / properties used to secure any facility (ies). BACKGROUND TO THE REQUEST Give a concise background to the credit request. Bullet points preferable. If it is an Annual Review where there are no changes in facilities, the obligor or our relationship with the obligor, this section should be very brief. Where there are changes, this section should focus on the changes that have led to the approval request. For an Interim Review, this section should focus on the requested amendments that have triggered the review. This section should therefore elaborate on the key highlights of the credit facility or transaction e.g. amount, tenor, structure, repayment terms, changes in security/support structure/documentation
I.
Credit Overview and Recommendation GUIDANCE NOTES ·
·
This section is equivalent to a briefing memo or summary for the approver. In addition to the Approval Request, it should contain, if appropriate, a discussion of critical issues or risks that need to be brought to the attention of senior approvers of this credit exposure and a clear explanation of why we are comfortable with these issues or risks – i.e., why the risk / reward balance is appropriate. Fundamental credit issues such as obligor limit exceptions, deteriorated credits, policy exceptions, material documentation exceptions, franchise considerations and/or any noteworthy structural features of the transaction (inferior position, bridge financing, etc.) should also be addressed, as needed. The section should ideally be completed in bullet point format and typically should be no longer than ONE page.
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·
In the case of Annual Reviews, or simple extensions of credit (e.g. increase in existing import finance facilities), this section is required only where there are MATERIAL changes to the credit or to the returns/relationship strategy since the last review. If there are no such changes, the Approval Request can be incorporated into Significant Exposure Details section above of the memo and this section may be omitted.
APPROVAL REQUEST:
·
State precisely what you are asking approvals for. It should include the key highlights of the credit exposure or transaction, as well as any policy and documentation exceptions or exceptions to Target Market and / or RAC definitions
CRITICAL CREDIT ISSUES
·
· · ·
A brief overview of material risks (business, financial, management or other) and credit profile, as well as ways out, and Risk Acceptance Criteria (RAC) or Target Market (TM) exceptions Assessment of the external market signals on the company, if meaningful Any franchise or reputation risk considerations or Other Policy & Risk exceptions Early problem monitoring triggers or Classification triggers, if appropriate
RISK/RETURN AND RELATIONSHIP STRATEGY · · ·
Impact on returns / relationship yield; strategy for improving subpar returns / relationship yield, if appropriate, including target dates Initial and final expected hold amounts; exposure management/risk mitigation plans Relevant insights into how the transaction fits into our relationship strategy with the client
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CONDITIONS PRECEDENT TO DRAWDOWN
TRANSACTION DYNAMICS
II.
Analytical Evaluation and Outlook GUIDANCE NOTES · This section constitutes the proprietary analysis of the key drivers, risks, and mitigants relevant to the obligor and our credit exposure. It should draw on and interpret the Reference Information contained in Sections III and IV, but it should not repeat or restate that information. · Judgment should be used to focus on MATERIAL issues which may be important for the credit outlook going forward or which have affected the borrower over the period since the last review. · Bullet points are encouraged; the length of this section will differ depending on the complexity of the transaction or the extent of update required and may vary from as little as one paragraph up to a maximum of five pages. · The following headings and content thereunder are provided for guidance only, and DO NOT need to be included unless marked as REQUIRED or deemed to be relevant. The analyst is strongly encouraged to discuss the content with their supervisor and relevant banker to ensure focus on critical issues and determine the appropriate subject matter for inclusion.
CREDIT STRUCTURE: Summarize how the credit structure and/or risk mitigation options will protect us in the event of bankruptcy or restructuring. Ø Ø Ø Ø
Analyze primary & secondary repayment sources. Highlight structural issues such as inferior position; Elaborate on covenants and performance against these; Comment on collateral, support, and other ways out including secondary market loan sales. Comment on collateral valuation should include market value which should take into account factors that could affect the asset value, like liquidity of the
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market for the collateral, obsolescence or deterioration of the collateral, and correlation between the value of the collateral and the obligor. Provide enterprise valuation, if relevant. Discuss key terms of the collateral arrangement like thresholds, currency mismatch, appraisal requirements, and requirement for periodic verification of the existence of the collateral, where appropriate. Verify that all documentation necessary to perfect our interest in the collateral is current. Ø Comment on material terms that may be exceptional or outside policy. For bridge financings, ensure that ways out are fully analyzed.
RISK ANALYSIS: Focus on the 2 or 3 KEY risks. Typically, the key issues to be addressed are what could go wrong that would threaten the obligor’s ability to service debt. Discuss the implications of the financial forecasts, if these have been prepared, articulating the critical drivers, debt maturities and how much cushion there is between expected performance and covenant strike levels. The analysis should be linked to historical operating performance, financial condition and cash generation capability, considering key factors such as sustainable earnings and cash flows, financial and operating leverage, liquidity, debt profile (on and off BS), refinancing risk, interest rate and FX risks, etc – and the overall financial flexibility to deal with stress situations. Include a liquidation analysis or security coverage analysis (especially if facilities are secured by all assets debenture). Identify 2 or 3 early warning triggers.
COUNTRY OVERVIEW & INDUSTRY / BUSINESS RISK: Give overview of economic and socio political environment as it affects the obligor – including population, GDP growth, economic conditions, regulatory environment, macro economic stability etc. This should be in bullet points. At any review, elaborate only on those country issues that have changed since the last review. Industry / Business analysis should address fundamental changes in the business or industry that could impact the obligor if these issues have not already been analyzed in prior memos. Consider industry dynamics (forces shaping the industry such as demand, supply, competition, barriers to entry/exit etc), key dependencies and potential regulatory changes. Use peer group analysis (including KSF’s as applicable) to highlight relative strengths of the obligor in its industry or geography. Focus on the two or three KEY issues that affect your borrower’s current and future prospects. Use both internal and external sources wherever possible to form your opinion. MANAGEMENT ASSESSMENT: REQUIRED IF MANAGEMENT ASSESSMENT HAS CHANGED and FOR ALL INITIAL REVIEWS Objectively analyze management’s ability to run the company under both expected and stressed conditions – based on fit, track record and reputation. Analyze management’s ability to execute their business and financial plan in light of their competitive and financial position. Also consider character and business practice – including openness with, and general commitment to, a twoway relationship with its main capital and advice providers. Comment on any recent management changes or changes to business strategy that may test management for the first time. Evaluate the impact of any management changes. February 2008
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Include a brief profile of the new members of management. Use both internal and external sources wherever possible to form your opinion. Where there has been no change in management, do not give profile of existing management team. Identify any significant management risks. HISTORICAL FINANCIAL ANALYSIS & OUTLOOK [REQUIRED AT LEAST ANNUALLY]: Show highlights of historical financial statements, stating extent of reliability. Objectively analyze historical financial statement, with emphasis on adequacy of cash flow as a primary repayment source. Discuss trends in profitability, leverage and liquidity, as well as activity ratios. Assess if there has been an appropriate mix in the capital structure between long term uses and sources of funds. Compare financial metrics with peer averages. Use recent management accounts to assess the near term outlook for the company. Consider the impact of key business drivers on the outlook. Financial highlights should be prepared for all material subsidiaries that together make up a relationship defined as a Group relationship. Comment on future outlook for cash flow, profitability and capital structure. PROJECTED FINANCIAL ANALYSIS All term exposures must be accompanied by financial projections covering the tenor of the financing. Include the relevant spreadsheets (inputs and outputs) and discuss trends including covenant compliance, and cushions vs. benchmarks, if appropriate. The projections must include the assumptions underlying them. This section must also show the results of sensitivity analysis of the projections, as well as the performance against financial covenants in these scenarios.
III. REFERENCE INFORMATION BUSINESS AND INDUSTRY DESCRIPTION Attach a brief description of any changes to the Company’s business, operations, and asset profile. If information is available from internal sources (e.g., an industry study, KYC/BIR) or outside sources (i.e. info memos, online sources, and rating agency reports), then they should be used. If the industry is particularly dynamic, provide color as to current trends. Include brief KSF or Competitive Position Analysis, if appropriate. For Initial Reviews, give detailed overview of the business and industry description. CORPORATE STRUCTURE AND ORGANIZATION Show legal organization chart with key financials for each relevant obligor or subsidiary, including cash, cash flows, and debt. Show any support or guarantees if applicable.
EXTERNAL MARKET DATA
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If particularly compelling or relevant, include stock price and its trend relative to peers and overall market. Include information on obligor’s exposure to other banks.
APPROVALS Name
Signature & Date
Relationship Officer Relationship Manager Business Group Head Required Concurrences Credit Risk Management Legal Credit Approval Business ED (up to NgN75MM) GDMD (up to NgN150MM) GMD (for up to NgN200MM) MCC (above NgN200MM) BCC (above NgN500MM) Board of Directors (>N6bn)
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Herbert Wigwe Aigboje AigImoukhuede
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Appendix 3 MANAGEMENT ASSESSMENT FORM Assessment scale: Outstanding = 5, Strong = 4, Acceptable = 3, Weak = 2, Very weak = 1
RATE
CONCISE QUALITATIVE REMARKS
Owners REPUTATION INVOLVEMENT WITH THE COMPANY EXPERIENCE/INFLUENCE SOURCE OF REPRESENTATIONS (OFFICIAL/BUSINESS) Management Depth QUALIFICATION/EXPERIENCE EXERCISE OF DUTIES/AUTHORITY BACKUPS/SECOND LEVEL SUPPORT
CONTINUITY Competence/Reputation of Management CAPABILITY IN ADMINISTRATIVE, STRATEGIC MANAGEMENT AND PLANNING DECISIONS
INDUSTRY REPUTATION Management Controls ORGANIZATIONAL/HOLDING PARENT COMPANY
FINANCIAL COST EVALUATION SERVICES INVENTORY DISTRIBUTION COLLECTIONS LEVEL OF AUTOMATION Risk Management AWARENESS AND IDENTIFICATION OF KEY RISKS
MEASURES IMPLEMENTED TO ASSESS THESE RISKS FINANCIAL RISK MANAGEMENT Summary of Rating ·
MAIN WEAKNESSES MAIN STRENGTHS STEPS BEING TAKEN TO IMPROVE
·
·
WEAKNESSES
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SPECIAL FEATURES OVERALL RATINGS
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