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8/9/2019 Terms in CRM
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The Lending Credit Officer/
Credit Officer
The credit officer will be defined to beany individual working on behalf of a
bank and empowered to decide whetheror not to lend to bank customers atsome determined interest rate
(Rwegasira 1992, 2!
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The Credit Officers Decision
Making Process
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Mathematical Presentation of the
Credit Officers Decision System" The credit officer#s decision system can be incisively analy$ed by
representing it within a mathematical framework! That system can beconceptually mapped as a function that relates a set of decision inputs % &'1 '2 !'n, which includes, inter alia, financial information, to a uni)ueset of decisions * & u1 u2um, regarding the loan for which somebusiness customer may have applied! Thus, (u1 u2 u+ um & f('1 '2
'+!'n , where * is a set of decisions regarding the loan applicationswhich is based on a set of inputs % according to some decision rule(s f!ee the following figure-
" Mathematical Presentation of the Credit Officers Decision System
" .ecision /nputs .ecision 0rocess .ecision utput(s
" " "
%
f
*
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" ach of the sets % and * must contain at least one element, but thenumber of decision inputs(n and the number of decisions(m neednot be e)ual ( i!e!, m 3 n ! The characteristics and the nature of thefunctional rule f, which represents the decision process, will dependon the bank organi$ational policies, the training, e'perience,perception and the goals of the credit e'ecutive in )uestion! Thevarious inputs are processed according to f! The perceivedrelevance of these decision inputs to the decision at hand willdetermine whether the decision rule used by the credit officer willassign a weight different from $ero to financial information, adecision input this study is particularly concern with! The relevance,role and importance of financial information in the credit officer#s
lending decisions therefore, are very closely related (Rwegasira1992, 459
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Conceptual framework
" Steps in Credit Management
" 6irst, one must determine priority sectors he7she is interested tolend and prohibited sectors he7she is not interested to lend (8reditpolicy formulation,
" econd, one must determine which borrowers are likely to pay theirdebt (8redit investigation and analysis,
" Third, one must decide how much credit he7she is prepared toe'tend in each borrower (credit approval,
" 6ourth, he7she must decide what evidence he7she need ofindebtedness (.ocumentation,
" 6ifth, after he7she has granted credit, he7she has the problem ofcollecting the money when it becomes due! ow does he7she keeptrack of payments: (;onitoring, review, and loan recovery
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"
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low Chart of Credit
ManagementStrategic Plan for Target Markets
very bank should develop a strategy by targeting markets where
they are interested to invest in current year and in future! 6or
formulating this strategy, every bank must have ade)uate data
about the economy and the prospect of the sectors!
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Credit Policy
" The primary task of the bank is to collect
deposit and to lend it! To ensure efficiency in
this process a bank must decide what types
of loans they will or will not make, in whichsectorthey will invest in and where not, what
types of loanthey will make and what not, to
whom it will lend and to whom not and whatare the conditions, one has to fulfill toreceive loans!
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" /n addition to the above components, credit policy maycontain- (1 pecification of the lending authority given toeach loan officer and loan committee (measuring the
ma'imum amount and types of loan that each person and
committee can approve and what signatures are re)uired,
(2 8redit granting process, (+ Dines of responsibility inmaking assignments and reporting information within the
loan department, (@ perating procedures for soliciting,
reviewing, evaluating, and making decisions on customer
loan applications, (A Dines of authority within the bank,
detailing who is responsible for maintaining and reviewingthe bank#s credit files, and (B > discussion of the preferred
procedures for detecting, analy$ing, and working out
problem loan situations!
t t t t
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re t n t at on entre!uest/ "elationship
Marketing" Traditionally, borrowers apply to the bank forloan! ;ost banks in
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Goals of loan interview such as
" 1 There is a uni)ue opportunity to convince customer
that he has chosen the best bank in town which
ultimately enhances the goodwill of the bank!
" 2 /t facilitates the collection of necessary informationto reach a loan decision!
" + /t gave an opportunity to build new bank business!
" @ 8redit interview enables credit officer to obtain
enough data and understanding to ensure that the loancan be collected!
