Paper on Strengthening Credit Culture and Monitoring Practices.pptx

1. Strengthening Credit Culture and
Monitoring Practices
By Krishna Gupta
Global IME Bank, Itahari Branch

2. Content
• Introduction to credit culture and credit
monitoring Practices
• Elements of Credit Culture
• Objective of credit monitoring
• Overview of various monitoring stages
• EARLY WARNING SIGNALS in Banking (EWS)
• Conclusion

3. Introduction to credit culture
• A bank’s credit culture is the unique combination of policies,
practices, experience, and management attitudes that defines the
lending environment and determines acceptable lending behavior.
• More broadly, credit culture is the system of behavior, beliefs,
philosophy, thought, style, and expression relating to the
management of the credit function.
• A strong credit culture spread throughout the organization from top
to bottom; it is felt rather than defined. It is more “how we do
things around here” than what is spelled out in policy and
procedure.
• The role of a credit culture is to create a risk management climate
that will foster...good banking.
• Though COVID-19 pandemic had slow down, current economic
uncertainty is a reminder of the need to revisit lending approach.

4. Elements of Credit Culture
Policies &
procedures
Organizational
structure &
hierarchy
Leadership
Human
resource

5. Policies & procedures:
• It consists of several policies and procedure that a
bank implement to acquire the common goal of
organization. Best policies & procedure shape the
strong credit culture within the organization.
Policies & procedure consist vision and mission of
the bank which should be clearly communicated
to the employees. If employees lack clarity about
vision and mission of the bank, employee trends
to lack confident regarding the credit judgment
and risk management.

6. Organizational structure & hierarchy:
• How information flow within the organization
had major impact in shaping organizational
culture. The way management organize and
decentralize the lending authority/ related
roles had direct influence on organization’s
credit culture.

7. Leadership:
• Leaders are those who can make other act
willingly for the common goal of organization.
Strengthening credit culture high depends
upon the nature of leadership adopted by key
personnel of the bank.

8. Human resource:
Ultimately credit culture is created/followed
by the people who live within these culture of
the organization. The strongest driver is
people applying strong credit skills to achieve
sound credit judgments.

9. Credit Monitoring
• Credit monitoring in banking is the process of
tracking the financial activities and behavior
of borrowers to assess their credit risk and
detect any signs of fraud or default as well as
changes to their creditworthiness

10. Monitoring stages used by financial
institutions
Pre-sanction stage
Post Sanction pre disbursement stage
Post Sanction during disbursement stage
Post disbursement stage

11. Pre-sanction stage
• Client application & RM interview with client
provides details regarding the 5Cs (Character,
Capacity, Capital, Collateral and Conditions) of
client.
• Inspection of borrower and guarantors’
residence.
• FAC site visit.
• Inquiry of banking history of client through
existing bank statement and CICL.
• Analysis of client plan for fund utilization.

12. Post Sanction pre disbursement stage:
• Analysis of collected documents of client;
• Analysis of Valuation of collateral;
• Analysis of regulatory requirement and
conditions,
• Analysis of client requirement and their
conditions.
• Analysis of income/Business of the client,
• Opening of bank account
• Preparation of proposal for client.

13. Post Sanction during disbursement
stage
• Mortgage of property if required.
• Revisit of legal heirs if any;
• Execution of legal documents as of terms of
sanction.
• Verification of sanction terms.
• Interest, insurance, margin, mortgage amount,
legal documents details, disbursement terms
& procedure, charges and so on

14. Post disbursement
• Ensure end user,
• Avoid miss utilization of fund
• Inspection as per requirement and updating NTA in the system.
• FAC site inspection as per requirement.
• Timely renewal of insurance policies.
• Analysis of financial statements in respect to required standards of
financial ratios,
• Analysis and verification of transaction& turnover made by client.
• Regular collection of market information related to borrower.
• Timely identification of delinquent accounts and restructuring.
• Obtaining renewal document on timely basis.
• Proper relationship with borrower.

15. EARLY WARNING SIGNALS in Banking
(EWS)
• EWS is concern with detecting problematic
borrower as early as possible. There is no
universal norm for red flag recognition. The
methodology could involve reviewing financial
statements, economic indicators, or historical
information. The EWIs should have defined
trigger levels set with regard to the levels
specified in credit risk appetite, strategy and
credit risk policies, and have assigned escalation
procedures, including assigned responsibilities for
the follow-up actions.

16. EWS can be presented as below:
• Low turnover in the account;
• Frequent request for Short term loans,
• Delay in implementation of project and issues relating to commercial production
• Fully utilization of Cash credit revolving facility since long period.
• Unable to submit balance sheet within prescribed time frame.
• Higher days in the average collection period (ACP)
• Deterioration in customer’s cash position
• Slowdown in inventory turnover
• Substantial increases in long-term debt
• Decline in sales;
• Higher COGS.
• Major gap between gross & net profit
• Rising bad debts
• Rising sales with decline profit sales
• Irregular payment of interest and EMIs.

17. Conclusion:
• Credit culture and monitoring management are
fundamental processes for every bank and financial
institution, benefitting the organization in building a
quality credit portfolio. The banks need to continuously
assess and update their procedures to handle any
unexpected risks promptly. This is because neglecting
or minimizing risks can lead to significant and long-
term negative consequences since the banking
activities are so interrelated with monitoring. While
credit risk cannot be entirely eliminated, it can be
effectively controlled through proactive measures.

18. References
• FattaBahadur K.C1 &Indra Kumar Kattel2 (2017).
Comparative Study on Credit Monitoring
Practices in Slected Banks of Nepal, Published by
Centre for Research on Islamic Banking & Finance
and Business, Vol. 1, No. 1; 2017.
• Retrieved from
https://www.linkedin.com/pulse/credit-risk-
management-culture-samuel-adjei-icbrr-msc/

19. ANY QUESTIONS?

20. Thank You