Terms in CRM

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:

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