"
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Credit $n%estigation
" 8redit investigation is the process of
ac)uiring enough information from
different sources to determine theloan applicant#s willingness and
capacity to service the proposed loan
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teps in 8redit investigation
Hreps et al! (19C+ identified the following steps
of credit investigation-
" /n credit investigation first step is to decide what
)uestions ?ustify the work of obtaining answers!" econd, the credit officer should determine who
is best suited to handle credit investigation!
" Third, what are the probable sources ofinformation:
"
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&ualifications of a Credit
$n%estigator" >n investigator should include knowledge of accounting!
" >n investigator should be familiar with financial data!
" >n investigator should be familiar with credit and financial
terminology!
" e7she should also be knowledgeable with the code of ethics
for the e'change of credit information!
" >n investigator should be fully aware of the legal
ramifications involved in the e'change of commercial credit
information!" >n investigator should also be able to contact consulates,
embassies, and trade development offices! (einemeyer
194E!
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Sources of $nformation$nformation Supplied 'y the Credit (pplicant
(1 Type and amount of loan,
(2 0roposed sources of repayment,
(+ 0lan of repayment,(@ Fame of collateral or guarantors,
(A Fames of previous and current creditors,
(B Dist of primary customers and tradesuppliers,
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Credit (pplicant
(C 6irms account,
(4 0rincipal officers and shareholders,
(9 0ersonal and business history,(1E Three or more years financial
statements,
(11 0ersonal income ta' returns,(12
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Lending Officers &uery" The lending officer may in)uire information relating to
(1 8haracteristics of borrowers market, (2 ales anddistribution channels, (+ 0roduction process, (@
Dabor relation, (A 'perience and educational
background of principal owner or e'ecutives, (B
Fame of the person who will take charge in absence
of current 8hief 'ecutive fficer (8, (C 6irm
strategic planning program, (4 Tentative difference of
present market and future market opportunity, (9
8omprehensive strength and weakness of the firm,
and (1E 0ersonal liabilities of applicants and
guarantor!
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$nternal Sources of
$nformation(1 8redit file of present or previous borrowers,
(2 .eposit account of present and previous
customers,
(+ 0ast payment performance,(@ 0rincipal customer, suppliers and other creditors
(Through account analysis of applicant,
(A /ncome from investment and employment)
(B /ncome ta' returns,
(C .epreciation and other information from income ta'
returns!
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*+ternal Sources
" 1 8entral bank credit information bureau
(8/
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Centrali-ation %ersus
Decentrali-ed $n%estigation" Completely Centrali-ed. /n a completely
centrali$ed investigation system, one unit
is responsible for all foreign and domestic
account investigations and answering ofreferences in)uiries on customer
accounts! This form is usually adopted by
banks with a limited number of branchesand where lending to ma?or customers is
done from the main office!
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Partially centrali-ed
a oreign0domestic
' (ccounts0non accounts
c Centrali-ed with e+ceptions
1 Completely Decentrali-ed
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Credit (nalysis
" hanmugam et al! (1992, defined credit
analysis in this way
8redit analysis is the processwhereby both )uantifiable and
sub?ective factors are evaluated
simultaneously and ?udged!
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"ole of inancial $nformation in
CreditDecision Making
" Optimal (pproach to Lending Credit
officers inancial (nalysis ,(n
integrated analysis
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Components of Credit (nalysis
" cholarly literature has developed some basiccomponents of credit analysis which we term asI8s of credit! ere is a brief description of theprincipal 8s of credit-
" 8- 8haracter, 8- 8apital 8- 8apacity 8-8ollateral 8- 8onse)uences 8- 8ash6low 8-
8ondition 8- 8urrent information 8- 8ustomerrelationship 8- 8orporate life cycle has beendeveloped 8- conomic 8ondition!
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Character
" 1 .oes he have proven honesty: Jhat is his
past credit history: 2 Jhat is his e'perience in
this field: + Jhat is his e'pertise in his field: @
Jhat are his administrative abilities: /s he anorgani$er5planner5can he supervise people: A
/ntelligence5 is he )uick to see a problem and
then act to correct: B /s he ambitious or la$y:
C ow does he communicate with you as a loanman: 4 Jhat are his habits and how does he
conduct his personal life: