If they have doubts about management or execution than they will not buy the transaction But for that to happen they must understand and buy the context as well as management team’s ability to execute on the transaction The committee must agree with the rationale for the transaction. ![]() Presenting the credit memo for credit committee approval Which loan application would you prefer and support as part of a credit committee. Think brick and mortar stores versus online technology businesses. Simpler models operating in slow moving environments tend to react differently to system wide shocks compared to dynamic fast moving industry. This is primarily done by understanding how stable and robust the business model is. Will the environment and the context around the business support, help or make matters worse. In times of stress will the business model behind the transaction hold. ![]() Also the priority of the bank’s charge and claim on the asset and if that charge is being shared with other borrowers.ĭ) Environment. ![]() But to create an incentive for the borrower to repay. The objective is to not to collect and sell. Margins and haircuts to provide level of comfort in case of significant price or market moves.Ĭ) Security and Perfection – The strength of the collateral provided as security for the loan. Ideally multiple sources of repayments split between primary and secondary, organized by ability to collect and liquidate or by creating an incentive for the client to settle. Where there is a clash or conflict there is a very reasonable chance that the proposal in question will be declined, unless options and tweaks are found that can address the credit committee concerns.ī) Repayment – Probability and track record of successful execution, repayment and delivery on the client side. It must fit in with credit policy guidelines and documentation approved by the credit committee. The motivation and rationale for the transaction being financed. The focus of analysis of the loan committee or credit approval committee is on the following core themes:Ī) Intent. While the same group may make credit policy recommendations, suggest improvements in the credit function and also review troubled loans and overall performance of the credit function for now our focus is on the role the loan approval committee plays in the approval of a credit application (aka credit memo, credit proposal or application for limit). But most importantly by asking the right question for each case. By using a process and framework driven approach that can be replicated outside of the committee by teams and individuals that the committee interacts and interfaces with. The loan committee fulfills its mandate by sifting better proposals, proposals with a higher probability of repaying the borrowed amount, from the pile of applications in front of it. How does the loan committee function and operate Sets expectations about quality of analysis, insights and recommendations on a submitted credit proposal.Show where the focus of analysis should be on a case by case basis as well as set acceptable thresholds.Train the next generation of loan officers and credit analysts on the process of reviewing a credit proposal and on asking the right questions.Interpret and implement bank loan policy and lending guidelines.Credit Committee / Loan Committee mandate.īroadly speaking the mandate of the loan committee when it comes to fresh credit proposals is: While credit risk as a function and a business reports to the Board Credit policy or Board Credit risk committee, a loan approval subcommittee does a final review of proposals that come before it for approval. The credit committee or loan committee review meeting is the final trial by fire for the loan proposal (credit memo) prepared by the loan officer and the credit analyst. ![]() 6 mins read Presenting credit memo for credit committee approval
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |