2015

FORTIS MICRO FINANCE BANK PLC

RMG

[CREDIT POLICY MANUAL UPDATE JAN,2015]

VERSION 3.0
 Credit Policy & Procedures Manual

JANUARY, 2015
APPROVAL PAGE
PAPER CREDIT POLICY MANUAL FOR FORTIS MICROFINANCE BANK PLC
DATE JANUARY, 2015
PAPER DESCRIPTION This Credit Policy Manual (the Manual) defines the credit risk
management philosophy and policies of Fortis Microfinance Bank
Plc,(FMFB or the Bank). It includes the Bank’s Credit principles,
target market definition, risk acceptance criteria and operational
policies.
The Credit Policy Manual must be referred to for a complete
and current description of credit processes and practice relating
to the Bank.
TARGET AUDIENCE THIS IS AN INTEGRAL PART OF POLICIES, MANUALS, RULES &
REGULATION ISSUED FROM TIME TO TIME TO GUIDE THE
CONDUCT AND OPERATIONS OF STAFF OF FORTIS
MICROFINANCE BANK PLC
REVIEWING DATE JANUARY, 2015
REVIEWED BY

Augustine Olufemi SIGNATURE DATE

Chief Risk Officer (CRO)
APPROVED BY

KUNLE OKETIKUN SIGNATURE DATE

MD/CEO
APPROVED BY

SIGNATURE DATE
BOARD MEMBER

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 PREFACE

Credit is the most critical element of microfinance banking. This is because the main
essence of the Nigerian microfinance policy is to give the micro, small and medium
enterprises access to funds in order to boost the economy at the grassroots. Most of
the issues that would make a microfinance bank lose its license are bordered on
credit. Therefore the need to organise the credit process so as to minimize
delinquency of loans and advances cannot be overemphasized. To achieve an
organised credit process there must be broad policy guidelines defining the aims and
objectives, the products and their specific features and requirements, the procedures,
the participants, and the remedial actions in the credit process.

This manual contains the current credit policies and procedures for Fortis Microfinance
Bank Plc (hereinafter referred to as The Bank). The policies outlined herein are
minimum requirements under normal conditions and it is the responsibility of the
Management of the Operating Units to establish additional controls whenever
appropriate, have these approved by Executive Management, and set them out in a
formal manner as an addendum to this manual.

It is the responsibility of each credit officer, and indeed all staff of the bank to be
completely familiar with the provisions of this manual and, additionally, to stay
updated on all relevant regulations of banking, tax and/or accounting nature. Any
deviations to the policies and procedures of this Manual and any credit transactions
considered unusual for whatever reason must be referred to Executive Management or
the Board of Directors of Fortis MFB as considered necessary.

The provisions of this manual and its subsequent amendments shall become binding
on all credit extensions from Fortis Microfinance Bank Plc. All officers and employees
of The Bank shall be liable to comply with these provisions unless amended by the
Board of Directors or the Executive Management.

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 TABLE OF CONTENTS

APPROVAL PAGE i

PREFACE ii

TABLE OF CONTENTS iii

INTRODUCTION 1

1.0 SECTION ONE: CREDIT APPROVAL SYSTEM 2

1.1 GENERAL 2

1.2 RULES GOVERNING THE EXTENSION OF CREDIT

1.2.1 GENERAL REOUIREMENTS
1.2.2 EXCEPTIONS AND DELEGATIONS

1.3 BRANCH OPERATING LIMITS 6

1.4 BUSINESS MANAGERS/CUSTOMER SERVICE MANAGERS LIMITS 7

1.5 CHEQUE DRAWINGS AGAINST UNCLEARED FUNDS 7

1.6 RETURN OF CHEQUES 7

1.7 METHOD OF GETTING FEEDBACK 8

1.8 CLIENT DROPOUT 8

1.9 CORRECTIVE MEASURES 8

1.10 AGGRESSIVE SALES TECHNIQUE 8

1.11 PREVENTION ON OVER INDEBTEDNESS 8

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1.12 THE USE OF CREDIT BUREAU 9

1.13 REPAYMENT CAPACITY OF A CUSTOMER 9

1.14 REVIEW OF CREDIT 9

1.15 DEBITS TO CASH COLLATERAL 9

APPENDIX I OF SECTION 1 OF THE CREDIT MANUAL 10

2.0 SECTION TWO: RISK MANAGEMENT PROCESS 12

2.1 TARGET MARKET/RISK ASSET ACCEPTANCE CRITERIA 12

2.1.1 GENERAL 12
2.1.2 SURVEYS/MARKET IDENTIFICATION 12
2.1.3 INDUSTRY STUDIES/MARKET SEGMENTATION 12
2.1.4 RISK ASSET ACCEPTANCE CRITERIA (RAC) 12
2.1.5 PRODUCT RISK ACCEPTANCE CRITERIA (PRAC) 13
2.1.6 PROSPECT LISTS 13
2.1.7 ACCOUNT ASSIGNMENTS 13
2.1.8 REPORTING 13
2.1.9 HOUSE-KEEPING CONTROLS 14

2.2 CREDIT INITIATION 14

2.2.1CUSTOMER SOLICITATION 14
2.2.2 NEGOTIATION 15
2.2.3 PRESENTATION 15

2.3 CREDIT APPRAISAL AND APPROVAL 16

2.4 CONTROL AND REPORTING REQUIREMENTS 18
2.5 ADVICE TO CUSTOMERS OF APPROVED LINES/OFFER LETTER
ADMINISTRATION 18

2.6 DOCUMENTATION AND DISBURSEMENT 20

2.6.1 UNDERSTANDING OF LEGAL SYSTEMS AND PROCEDURES 21
2.6.2 SELECTION OF LEGAL COUNSEL 21
2.6.3 ADEQUACY OF SECURITY 22
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2.6.4 EXECUTION AND PERFECTION OF LEGAL DOCUMENTATION 22
2.6.5 SAFEKEEPING AND CONTROL OF LEGAL DOCUMENTATION 22
2.6.6 RELEASE/RETURN OF DOCUMENTS 23
2.6.7 PERIODIC REVIEW 23
2.6.8 DOCUMENTATION OF CREDIT FACILITIES 23

2.7 DESCRIPTION OF SECURITY 24

2.7.1 CHARGE OVER CURRENT ASSETS 24
2.7.2 CHARGE OVER FIXED ASSETS 25
2.7.3 GUARANTEES 25
2.7.4 HYPOTHECATED DEPOSITS 26
2.7.5 MISCELLANEOUS 26
2.7.6 BANK GUARANTEES: ISSUANCE 26
2.7.7 BANK GUARANTEES: CANCELLATION 27
2.7.8 BANK GUARANTEES: OPEN ENDED 28
2.7.9 INSURANCE POLICIES 28
2.7.10 CASH COLLATERALIZED TRANSACTIONS AND HYPOTHECATION
DOCUMENTS 29
2.7.11 GUARANTEES SUPPORTING FACILITIES 29

2.8 CREDIT ADMINISTRATION 30

2.9 PROBLEM RECOGNITION/DETECTION OF WARNING SIGNS 31

2.9.1 PORTFOLIO REVIEW/RANKING 32
2.9.2 CLASSIFICATION OF CREDITS 32
2.9.3 PURPOSES 33
2.9.4 DEFINITIONS OF CLASSIFICATIONS 33
2.9.5 REPORTS 35
2.9.6 LOAN RESCHEDULLING 35
2.10 POLICY, PRACTICE AND PROCEDURE 37
2.10.1COMPLIANCE WITH LOCAL LAWS AND REGULATIONS 37
2.10.2ADHERENCE TO THE BANK’S POLICY GUIDELINES 37
2.10.3EXCEPTIONS/DEVIATIONS 38
2.10.4CONFIDENTIALITY 38
2.10.5CONFLICT OF INTEREST 38
2.10.6CREDIT POLICY AND PROCEDURE MANUAL 38

2.11 REMEDIAL MANAGEMENT 38

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2.11.1RESPONSIBILITY 39
2.11.2LAW SUITS 40
2.11.3 LEGAL EXPENSES 40
2.11.4 REPORTING 40
2.12 ORGANISATION/STAFFING 41
2.12.1 STAFFING ADEQUACY 41
2.12.2 STAFF CONTINUITY 41
2.12.3 COACHING/TRAINING 41

3.0 SECTION THREE: THE CREDIT PROCESS AND RISK ASSETS

MANAGEMENT GROUP (RMG) 42
3.1 RISK ASSETS MANAGEMENT GROUP (RMG) 42
3.1.1 THE HEAD OF RMG 42
3.1.2 CREDIT ANALYSIS UNIT (CA) 43
3.1.3 CREDIT ADMINISTRATION UNIT (CAD) 43
3.1.4 LOAN MONITORING UNIT (LDU) 44
3.1.5 DEBT RECOVERY UNIT (DRU) 45
3.1.5 RMG AND THE BRANCHES 46
3.1.6 LATE PAYMENT/DEBT RECOVERY PROCEDURE 47
3.1.7 HOW TO PROCEED WHEN BORROWER DEFAULT 48
3.1.8 WHO IS A GUARANTOR? 48
3.1.9 WHO IS BANKER LIEN? 49
3.1.10 ACTION AGAINST GUARANTOR 49
3.1.11 DEBT COLLECTION PRACTICES 50
3.1.12 COMMUNICATION IN CONNECTION WITH DEBT RECOVERY 51
3.1.13 HARASSMENT OR ABUSE 53
3.1.14 FALSE OR MISLEADING REPRESENTATIONS 53
3.1.15 UNFAIR PRACTICES 55
3.1.16 VALIDATION OF DEBTS 55
3.1.17 MULTIPLE DEBTS 56

3.2 CREDIT FILES 57

3.2.1CONTROL 57
3.2.2ORGANIZATION 58
3.2.3CROSS REFERENCE 58
3.2.4CULLING AND RETENTION OF FILED MATERIAL 59
3.3COLLATERAL STATEMENTS 59
3.4COLLATERAL INSPECTIONS 59
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3.5 COLLATERAL VALUATION METHOD 61
3.6 COLLATERAL SALES PROCEEDS 62

3.7 CALL MEMORANDUM 62

3.7.1FREQUENCY 62
3.7.2SCOPE 63
3.7.3PROSPECTS 63
3.7.4RELATIONSHIP UPDATE 63

3.8 CHECKINGS 63
3.81BANK/TRADE 63
3.8.2REGISTRAR CHECKING 64

3.9 REVIEW OF OVERDRAFTS/EXCESS 65

4.0 SECTION FOUR: PROCEDURE AND PRACTICE 66

4.1CREDIT PACKAGES: FULL ANALYSIS 66
4.1.1BORROWER INFORMATION/BACKGROUND ANALYSIS 66
4.1.2FINANCIAL/CASH FLOW ANALYSIS 67
4.1.3CHARACTER CHECK/WILLIGNESS 67
4.1.4CAPACITY/ABILITY 67
4.1.5COLLATERAL/FALL BACK 68
4.1.6CAPITAL/EQUITY 68
4.1.7CONDITION 68
4.1.8PROFITABILITY ANALYSIS/YIELD 69
4.1.9JUSTIFICATION 69
4.1.10 RISKS ANALYSIS/WAYS OUT/MITIGANTS 69
4.1.11STRATEGY AND RECOMMENDATION 70
4.1.12BASIC INFORMATION REPORTS (BIRs) 70

4.2 CREDIT PACKAGES – CHEQUE PURCHASE LINES, BONDS AND GUARANTEES

71
4.3 CREDIT PACKAGES – PERSONAL OR POLICY LOANS 72
4.4 PROCEDURE FOR GROUP LENDING 73
4.4.1 FORMAL GROUPS 73
4.4.2 INFORMAL GROUPS 74
4.4.3 GUARANTEES UNDER GROUP LOANS 74
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4.4.4 GROUP BONDING 74
4.5 AVAILMENT/OFFERING TICKETS 75
4.5.1 AVAILMENT TICKET 75
4.5.2 OFFERING TICKET 75
4.5.3 ROUTING/TRANSACTION DYNAMICS 75

4.6 INTEREST EARNED NOT COLLECTED 76

4.7. PAST DUE OBLIGATIONS - NON ACCRUAL ASSETS 77

4.7.1SCHEDULE FOR TRANSFER OF ASSETS TO PAST DUE OBLIGATIONS 77

4.7.2RESPONSIBILITY FOR LIQUIDATION OF PAST DUE OBLIGATIONS 78
4.7.3TRANSFER TO NON-ACCRUAL STATUS 78
4.7.4PAYMENTS ON PAST DUE ITEMS 78
4.7.5REPORTING 80

4.8 CANCELLATION, FREEZING/CLOSING OF ACCOUNTS 80

4.8.1CANCELLATION/FREEZING OF LINES 80
4.8.2CLOSING OF CURRENT ACCOUNTS 80

4.9 CENTRAL LIABILITY RECORDS 80

4.9.1RESPONSIBILITY 80
4.9.2DEFINITION 81
4.9.3PROCEDURE 81

4.10 STANDARD LINE WORDING 81

4.10.1OBJECTIVE 81
4.10.2DESCRIPTIONS 82

4.11 STANDARD ABBREVIATIONS OF CREDIT FACILITIES 82

4.12 COMPROMISE SETTLEMENTS AND ABANDONMENT OF RECOVERY
EFFORTS 84
4.12.1 GENERAL 84
4.12.2 ABANDONMENT OF RECOVERY EFFORTS 84
4.12.3 FORMAT FOR USE IN RECOMMENDING COMPROMISE SETTLEMENTS 84

4.13 CREDIT EXTENSION REPORTS 85

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4.14 RISK ASSET REVIEW GUIDELINES 86
4.14.1REVIEW GUIDELINES 86
4.14.2 PRE-AUDIT PREPARATIONS 86
4.14.3 PORTFOLIO COMPOSITION AND STATISTICS 86
4.14.4 PERSONNEL RELATED MATERIAL 87
4.14.5 OTHER REPORTS 87
4.14.6APPROACH TO THE AUDIT 88
4.14.7POST REVIEW 88
4.14.8FOLLOW-THROUGH ON REVIEW 88
4.14.9 CLIENT PROTECTION PRINCIPLES 89

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 INTRODUCTION

RISK ASSET PROCESS

The Risk Asset process is defined as a flow of planned, identifiable and sequential
events involved in the booking of individual credit transactions, which in aggregate
make up a risk asset portfolio, and the management of those assets to full recovery.
The steps and responsibilities of this process are detailed in Section Two of this
Manual.

TYPES OF RISK ASSETS

Credit facilities extended to customers may be short term (up to one year), medium
term (one to three years), or long term (over three years) in tenor. Additionally,
facilities may be of a direct or indirect nature.

DIRECT FACILITIES

Direct facilities are those where the Bank actually disburses funds to a borrower. In the
form of a loan or other advance, or creates an arrangement whereby the customer
may himself draw funds on credit at his volition up to an agreed limit. Examples of
direct facilities are:

- Advances in Current Account

- Demand Loans

- Term Loans

- Bill discounting

- Temporary Overdrafts.

INDIRECT FACILITIES

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Indirect (or contingent) obligations are created when the Bank enters into a contractual
obligation to pay a third party at a future date, or upon the occurrence of a certain
event, against the indemnity of a customer (who is the direct obligor).

Examples of indirect obligations are:

- Issuance of guarantees

RISK ASSET PORTFOLIO

The Bank’s risk asset portfolio comprises the aggregate of all credit facilities extended
to customers, both of a direct and indirect nature.

SECTION ONE: CREDIT APPROVAL SYSTEM

1.1 GENERAL

Credit approval authority is vested in the Bank’s Credit Committee (BCC) by the
Board of Directors of Fortis Microfinance Bank, and the Managing Director/Chief
Executive Officer is the final approving authority of all credits up to N20m(Twenty
Million Naira only). However approval limits may be given to any officer of the bank
who will act as a delegate for such approvals. Credit request that falls within N5m
(Five Million Naira Only and N19.9m(Nineteen Million and Nine Hundred
Thousand Naira only) shall be defended before Bank credit committee while
N20mTwenty Million Naira only and above has to be defended before the Board of
the Bank.

1.2 RULES GOVERNING THE EXTENSION OF CREDIT

1.2.1 GENERAL REOUIREMENTS

1. APPROVAL/DOCUMENTATION

Approval for all types of credit extension shall be evidenced by the

signatures or initials of each of the officers approving the credit. Any
written commitment to extend credit must be executed by the Bank’s
12
 Credit Committee (BCC) which must include the Managing
Director/Chief Executive Officer/CEO’s approval, unless specific
delegated authority has been granted to other officers for this purpose.
Any deferral of the receipt of documentation required under credit
arrangements, or otherwise essential to the granting of credit, requires the
approval of the same members of the BCC or the Managing
Director/Chief Executive Officer, or of the same designated officers who
initially approved the credit under their delegated approval limits. Same
applies for waiver of documentation or any material change in terms,
conditions or covenants of a credit as originally approved.

For the purposes of this rule, "credit extension" is used in its broadest
sense and encompasses any transaction, which creates an actual or
potential liability to pay Fortis Microfinance Bank. This includes not only
all Risk Assets as defined in the Introduction but also other risks such as
placement of Treasury funds and purchase of cheques.

2. QUORUM FOR CREDIT APPROVAL/EXTENSION

Authority for credit extensions must have the joint approval of at least
three out of the four members of the BCC or, in the case of lower limits,
the approval of the appropriate officer in whom a delegated authority for
that purpose is vested. It is not intended that credit be extended on the
judgement of one officer alone. A specific title by itself will not be
sufficient to allow an officer to approve the extension of credit. Only
those officers who have duties and responsibilities that involve the
approval of loans and other extensions of credit are "credit officers" and
may make such approvals within their limits.

Specific personal designated credit limits may be delegated to credit

officers by the Executive Management on the recommendation of the
Head, RMG based on rank, experience and proven ability. Such limits
will be advised to the Board of Directors.

3. DESIGNATION OF SENIOR CREDIT OFFICERS

A Senior Credit Officer may be designated by the Managing

Director/Chief Executive Officer with the concurrence of other members
13
 of Executive Management. Only officers of the rank of Managing
Director/Chief Executive Officer, Executive Director or those who fall
within the administrative cadre of senior management may be designated
as Senior Credit Officers. Collectively, Senior Credit Officers shall
actively participate in credit approvals under delegated limits.

4. TENOR AND REVIEW OF CREDIT FACILITIES

All credit facilities automatically expire at the end of tenor stated in the
contract letter at which time all parties will have discharged their
contractual obligations. All terms and conditions of credits strictly apply.
However, these terms and conditions may be reviewed by the Executive
Director, Operations & Risk Management based on recommendations
from Chief Risk Officer subject to the general credit policy of the bank. All
applications for credit reviews shall be made before the expiration of
tenor of such credits. Reviews may be made in respect to tenor,
repayment schedule, interest rate, and any other conditions attached to
the credit in the initial approval. Facility can be called in the event of
discovery of misapplication, misappropriation or identification of red flag
signals to crystallisation to prevent complete deterioration of facility.

5. LOANS TO PERSONNEL

Loans to any personnel (except under an approved personnel plan) of

either Fortis Microfinance Bank or any of its subsidiaries must be
approved in the same manner as if such loans were requested by other
customers. Such staff loans and advances shall be set out by the Head,
Human Resources in conjunction with the Head, RMG and must be
approved by the Executive Management before implementation. The
policy also allows the Chief Risk Officer to avail soft loans to staff against
the month’s salary.

6. LOANS TO DIRECTORS

Any loans to Directors of Fortis MFB or to any Directors of its subsidiaries

or affiliates, or to any "Director related" companies or firms are governed
by the policy set out in Appendix 1 of this Manual.

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 7. RULES INTERPRETATION AND CHANGES
The purpose of these Rules is to establish disciplines for the orderly
extension of credit. Accordingly, should interpretation be required, a
member of the Executive Management or the Chief Risk Officer should be
consulted. In any case, the Rules should always be interpreted in a
conservative manner consistent with their underlying purpose. All credit
officers (including Business Managers and Relationship Officers) must be
thoroughly familiar with these Rules, as well as the credit policies and
procedures of the units for which they serve as lending officers. In
addition, they should be familiar with all government banking regulations
in force at any point in time.

For the purpose of this manual, Executive Management refers to officers

from the rank of Executive Director and above who are also members of
the Board of Directors, or who are representatives of members of the
Board of Directors. It also includes members on such rank who assume
the position by appointment and not necessarily as members of the Board
of Directors or their representatives.

Any change in these Rules should be approved by the Board of Directors

or at least members of the Executive Management, in the same manner
credit approvals are made.

1.2.2 EXCEPTIONS AND DELEGATIONS

(i) Availment under Approved Lines of Credit

All approved lines of credit are considered available to the customer, once all
documentation has been received, reviewed and confirmed to be in order by
RMG. In the case of overdrafts, an initial one-off availment ticket must be
approved by, at least, three members of the BCC before the first drawing may
be permitted, the final authority being the Managing Director/Chief Executive
Officer. Subsequent movement over the account does not require approval
provided there is room under the overdraft line.

All other availments will be approved by at least Chief Risk Officer who will
initial the availment ticket before processing. Where the Managing
Director/Chief Executive Officer is unavailable at the point of
15
 signing/approving, RMG will ensure he regularizes. The availment procedure is
described in detail in Section 4 of this Manual.

(ii) Sub-Allocations

The Bank’s Credit Committee may approve excesses over certain lines of credit
to be sub allocated against the unutilized portion of another credit line provided
that the shift is to a line of equal or lower risk. Tenor and security are the factors
which determine the degree of risk.

As example, an excess over a clean advance line can be covered by a sub

allocation from the unutilized portion of a secured line. An excess over a secured
term credit line, however, cannot be covered against an unsecured overdraft
line. Sub allocations may not occur between different borrowing entities.

(iii) Temporary Overdrafts/Excesses over Approved Lines

All extensions of credit should address line adequacy and ensure that as far as
possible no excesses or temporary increases will be required during the life of
the credit. In situations where temporary excesses are requested, these will
require full Executive Management’s approval or any other body/officer that
made the initial approval provided that both the initial approval and the excess
approval are each within the authorized limit of the approving authority.
Excesses or temporary increases must not exceed 10% of the customer's credit
line. Any excess not regularised within the first seven calendar days will require
further approval on an offering ticket. If the excess is still outstanding after 30
days, this will need to be regularised by way of an interim CA or transfer to past
due obligation category.

1.3 BRANCH OPERATING LIMITS

Teller limits: Tellers may cash up to limits established by the Customer Service
Manager if;

1. The account has sufficient funds/or

2. There is room under an approved overdraft line

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 3. There is an Internal Guidance Facility in place

4. The drawer's signature is verified correctly

5. The payee or beneficiary has acceptable identification and all amounts

(in words and figures) on the cheque are filled correctly

6. The account is not classified.

1.4 BUSINESS MANAGERS LIMITS

An approval limit may be granted to the Business Managers provided that;

1. Conditions 1 to 4 of paragraph 1.3 above have been complied with.

2. All such approvals shall be reported weekly to Chief Risk Officer for proper
documentation. By this, the Chief Risk Officer becomes the supervisory authority
over the exercise of this delegated function. He shall issue memos to, and if
necessary, institute disciplinary actions against defaulting officers in the exercise
of this delegated authority.
3. Due diligence will be observed in granting such approvals and required
documentation shall not be waived or deferred except with the joint approval of
the Chief Risk Officer and Legal Departments.
4. Drawings exceeding the limits so granted will require approval of the BCC in
the same manner prescribed in this manual for approving credits. This special
consideration will only be granted to tested and rewarding customers.

If conditions 1 and 2 of paragraph 1.3 above are not complied with for any drawing
requested, all cheques must be posted on a referral card and Executive Management
approval requested before payment is made.

1.5 CHEQUE DRAWINGS AGAINST UNCLEARED FUNDS

Payments of cheques will only be made in accordance with paragraph 1.3 above
and any deviation from this requirement should be referred to the account officer for
Credit Committee approval before payment. All cheque drawings against unclear
effects must follow the procedure laid down for credit approval.

1.6 RETURN OF CHEQUES

17
All unpaid cheques must be referred to the account officer before being returned. This
is to ensure that there is no cheque returned on an account that has a credit line in
place.
1.7 METHOD OF GETTING FEEDBACK
The following method shall be employed in getting feedbacks from our customer in
order to know areas which need improvement.
1. Use of questionnaires
2. Suggestion box.
3. Conducting interview for top 100 customers.
4. Market survey.

1.8 CLIENT DROPOUT

Research has shown that the following factors are responsible for clients drop out over
years.
1. Reaction for interesting rate.
2. Distance factor.
3. Competition.
4. Poor relationship management
5. Short tenured loan

1.9 CORRECTIVE MEASURES: The followings have been taken

1. Designing a fair pricing
2. Designing lower price for loyal customers
3. The distance to be covered by Relationship Manager is within their
limit/capacity i.e. 10km/Relationship Manager
4. Development of products and services that will meet the needs of the
customers.
5. Adjustment of loan tenor to match with customer’s business cycle

1.10 AGGRESSIVE SALES TECHNIQUES

The credit policy of the bank is not in support of the followings.
1. Forcing customers to sign agreement.
2. Placed customers under an undue influence or under duress to sign agreement.
3. Bank shall not force any loan product or service on customer.

1.11 PREVENTION ON OVER INDEBTEDNESS

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 The policy of the bank shall preach against high debt ratio. This can be
achieved through:
1. assessment of business viability
2. Repayment capacity of customer is examined using financial and non
financial method.
3. Enforcement of cannons of lending.
4. Implementation of all c’s of credit
5. Assessment of credit history of a customer.
6. The use of credit bureau to unravel gearing level of customers.

1.12 THE USE OF CREDIT BUREAU

The law requires all microfinance bank to register with at least two licensed credits
bureau companies by Central Bank of Nigeria. This is important because;
1. It prevent multiple borrowing or over indebtedness.
2. It helps us to know the credit history of a customer.
3. It helps us to know the gearing level or debt ratios of customer.

1.13 REPAYMENT CAPACITY OF A CUSTOMERS

This shall be determined through:
1. Identification of the borrowing needs of customers
2. Calculation of profitability analysis
3. Assessment of cash flow projection
4. Assessment of transaction dynamic.
5. Implementation of canons of lending.

1.14 REVIEW OF CREDIT

Loan portfolio /loan product performance shall be reviewed by the Board,
Management and Bank Credit Committee. This can be achieved through:
1. Review of loan portfolio quality.
2. Loan products review.
3. Review the effectiveness of credit bureau
4. Review the effectiveness of data sharing among competitors
5. Review performance of loan products.
6. Scrapping of underperformed loan products.
7. Sectorial classification of loan product and performance.
8. Pricing review.
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1.15 DEBITS TO CASH COLLATERAL
All debits to the Cash Collateral account will require the initial of the Account Officer
and the approval of the Executive Management or any other delegated approving
authority. Additionally, if lien has been placed on some cash in the account, no debit
should be allowed until such facility is fully liquidated or restructured with the full
approval of the Executive Management.

APPENDIX I

POLICY FOR DIRECTOR AND DIRECTOR-RELATED CREDIT FACILITIES

Fortis Microfinance Bank will not lend to its directors or to the directors of any of its
affiliates except based on special schemes that may be adopted by the Board of
Directors from time to time. However, director-related companies could be granted
loans at competitive commercial rates in the same manner as prescribed in the section
of this manual relating to the procedure for loan approvals. Monitoring, recovery and
enforcement of facility terms and conditions on such loans shall be strictly enforced as
done to any other customers.

Provided that,

1. Such related director, if involved in the approval process, must be the last to
sign. However, where there is a tie, the interested director cannot be used to
separate it but the Managing Director/Chief Executive Officer’s position
becomes the majority decision. Where the Managing Director/Chief Executive
Officer is the interested party and there is a tie, the position taken by the
Executive Director, Risk Management becomes the majority decision.
2. All loans to directors or director related companies must be secured in the same
manner as any other loans. Where the borrower is a director related company,
personal guarantee of the interested director is seen to be given in principle if
such director signed to approve the facility. However, this guarantee is a
backup to a neutral guarantor and other security provided by the borrowing
company.
3. No documentation concessions shall be granted on the premise that it is a
director-related application.
4. Maximum exposure to any one Director is not more than 5% of Bank net worth.
5. Aggregate exposure to all Directors is not more than 20% of Bank net worth.
20
 6. Director facilities will not be actively marketed.
7. All Director facilities will be analysed, reviewed and approved under the
normal credit approval process of the Bank and require full credit committee
sign-off(No fast track approach should be employed)
8. All Director Facilities of any amount will require final approval by the Board of
Directors.
9. All facilities granted to close relations of key staff must be fully disclosed to
Executive Management in the packaging of the facility.

DEFINITIONS

1. "Director" includes a Director of Fortis Microfinance Bank Plc or of any other

affiliate within the Fortis Group. This includes a Director's immediate family relatives
i.e. spouse, parent, brother/sister, or child (and their spouses).

2. Policy relates to facilities to Directors and firms/companies in which a Director is a

director, manager or principal shareholder/partner. Principal shall be defined to
be 20% ownership or effective control.

EXCEPTIONS

1. Exceptions are discouraged. Rare exceptions should be of a truly commercial

nature and interpreted clearly as a business decision

2. All exceptions will need approval by the Board of Fortis Microfinance Bank Plc,
after approval by the Board of the respective affiliate institution.

PRECEDENCE

The more restrictive rule of (a) Local Banking Law and (b) this Credit Manual will
apply in all circumstances.

21
 SECTION TWO: RISK MANAGEMENT PROCESS

2.1 TARGET MARKET/RISK ASSET ACCEPTANCE CRITERIA

2.1.1 GENERAL

The target market and risk asset selection is a continuous process which involves
a screening of the entire market, identifying business potentials, defining
desirable opportunities and adhering to resultant marketing objectives and
strategies. An unfocused approach to the market can lead to unplanned asset
concentrations of uneven quality on the books, and it may not be possible for
the Bank to easily work out from undesirable relationships even when such a
decision has been made.

2.1.2 SURVEYS/MARKET IDENTIFICATION

This entails a screening of the market and economic sectors to identify key
players and potential business for the Bank. This is followed by a short listing of
the desirable industries. This list should be supported by a justification as to why
only some industries were selected, and why the Bank will not deal with some
others.

2.1.3 INDUSTRY STUDIES/MARKET SEGMENTATION

These should be carried out on each of the selected industries. This exercise will
enable the Bank to understand the importance of each sector to the economy,
Gross Domestic Product percentage share, key players in the industry, business
cycles and product mix. The information derived above guides the Bank in
identifying critical success factors and quantitative/qualitative acceptance
parameters by industry. Justification for selection and segmentation must show
through the analysis of business potentials in the sector.

2.1.4 RISK ASSET ACCEPTANCE CRITERIA (RAC)

Workable and appropriate Risk Asset Acceptance Criteria (RAC) has to be

developed for each industry, taking into account both quantitative as well as
qualitative parameters identified above. Example of these include, net sales, net
income, years in business, market reputation, management quality, minimum
lending, ... among others.
22
2.1.5 PRODUCT RISK ACCEPTANCE CRITERIA (PRAC)

Differing financing needs for the different industries often make it necessary to
identify the credit products mostly required by each industry. Such products
should be supported by a product RAC which evidences that tenor,
documentation requirements and approval process are consistent with the
associated transaction risks and that transaction flows are understood and
documented. Product risk, market indices and customer expectation may
change in the process of time. Such changes must be anticipated and
envisaged in drawing and implementing PRAC. A re-profiling of existing
relationship will be useful in this scenario.

2.1.6 PROSPECT LISTS

Since each industry study will have brought out a list of all the main players, a
customer/prospect list will be developed taking into account the minimum
acceptance parameters for the industry as well as each individual customer. The
list will indicate a ranking in preference i.e. tier I customers would be the
priority names, tier II would be acceptable names and tier III being acceptable
if properly structured and secured. All work-away name, personal policy loans
and classified accounts will be considered tier IV or exception to the target
market.

2.1.7 ACCOUNT ASSIGNMENTS

This is a process of assigning a list of accounts (both customers and prospects)

to each Account Officer. The account load must take into consideration the
human resources available and their relative experience. Account officers must
be informed of their position as the primary owner of risk emanating from
relationship between the bank and the obligor and will take full responsibility
for any loss associated with any transaction as a result of wrong
action/decision, negligence or inaction.

2.1.8 REPORTING

a) Once a year the unit must review the entire portfolio and confirm that all
the names are properly tiered against the established risk asset criteria.
23
 Names falling out of this tiering should be posted into a Non-Target list
and appropriate recommendations made (with time frames) for either
pulling them back into acceptable risk assets or working away from the
relationship. This list will require annual approval by the Executive
Management.

b) Target Market update: A comprehensive update will be carried out once a

year and semi-annual update may be considered if there have been major
developments in the market or the economy during the year.

2.1.9 HOUSE-KEEPING CONTROLS

Except for personal or policy loans, all credit application (CA) must be
accompanied by a duly completed RAC checklist and any deviations to the
minimum requirements must be highlighted for Executive Management approval.
Additionally, each CA face must indicate whether or not the borrower is a
target market name and if so, the tiering category.

2.2 CREDIT INITIATION/EXPOSURE CREATION AND DEVELOPMENT

This process covers preliminary credit screening, credit application and

presentation, credit analysis, credit approval, credit documentation and
disbursement/ drawdown. Credit initiation includes new extensions of credit,
incremental risk, restructuring and/or annual review of previously approved
facilities. The process calls for full information gathering, together with financial
and risk analysis leading up to the approval decision.

Analysis and standards vary according to business product, market, transaction

characteristics and environmental issues, and good judgement should always
be made in ensuring that all relevant issues have been addressed in each
situation. The presentation should be in the form of a credit application
accompanied by the necessary supporting information as outlined in the CA
Package Guidelines in Section Three of this Manual. Other essential steps to be
followed in the Credit Initiation Phase are:

2.2.1 CUSTOMER SOLICITATION

The primary source of customers should be the prospect list developed in the
Target Market exercise. Contact with potential customers can be by way of our
24
 approaching the company directly, referrals from our existing customers or
business contacts, referrals from other banks, or customers approaching us
directly, either in writing or by visiting the Bank. This process must also include
the creation of concrete data base of prospects and customers for future and
composite value.

2.2.2 NEGOTIATION

Once a customer's credit needs have been gathered, the account officer must
obtain the necessary background information on the company, financials for at
least the last three years. Where a company is unstructured, or could not
provide financial reports for analysis, statement of accounts along with
acceptable accounting records can be obtained and subjected to critical
reviews. In the case of term loans, project details and projections for the life of
the loan. Even before a thorough financial analysis has been undertaken, a
quick review, backed by our understanding of the industry and our ranking of
the customers on the Target Market list will give the Bank a clear indication of
whether this will be an acceptable risk or not. Some considerations in this
regard would include risk/reward ratio, documentation and our ability to
accommodate the customer's financing needs.

Senior Management must always be consulted before giving firm indications to

the customer and all discussions should be documented in a comprehensive
initial call memorandum. On a selective basis, letters of interest may be issued.
Such letters must be carefully worded and must clearly state that the letter of
interest does not constitute a commitment for the Bank at this point.

2.2.3 PRESENTATION

If the initial screening and discussions with the client reveal that the client fits our
target parameters, the Account Officer should then spread all the financial
statements or any other acceptable financial information/documents and
prepare a comprehensive credit package for review and approval. In addition
to the information received from the borrower, the Account Officer should obtain
Bank and Trade checks on the borrower to enable him to independently verify
all the information and statements made by the borrower. Note that extreme
caution must be taken when conducting initial discussions with the client so that
no commitment is made, or received to be made until all the necessary credit
25
 approvals are in place except if from clear indication and empirical evidence,
there is absence of a quasi-commitment which may result to complete loss of
customer’s business.
Note: Credit analysis and packaging must be done with precision and
objectivity. Information provided must be historical, qualitative and quantitative

2.3 CREDIT APPRAISAL AND APPROVAL

Once the draft Credit Package has been put together, the Account Officer,
through the Business Manager, should pass it to the Risk Assets Management
Group (RMG) for appraisal and final recommendations to the Executive
Management for approval. All reviewing officers should document their
comments. It should be borne in mind that Risk appraisal is an ongoing process
and consideration of the impact of major developments should not be ignored
after disbursement. If adverse developments occur it is important to react in a
timely manner so as to protect the bank's interests in the best possible way.
Refer to Section Three of this manual for details on the fundamentals of Credit
Analysis.

CREDIT FLOWCHAT
CMO CSIO CA

RICO
SA

BM

CRO

RM
CLO

CLIENT CSIO

CAD/CCU/RECOVERY BOARD MD

26
Note:
Client
RM: Relationship Manager
BM: Business Manager
RICO: Resident Internal Control Officer
CMO: Chief Marketing Officer
CSIO: Chief Strategy and Implementation Officer
CA: credit Analyst
SCA: Senior Credit Analyst
CRO: Chief Risk Officer
CLO: Chief Legal Officer
MD: Managing Director
Board: Board of Directors
CAD: Credit Administration
CCU: Credit Control
DRU: Debt Recovery Unit

APPROVAL LIMIT
S/N PARTICULARS COMMENTS
1. BM Limit is zero
2 Management Credit Committee N0 to N4.99M
(MCC) by circulation
3 Bank Credit Committee (BCC) by Any credit above N5m but not more than 20m .
defence in a meeting
4. Board Approval All credits above 20m

5. Board Approval All director related loan.

MCC Members:
 Senior Credit Analyst
 Chief Risk Officer
 Chief Strategy and Implementation Officer.
 Managing Director.
Quorum is 2/3

BCC Members:
 Senior Credit Analyst
 Head of Internal Control
 Head of Internal Audit

27
  A representative of Legal Department
 Chief Marketing Officer
 Chief Risk Officer
 Chief Strategy and Implementation Officer.
 Managing Director.
Quorum is 2/3

Board Approval
 All BCC members
 Board of Directors
Quorum 2/3 of Board of Directors. Where 2/3 quorum is not formed under BCC, such a file
needs to be passed to Board of Directors.

2.4 CONTROL AND REPORTING REQUIREMENTS

1. All credit exposures must be accurately reflected in the central liability ledger of
the bank.

2. Financial Statements must be obtained and analysed in a timely manner. Ideally

statements included in the package should not be more than six months old.

3. Updated Bank and trade checks must be submitted with each annual review.

4. Account and/or marketing plans must be reviewed on a regular basis (at least
annually).

2.5 ADVICE TO CUSTOMERS OF APPROVED LINES/OFFER LETTER

ADMINISTRATION

Credit Offer and Acceptance

On approval, a “credit facility offer” including terms and conditions shall be

communicated in writing to the customer, 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.

Assigned credit approval authority may be withdrawn on incidence of:

 Breach of integrity
 Inaccuracies, falsification, incomplete or inadequate credit analysis
28
 Non-compliance with bank’s risk asset management policies

In addition to the withdrawal of such approval authority, appropriate

disciplinary action shall be determined and applied by the bank.
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.

The Offer Letter

 A credit extension made known to the borrower and to which the bank is
committed (as long as the borrower fulfils prior conditions) is an advised
facility. An advised facility is communicated to the customer in writing
through an Offer Letter and duly accepted.
 An offer letter is a legal commitment or contract and as such should only
be issued when a facility has been formally approved. Every care must
be exercised to ensure that the Offer letter details all relevant clauses,
conditions and covenants in the approved facility. An Offer Letter commits
the bank to lending if the borrower accepts and meets the terms
contained therein.
 When in doubt, a draft Offer Letter could be sent to Credit Administration
for vetting to ensure that it is in line with Fortis Microfinance Bank’s
standard format and that the terms of the offer have been faithfully
captured.
 A standard offer letter should contain the following:
 Name of borrower
 Type of facility being offered
 Limit or amount of the facility
 Purpose for which the facility is been utilized
 The tenor of the facility/date of final repayment
 Period of availability of offer
 Period of availability of drawdown
 Grace or moratorium period, where applicable
 Repayment schedule
 Rate of interest (unless otherwise specifically approved, rate of interest
must in all instances be tied to the bank’s prime lending rate (PLR) as a

29
 base. That is, stating a risk premium as a cap above the PLR or stating a
discount below the PLR.
 Other fees that will be charged
 Security and guarantee ( if applicable)
 Conditions for utilizing the facility- precedence to and after drawdown
 Covenants regulating the use of the facility
 Waivers, if applicable
 Expenses and conditions applicable
 Provision for acceptance of offer
 Validity and expiry date
 Fortis Microfinance Bank expects clients to make full use of all credit
facilities extended without undue delay. In this way, we can earn our full
yield as compensation for making the line available. A well- serviced
credit is profitable i.e. the more the account turnover, the more income is
earned from the COT.
 Where clients have been advised of a facility and it is not used, the Bank
may charge a commitment fee based on the approved facility limit. Such
a fee, which is introduced to capture all efforts in packaging the credit
facility, must however, be communicated in the offer letter and stated in
the loan agreement to avoid controversy. Also, such fees should not break
any known statutory regulations.
 Given that it is market practice to advise customers of approved lines in
writing, all such advices will be signed by the Managing Director/Chief
Executive Officer or his alternates under specific delegation.
 Such letters must clearly state that the lines of credit are subject to periodic
review and modification or cancellation at the Bank's option.

2.6 DOCUMENTATION AND DISBURSEMENT

1. This is a critical phase of the risk management process and requires a

thorough understanding of the legal practices both within the borrower’s
as well as the lender’s operating environment. All documentation
procedures must be tailored to afford the Bank maximum protection and if
any doubts exist, Legal Counsel should be consulted before making any
compromises with the customer. As a general rule, all legal expenses and
other incidental expenses relating to a specific credit are for the
borrower’s account.

30
2. Wherever possible, documentation must be on standard forms and/or in
standard formats, which have been reviewed and approved by the
Bank's Legal Department. Periodic reviews and amendments must be
undertaken whenever appropriate to keep the documentation in line with
ever-changing legal systems and practices.

The Executive Management is directly accountable for all non-standard

documentation. Such must be approved by them in all cases and it is
their direct decision whether or not to obtain the approval of legal
counsel.

3. Basic consideration in respect of credit documentation includes validity of

documents under the appropriate laws and evidence of authority of
signers to execute documentation.

4. Within the Target Market exercise the unit will have identified minimum
documentation requirements for each product and a checklist for
documentation should already be in place. These minimum requirements
should be supplemented by the general documentation requirements for
all borrowing customers. Essential steps in documenting credit
transactions can therefore be summarized as follows:

2.6.1 UNDERSTANDING OF LEGAL SYSTEMS AND PROCEDURES

Local laws and practices will determine the type of documentation we can
request and obtain from our customers. Legal Counsel is usually the best source
of information in this connection. However, the basic minimum documentation
would be required in line with the nature of clientele expected by a
microfinance bank subject to the broad policy guidelines of Fortis Microfinance
Bank.

2.6.2 SELECTION OF LEGAL COUNSEL

Reputation and standing will be the major determinants in the choice of local
legal counsel. Occasionally, situations arise in which partners in law firms that
represent Fortis Microfinance Bank also have dealings with borrowers. While it
is expected that attorneys who represent us adhere to the highest professional
and ethical standards, the overriding objective is to make certain that the
31
attorney and his firm are able to apply their unbiased and independent
judgement to each client's affairs. In all situations, attorneys will be expected to
make a full disclosure of relationships with the Bank's clients and where the
bank perceives a potential conflict of interest, the bank should select another
legal adviser for these relationships. On credit matters, the Head, RMG in
conjunction with the Head, Legal shall recommend a legal counsel for the
approval of the Executive Management where there is no in-house legal
counsel, or such in-house legal counsel cannot adequately handle any specific
matter for which legal services are required.

2.6.3 ADEQUACY OF SECURITY

Care must be taken to ensure that the transaction risk is appropriately covered
by the type of security offered. As example, wherever possible, long term
lending should be secured by fixed assets and/or other continuing guarantees
while short term facilities may be secured by assignment of matching
receivables, pledges of inventory or cash collateral deposits pledged to the
Bank.

2.6.4 EXECUTION AND PERFECTION OF LEGAL DOCUMENTATION

This involves the execution and proper registration of documentation,

independent signature verifications and payment of stamp duty. Where
documents are subject to statute of limitations, adequate controls must be put in
place to review such documents prior to expiry.

2.6.5 SAFEKEEPING AND CONTROL OF LEGAL DOCUMENTATION

1. Primary responsibility for safekeeping lies with the Credit Department or

Legal Officer. Prior to lodgement, all documents should be reviewed and
initialled by both Account Officer and Legal Officer or Credit Department
Head. Where applicable, all signatures should be independently verified
by the signature clerk and other documents like guarantees should be
properly witnessed. A checklist for reviewing documentation
completeness should be used in reviewing each document prior to
lodging. The documentation cabinets should be under dual control of two
designated officers.

32
2. The original documents will then be filed in documentation folders and
kept in a fire resistant cabinet and kept in an enclosed and restricted
office. A copy of the document itself and the safekeeping receipt shall be
held in the documentation section of the credit folder.

2.6.6 RELEASE/RETURN OF DOCUMENTS

A movement register is to be kept for credit documents. If documents are being

released to any staff for day use in the Bank, his or her initial is sufficient on the
register but the documentation custodians must ensure that the documents are
returned within the same day. Where documents are being released for
alteration or modification to the customer, but there are outstanding on the
books, full Executive Management approval must be obtained in a memo
justifying the release and every effort must be made to obtain substitute
temporary security such as cash collateral. The documentation custodians should
initial the register upon such release and subsequent return of documents.

2.6.7 PERIODIC REVIEW

After the initial review and lodgement, both the Account Officer and Chief Risk
Officer or Chief Legal Officer must undertake a documentation review for
completeness, at least once every year. Where either the Account Officer or the
Legal Officer changes, the outgoing and the incoming officers must jointly
review all documents to confirm that they have verified existing documentation
and found it in order. Additionally, Legal Counsel should review all documents
at least once every two years to confirm the adequacy in light of any changes
that may have taken place in the legal system since initial drawing up of the
documentation. In case of adverse development and classification of credit,
related documents should be immediately referred to Legal Counsel for review.

2.6.8 DOCUMENTATION OF CREDIT FACILITIES

Documentation requirements for each credit facility will be decided by the

Executive Management on the recommendation of a consultation between the
Credit and the Legal Departments. Legal Counsel must be consulted in all
situations that depart from the routine guidelines. However, the basic
requirements are;

33
 1. Borrower must be an account holder and must have met the necessary
account documentation requirements.

2. Borrower must also meet the general borrowing requirements and

additionally, depending on the product under consideration, meet the
specific requirements for each product.

3. The documentation requirements will form a part of the credit package

and disbursement of funds may not take place until the Account Officer
and the credit officer/analyst have confirmed to the BCC (on the
checklist) that all basic documentation is obtained and in order.

4. Prior to being lodged for safekeeping, all documents must be

independently signature verified. They should also be pencil initialled by
the Account Manager, Credit Administration Unit and Legal Officer.

5. In situations where disbursements are made prior to completion of

documentation a procedure must be in place in the Credit Administration
Unit to continue following up for the receipt of outstanding documentation
by the agreed Target Date. This requirement is in addition to the
approvals required for deferral of documentation as contained in Section
1.3.

6. All documents pledged and obtained must be originals.

2.7 DESCRIPTION OF SECURITY

The following are guidelines for describing security/support in credit

applications:

2.7.1 CHARGE OVER CURRENT ASSETS

- Indicate extent of charge over inventory or receivables-Amount of

charge.

- Whether registered or unregistered, first or second. If second charge,

indicate amount of first charge and who holds it.

34
 - Whether sole charge or shared pari-passu with other lenders.

- Margins.

- Insurance and risks covered.

- Value of collateral and source of valuation (Only professional valuation is

acceptable otherwise the bank must conduct an independent valuation which
will also be charged to the customer’s account)

2.7.2 CHARGE OVER FIXED ASSETS

- Whether debenture or mortgage (equitable or registered).

- Whether first or second, shared or sole.

- Assets covered and amount of mortgage.

- Margins.

- Current appraised value (no more than one year old and appraisal to be
carried out by duly appointed and qualified appraiser).

- Insurance and risks covered.

2.7.3 GUARANTEES

- Whether personal, joint and several, cross company, parent company or

third party.

- If externally guaranteed, indicate guaranteeing entity and date guarantee

received.

- Amount and expiry date of the guarantee.

- Indicate estimated net worth of individuals or corporate entities

guaranteeing the obligation (for individuals, confirm net worth statements
held or not).
35
 2.7.4 HYPOTHECATED DEPOSITS

- Indicate where held

- Amount

- Maturity date of deposit

- Instrument creating hypothecation (pledge letter, endorsement on

negotiable receipt, etc.)

Example: Pledge fixed deposit for …………………. Held at FORTIS

MICROFINANCE BANK, under hypothecation agreement dated …………….
Expiring…………

2.7.5 MISCELLANEOUS

- Loan subordination (indicate amount and source)

- Special approval conditions – Example: Confirmation that all conditions

precedent have been met prior to disbursement.

2.7.6 BANK GUARANTEES: ISSUANCE

1. Bank Guarantees shall be issued for the Bank’s customers upon request
supported by a justification from Account Officer or the Business
Manager. The issuance of a guarantee will be supported by an
application or counter-indemnity signed by the customer, in which the
customer must agree:
a) To reimburse the Bank for any payment made under the guarantee,
regardless of whether or not the beneficiary's claim there under was
genuinely justified.
b) Upon demand by the Bank to provide cash (or other collateral
satisfactory to the Bank) sufficient in amount to cover the Bank's total
liability in the transaction (commonly known as a "Cash Substitution
clause").

36
 2. The guarantee issued will also vary depending on the specific transaction
requirements, but will be worded to the extent possible in line with the
counter-indemnity, and in such a way as to avoid any possibility of the
Bank's involvement in any dispute as to whether the principal (our
customer) has indeed failed to perform his obligations under the terms of
the guarantee. A place of payment, an expiry date, and a limit on
amount must also be embodied in the counter-indemnity and the
guarantee. As a matter of policy the instrument issued will contain a
clause stating that it will be returned to the Bank when the purpose of the
issuance of the instrument has been fulfilled However, this provision may
be waived in the event that the guarantee text includes a clause to the
effect that the bank's liability will cease on the expiry date whether or not
the instrument is returned.

3. If the Bank is liable for interest payment under the guarantee, this should
be clearly incorporated in the maximum amount payable under the terms
of the guarantee.

4. In all cases, a counter-indemnity must be obtained from the customer. It

should quote the guarantee issued by the Bank and must remain valid at
minimum up to 30 days beyond expiry date of our guarantee to allow
time for the bank to claim against the applicant (our client) in case of a
late claim from the beneficiary. All such counter-indemnities must
incorporate the "cash substitution clause" referred to above.

2.7.7 BANK GUARANTEES: CANCELLATION

As a general rule, the Operations group will cancel and remove control of a
guarantee (i.e. remove the guarantee from the Books) only after the return of the
original instrument. However, in the event the beneficiary has not returned the
instrument even after the expiry period, the following conditions must apply prior
to removal of control:

1. No written confirmation from the customer on whose behalf the guarantee

was issued is needed.
2. A month's time has elapsed since the expiry date, inclusive of claim
period.

37
 3. At least a month has elapsed since a follow-up letter sent by the Bank to
the beneficiary asking for return of the original bond.

4. Each cancellation not supported by the return of the original bond must
be approved by the Bank's Legal Officer/Counsel in consultation with the
Head of Credit Department.

5. In no case should control be removed prior to expiry date inclusive of

claim period without the return of the original bond, unless the text of the
guarantee is specifically worded so as not to require the return of the
instrument to the Bank on expiry in which case the Executive
Management must be intimated.

2.7.8 BANK GUARANTEES: OPEN ENDED

In those instances where the Bank issues a guarantee which does not carry a
specific expiry date, full cash collateral will be required, including an additional
margin for interest if applicable under the terms of the guarantee. This
requirement may however be modified or waived by the Executive
Management, including the Managing Director/Chief Executive Officer, based
on relationship considerations and if the credit is otherwise deemed strong. The
expiration of the lien must be the same with the validity of the guarantee.

2.7.9 INSURANCE POLICIES

The Bank should recognise the need to analyse, monitor and spread Insurance
company risk. To this end, Fortis Insurance Brokers shall analyse the financial
strength, management and reputation of the leading Insurance Companies as a
basis for setting limits for exposure to each of these companies. Limits should be
approved by the Executive Management including the Managing
Director/Chief Executive Officer. These limits shall be reviewed upon further
advice by the Managing Director/Chief Executive Officer or a designated
senior officer of Fortis Insurance Brokers Plc.

1. Physical control over insurance policies will be maintained by the Legal

Department. However Risk Asset Management Group (RMG) will
maintain a tickler on the basis of expiry date of each policy. In those
instances when the original policy is held by another bank on behalf of a
38
 syndicate of banks of which FORTIS MICROFINANCE BANK is a
member, copies of the original policies will be used for control purposes.
Two months prior to expiry RMG will inform the respective account
officer of the following details:

- Name of client
- Assets covered by policy
- Insurance cover amount, date and name of insurance company
- Expiry date
- Confirmation of premium payment

2. If the policy is not received within four weeks of expiry the Head of RMG
will send a second follow-up to the Account Officer, with a copy to the
Managing Director/Chief Executive Officer.

3. Where the Bank is named as a loss payee or first loss beneficiary under
an insurance policy, the Bank must obtain the right to take steps to
maintain cover in the event that the client fails to do so.

2.7.10 CASH COLLATERALIZED TRANSACTIONS AND HYPOTHECATION

DOCUMENTS

1. When cash collateral is accepted to secure a loan, the hypothecation

agreement covering same should be perfected.

2. In addition, when accepting cash collateral from a customer, it must be

ensured that the collateral is not subject to an already existing charge to
another lender. This could happen where some lenders have a floating
charge over all current assets (which would also include cash). Also the
Bank accepting cash collateral must ensure that the collateral is free from
all existing or future liens or encumbrances. Legal Counsel should be
consulted in all cases to ensure that both conditions are complied with. It
is advisable to take a letter-of-set-off as additional support.

2.7.11 GUARANTEES SUPPORTING FACILITIES

It is important that there is a common understanding on guarantees obtained in
support of facilities. In all such instances it is a requirement that:
39
 1. There is a separate guarantee document from the guarantor referring to
the borrower and facilities guaranteed.

2. Guarantees must be continuing.

3. Guarantees must cover all principal and interest, fees and charges,
including process costs in the event of enforcement.

4. Guarantees must be consistent with the terms of the primary credit.

5. Where facilities are supported by separate agreement (e.g. term loans,

facilities agreements, etc.) the guarantee must be referred to, in the
Security/Support Section of the main agreement.

6. A separate guarantor fine is established and controlled in the name of the

guarantor.

7. In addition, the Bank must ensure that such guarantees:

- Are drafted by Legal Counsel.

- Are validly authorised and executed and

- The terms of the primary credit agreement are not amended without the
guarantor’s consent. Absence of such consent in the face of amended
terms could invalidate the guarantee.

- Are duly registered where required by local legislation.

Note: Most important issue in obtaining guarantee is that the bank must be in the
position of strength while the facility subsist.

2.8 CREDIT ADMINISTRATION

1. Credit Administration focuses on housekeeping, the credit support, control

systems and other practices necessary to manage the outstanding Risk
Assets to normal repayment and to properly monitor business risks.

40
 2. While some of the administrative functions will be handled by RMG the
ultimate responsibility for an overall acceptable process for each
borrower lies with the Account Manager. The Credit Administration’s
responsibilities are summarised below:

- Control of Credit files.

- Safekeeping of Credit and Documentation files.

- Follow-up for various internal expiries i.e., CA’s, Insurance,

deferrals, deficiencies.

- Control of availments and excesses over approved lines.

- Monitoring of collateral inspections, site visits and customer calls.

- Monitoring of repayments under term credits.

- No officer of the bank shall under no circumstances force
borrower to sign any credit related documents.

- Responsibility for report preparation.

3. The above responsibilities are described in full in Section Three of this

Manual.

2.9 PROBLEM RECOGNITION/DETECTION OF WARNING SIGNALS

This process block deals with the Bank’s ability to anticipate, detect, recognise,
and report as early as possible potential problems within an individual
borrower’s business or industry. The objective of early warning systems is to
address problems while there is still time for alternative corrective actions and
revision of strategy against the relationship. It is important to comprehensively
document all findings in call memos, credit evaluations and discussions with
management. While occasionally, and as a result of judgemental differences,
an outside reviewer may classify a credit differently from the Bank’s
management, “a double jump” or new classification by an independent
reviewer will reflect adversely on the Bank’s rating in terms of its ability to
anticipate, recognise and deal with problem credits.
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2.9.1 PORTFOLIO REVIEW/RANKING
One of the most effective ways of achieving an overall acceptable rating in
problem recognition is by continuous contact and information gathering, both
from the customer as well as the market; recording of all negative signals and
discussing these with the Executive Management. This should also involve
periodic review and ranking of Risk Assets along some established internal
guidelines and may sometimes lead to classification of credits. Negative signals
include, but are not Plc to the following events:

- Recurring casual overdrafts or line excesses that take a long time to

clear. (Incremental borrowing)

- Downward trend in business level/closures of branches and outlets

- Frequent delays in repayment of principal or interest payments.

- Inability to communicate with customer and failure to disclose

information.

- Major management changes especially in financial area, people and

key decision makers.

- Inability to meet up with turnover covenant.

- Negative market trends, Government directives, Legal suits and/or
bankruptcy threats by other creditors.

- Deterioration of economic environment.

- New competition in industry.

2.9.2 CLASSIFICATION OF CREDITS

1. If any of the above or other similar signals point towards a deteriorating

situation it may become necessary to classify the loan and thereby trigger
review and approval by the next higher level of Management.
Classification categories are determined by the degree of the problem.

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 2. Since credit officers are expected to be well informed as to the activities
of the credits under their supervision, the primary responsibility for
identifying and adversely classifying credits rests with them. Adverse
classifications may also be initiated by Executive Management, internal
auditors and Risk Asset reviewers.

2.9.3 PURPOSES

1. To highlight those credits that represents an above-normal credit risk.

2. To evaluate the degree of risk involved.

3. To develop a strategy or action plan for the elimination of weakness and

the ultimate collection of outstanding.

4. To assist the calculation and reserving of appropriate loan loss provisions.

2.9.4 DEFINITIONS OF CLASSIFICATIONS

1. Performing (I)

These are credits that are fully current and the orderly payments of which
are without doubt. This also includes all credits that are just drawn and
repayment has not commenced.

2. Pass and Watch (II)

These are credits that are current but for which number of days unpaid is
between 1 and 30 days.

3. Substandard (III)
Credits with evidence of weakness in the borrower's financial condition
or credit worthiness, or which are subject to an unrealistic repayment
programme, or which are lacking adequate collateral, credit information
or documentation. If sufficiently severe or advanced, these or other
conditions would warrant a worse classification. Early attention, including
substantive discussions with borrowers, is required to correct deficiencies.

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 Credits for which the normal repayment of principal and interest is not
being met, or has been jeopardised by reason of severely adverse trends
or developments of a financial, managerial, economic, or political
nature, or by important weaknesses in collateral. No loss is foreseen, but
a protracted work-out is a possibility. Prompt corrective action is required
to strengthen the Bank's position as a lender, to reduce its exposure, and
to ensure that adequate remedial measures are taken by the borrower.

4. Doubtful (IV)

Credits, full repayment of which appears questionable on the basis of

available information, and which therefore suggest a degree of eventual
loss not yet determinable as to amount or timing. Such credits reach their
maturity periods but have not been fully paid. They are Past Due
Obligations (PDOs) of which the possibility of full recovery cannot be
ascertained. Vigorous action is required to avert or minimise losses.
Non-accrual of interest may be required and previously accrued and
unpaid interest may be reversed. The principal may be reversed or
written off to the extent deemed necessary. Any such credits should be
reported to the Board of Directors.

5. Lost (V)

Credits that are regarded as uncollectable. Any amount so classified

should be fully reserved, and previously accrued and unpaid interest must
be reversed. A classification to IV does not mean that there is no potential
for eventual recovery. Responsible units are expected to continue a
vigorous collection effort until it is decided that no further repayment or
recovery is possible. Any such credits must also be reported to the Board
of Directors.

Classification Performing Pass & Watch Substandard Doubtful Lost

Provisioning 1% 5% 20% 50% 100%
Days Due NA 1 - 30 31 – 60 61 – 90 90days and above

6. When a facility is classified III or worse, the initiating unit must

immediately submit a Classified Credit Memorandum (CCM) including
the following minimum basic information:
- Lines and outstanding.
44
 - Brief classification history.
- For new classifications, a brief relationship background.
- Security or Support held, inclusive of estimated asset value.
- Summary of latest financials (highlights only).
- Reasons for classification and action plan.

7. Specific assignment of responsibility should be made either to a

designated Credit Officer or the Risk Manager or Head, RMG
depending on the circumstances. It is important that developments are
followed closely and alternative measures implemented if the credit
continues to deteriorate.

8. Management must pay continuous attention to the risk management

process and ensure that there are no past due line revisions, backlog of
statement spreading, slippage in calling program, unresolved
documentation discrepancies, missing Account Officer or back up
assignments. Credit training and coaching must be continuous at all
levels.

9. All classifications and changes in classifications must be approved by the

Executive Management.

2.9.5 REPORTS

1. All classified accounts must be reviewed both monthly and

quarterly and Monthly Classified Loan Reports (MCLR's)
2. Past due obligations ("PDOs") and accounts receivable must be
reviewed regularly, and timely follow-ups made to initiate corrective
action and formal reports signed off by the Executive Directors and
Managing Director/Chief Executive Officer each month. Reports
must show recovery efforts and plans to prevent accounts from
further deterioration.

2.9.6 LOAN RESCHEDULING:

 ON RESCHEDULING AND REFINANCING

Rescheduling is the agreement through which a new payment plan is drafted
for the balance of a loan in arrears and can only be considered for special
45
 cases in which the client has fallen into arrears or their payment capacity has
been compromised due to uncontrollable causes and there is borrower
willingness to pay. It is considered acceptable only in the following cases:
• Theft of key tool machinery or equipment for the production process of the
firm.
• Serious illness or death of the principal debtor spouse or children.
• Natural disasters involving total loss of important part of the firm.
• Reassessment of payment capacity, it is determined that it has fallen relative
to the time of the loan request.
• It also sets a maximum of three rescheduling for each client.

These grounds must be submitted with supporting documentation and a

written formal request to this effect, considering the following:
• Source of income reviewing and reasonable estimate of payment capacity.
• Home and Business visit
• Payment history check
• Verification of guarantor outstanding debts with other MFIs or individuals.
• Verification, where appropriate, of the existence of the collateral
commitments.
• Evidence of periodic monitoring of the home, location and customer activity.

Refinancing is the granting of a new loan for an amount equal to or

greater than the previous loan, following cancellation of 50 % of loan
principal. Requirements are:
• Good credit history (with arrears averaging no more than one day).
• Only possible after the second loan.
• Only granted once for each loan.
• Reassessment of their payment capacity.
• Verification of the collateral.
• Signature of new contract clauses in alignment to the previous contract

 QUALIFICATION FOR RESCHEDULING:

1. Customer must not a first time borrower and must have a good credit history
2. There is a good explanation for default and group members of credit
committee vouch for her inability to repay

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 3. She/he is willing but unable to pay due to situations out of her control like
force majeure (act of God), ill health or death (for SME loans)
4. Customer must pledge additional security or comfort to secure the new
arrangement
5. Investigations reveal that the default was not caused by diversion or
deliberate misuse of funds
6. Customer is willing to be part of the work out strategy for the defaulting loan

Fortis policy on rescheduling aligns with the CBN Policy on rescheduling and
refinancing which is:

1. A provision of 100% must be made for the loan. Where such bad loan is
recovered, it should be recognize as income in statement of comprehensive
income.
2. It should be treated on a case by case basis
3. The files should be kept separate from other files or running loans
4. This is a policy that must be discouraged and only executive management
should take decisions on this.

2.10 POLICY, PRACTICE AND PROCEDURE

Since adherence to policy and procedure is a requirement within each

process phase, a thorough understanding of the bank's overall credit
policies and procedures is the quickest way to achieving an overall
acceptable credit process. The elements of this block include:

2.10.1 COMPLIANCE WITH LOCAL LAWS AND REGULATIONS

These include Government and Central Bank policies affecting banking

practices in the country. Example: interest rate ceilings, reserve requirements,
pectoral lending, reporting requirements, exchange control regulations,
among others.

2.10.2 ADHERENCE TO THE BANK’S POLICY GUIDELINES

Examples of these are credit approval and consultation requirements which

are all laid down in Section One of this Manual, and other policies such as

47
 for example maximum exposure per sector, minimum security requirements,
etc. which may be laid down.

2.10.3 EXCEPTIONS/DEVIATIONS

Ensuring that exceptions are kept to a minimum and when they must be
made, that proper approvals are obtained.

2.10.4 CONFIDENTIALITY

All corporate policies and information, both for the Bank and customers, are
handled with confidentiality. It is therefore a serious breach of the provisions
of this manual to reveal such information to unwarranted persons.

2.10.5 CONFLICT OF INTEREST

Bank’s ethical practices must be complied with and there must be no conflicts
of interest allowed. More so, no customer would be made to sign off on any
of loan approval documents under duress or without common understanding
of contract terms.

2.10.6 MULTIPLE BORROWING:

Multiple borrowings should not be encouraged. This shall be check mated
through credit bureau and any other available bank data sharing platform.

2.10.7 CREDIT POLICY AND PROCEDURE MANUAL

The Bank’s Credit Manual is periodically reviewed and updated in light of
changing corporate and external policies. This manual shall be the resource
document that is sought for an effective credit process.

2.11 REMEDIAL MANAGEMENT

The need for Remedial Management arises in relation to specific problems

that have surfaced. The Management of problem loans requires a different
and more intense approach than those under normal Management.
Determination of remedial Action Plans is not easy, it requires experience,
knowledge of the borrower and the market, and there are no hard and fast
rules.
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 As discussed under Problem Recognition, different account classification
levels reflect the seriousness of the problem and each situation calls for more
or less intense remedial action.

Both scientific and tactical methods should be employed in handling remedial

management. Executive management must be involved and support all
informal strategies to manage bad cases in order to avoid unwarranted legal
embarrassment from customers.

2.11.1 RESPONSIBILITY

1. Depending on the severity of classification, the bank should assign

corrective action responsibility to an appropriate individual and senior
Management should be closely involved in achieving targeted objectives.
A few examples follow:

2. In a classified IV situation, the bank's strategy may call for:

- A reduction in total exposure of 20%
- An improvement of security margin by incremental collateral.
- A thorough review of the loan documents to ensure enforceability.

3. Method of achieving this will involve dialogue between the Account

Officer, Bank Management and Legal Counsel. The primary responsibility
may rest with the Account Manager but close involvement of both
Management and Legal Counsel will be required.

4. In a classified II situation, the action plan may call for a prepayment of

some of the obligations, request for the client to find alternative Bankers,
calls under guarantees etc. Every step will be documented and if results
are not being achieved, more serious steps (Legal action) may have to be
considered.

5. In a classified III situation, the action plan may call for legal action to
enable the Bank to exercise its rights under the security arrangements, sale
of collateral, and appointment of a receiver or liquidator. The action plans
called for here may be very time-consuming and involve several senior
Bank Officers, and even outside Accountants/Receivers. Reserves and
49
 write-offs have to be properly established at this stage and the portfolio
transferred from accrual to non-accrual status.

Whenever an account is classified III or worse, the following guidelines for

reserves is recommended:

Classification Reserve

I 20%
II 50%
III 100%

All reserves must be approved by the Board of Directors regardless of

amount.

2.11.2 LAW SUITS

Legal action against any borrower, provided that such action is

recommended by Legal Counsel, must be approved by the Managing
Director/Chief Executive Officer, and confirmed by the Board of Directors.
Responsibility for legal action shall be vested in the Legal Department of the
bank upon briefing by RMG.

All approvals for legal action shall be sought by RMG and once the
approval is obtained the responsibility for the filing of the action and
engagement of a counsel shifts to the Legal Department.

2.11.3 LEGAL EXPENSES

All legal expenses relating to credit recoveries will be for the borrower’s
account and records must be maintained of all such expenses.

2.11.4 REPORTING

The classified credit memorandum (CCM) and subsequent monthly and

quarterly reports should clearly bring out action plans, target dates and
results should be updated and strategies revised in a timely manner.

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2.12 ORGANISATION/STAFFING

This process addresses the staffing needs of the Credit and Marketing and
the Risk Assets Management Departments and can be further broken down
into three subsections:

2.12.1 STAFFING ADEQUACY

The unit must be adequately staffed with people who have the ability,
integrity and qualifications to meet the tasks. The staffing should also address
back-up in situations when those with primary responsibility are absent.
Position descriptions as well as job assignments must be formulated for each
lending officer and the Credit Department. An auto-run system can also be
created within the department where all staff are trained on all job schedule
of other staff in the department.

2.12.2 STAFF CONTINUITY

Average experience levels of each staff member must be sufficient to cater for
job requirements and turnover must be carefully watched so that loss of
experienced staff is quickly covered by more accelerated training efforts.

2.12.3 COACHING/TRAINING

This is a very important responsibility for Management and requires planning

to ensure that both formal as well as on-the-job training needs of the lending
unit and RMG are met. To strengthen internal training, regular Credit
Committee meetings are an excellent tool as they provide a forum for
discussing complex credits, new marketing initiatives as well as general
process issues. All officers must be completely familiar with the prevailing
credit policy and procedure guidelines in addition to other local regulatory
requirements.

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 SECTION THREE
THE CREDIT PROCESS AND RISK MANAGEMENT GROUP (RMG)

3.1 RISK ASSETS MANAGEMENT GROUP (RMG)

This is the designation of the department in charge of credit affairs. It shall be

composed of five units supervised by the Chief Risk Officer, RMG who reports
directly to the Managing Director.

3.1.1 The Chief Risk Officer

The Chief Risk Officer shall

 Report directly to the Managing Director

 Be responsible for the co-ordination of work in RMG and shall allocate
functions to the department staff.
 Be a member of the BCC and shall be one of the signatories to credit files
before final approval by the MD
 Relate with Security Agents, Legal Officers and other Recovery
Agents/Departments as may be necessary from time to time
 Seek approval for legal action against the bank’s debtors and shall liaise
with the Legal Department for the pursuit of such cases until final
conclusions.
 Classify the bank’s debtors and advise Executive Management on issues
relating to debt write off (part or full), debt rescheduling, and the general
performance of the Risk Assets portfolio.
 Be responsible for carrying out a periodic review of the loan products of
the bank and Risk Asset Portfolio of the bank and shall pass such reviews
to the Executive Management for approval.
 Conduct training and retraining of staff to ensure that all information
relating to credit packaging is handed down to staff bank wide.
 Advise Executive Management on staff requirements in the group.
 Prepare and defend the department’s budget before management and
shall ensure strict implementation of same.
 Recommend posting of credit officers to branches and oversee their
operations accordingly.
 Carry out other functions as shall be directed by Executive Management
from time to time.
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 3.1.2 CREDIT ANALYSIS UNIT (CA) & CREDIT OFFICERS

This is the unit that receives and appraises applications coming fresh from the
Marketing Department through Credit Risk Unit. The officers here shall,

 Conduct credit appraisals based on the fundamentals of borrower’s

character, capacity, capital, collateral, cash flow and condition.
 Undertake visits to applicants’ places of business in liaison with the
account officers to ascertain issues that might need clarification which are
fundamental to the application.
 Report findings to the Chief Risk Officer and shall take responsibility for
such reports.
 Liaise with the Loan Monitoring Unit for triggers that might prompt a post
disbursement appraisal and carry out such appraisals where necessary.
This is to ensure that conditions that warranted the approval of the facility
still prevail. Where a change in such conditions is likely to adversely affect
the performance of the loan, the officer here shall advise the Head, RMG
on the necessary steps to be taken to further secure the loan before it
becomes bad debt.
 Liaise with CAD and review previous applications coming from the same
client to see the level of compliance with terms and conditions in previous
transactions. This shall form first-hand information on how to handle a fresh
application from the same client.
 Carry out other functions as assigned to them from time to time by
management.

3.1.3 CREDIT ADMINISTRATION UNIT (CAD)

This unit takes over the process from the CA immediately after the analysts’
appraisal. Officers in this unit shall,

 Be responsible to the Chief Risk Officer and shall carry out assignments
handed to them from him.
 Receive fresh applications from the Business Managers, batch them in
files and code such files accordingly.
 Maintain registers for received credit applications, approved and
disbursed loans and note liquidations accordingly.

53
  Review credit approvals and collate all documentation required before
disbursement.
 Prepare offer letters stating all terms and conditions and liaise with the
Account Officers to inform the customer about such approvals and offers.
 Liaise with the Legal Department for documentation perfection before
disbursement.
 Withhold disbursement and revert to the chief Risk Officer where
documentation deferral and/or waiver are required after approval. Such
deferral/waiver must be approved in the same way as the original
application.
 Ensure a strict follow up on borrowers and Account Officers for the
regularization of documentation deferrals after approval.
 Have custody of all templates relating to the credit process ensure all
branches are intimated of reviews in these templates.
 Carry out any other functions as assigned to them from time to time by
management.
 Ensure collation of data from the loan portfolio in a way that will be useful
for management decisions.
 Take inventory of all customers’ documents including those covering
collateral security and ensure speedy retrieval of same on demand.
 Maintain a movement register for loan files and ensure each file is
accounted for at any point in time.
 Carry out other functions as may be assigned from time to time by the
Chief Risk Officer or Executive Management.

3.1.4 LOAN DISBURSEMENT & MONITORING UNIT (LDM)

This unit shall handle the disbursement of all facilities after due clearance by
the respective authorities and shall carry out the day to day follow up on loan
clients to ensure they comply with the repayment schedule. It shall be manned
by persons who are firm and have the capacity to high integrity so as to
ensure effective monitoring. Highly efficient desk men/women are
recommended and it shall be the responsibility of the Human Resources
Department to look out for such qualities in staff to be posted to RMG. Officers
in this unit shall,

 Be responsible to the Head, RMG i.e. chief Risk Officer and undertake
duties assigned to them by him.
54
  Keep a record of all running loans with details of their repayment
schedules.
 Do a follow up on loans and prompt borrowers to comply with the
payment terms.
 Liaise with CAD to ensure all repayments meant to be done with deposited
repayment cheques are not missed.
 Familiarize themselves with conditions on which credit approvals were
made and make sure they still prevail throughout the duration of the loan.
 Monitor customer’s account to ensure that drawings are within limits and
promptly report to appropriate authority for immediate action
 Report adverse findings that might affect the repayment of any loans to the
Head, RMG and make recommendations accordingly.
 Monitor projects which are subjects of approved credits to ensure that
money is not diverted to other uses rather than those mentioned in the
approval document.
 Recommend the classification of all running loans into the various
categories as defined by this manual.
 Prepare a daily report to the Head, RMG. This report shall include the
basic information on the credits as well as the classification of such loans
as defined in Section 2 of this manual.
 Shall make weekly report to Chief Risk Officer transferring all PDOs to the
DRU for recovery.
 Any other functions assigned from time to time by management.
 Copies of important reports generated from this unit must be forwarded to
Executive Management and Internal Control Unit for their information.

3.1.4 DEBT RECOVERY UNIT (DRU)

This unit shall take over from the LDM all Past Due Obligations (PDOs). These
are loans that have been fully overdue by one day. Officers in the DRU shall,
 Be responsible to the Chief Risk officer and shall carry out duties assigned
by him.
 Take over from the LDM and adopt remedial management aimed at
achieving full recovery in the way that the relationship will also not be lost.
 Advise the Chief Risk Officer and Executive Management on loans that
should be classified as lost.
 Liaise with account officer of such loan for clarification and useful tips on
the obligor
55
  Make daily reports to the Head, RMG and recommend appropriate
remedial action to be adopted in handling each case.
 Make a continued follow up on loans even when they are classified Lost
and recommend reopening of deliberate recovery efforts when necessary.
 Liaise with the Legal Department on issues that need legal action. Such
recommendations shall be made to the Chief Risk Officer who shall then
make final recommendations to the Executive Management for approval.
 Carry out any other functions as shall be given from time to time by
management.

3.1.5 RMG AND THE BRANCHES

BUSINESS MANAGERS

Each Business Manager is regarded in the branches as regards the credit

process, the resident Credit Officer for the branch can only handle an
application after it has been signed by the BM. Where Overdraft limits are
approved for any BM, he shall make weekly reports to Credit Risk Officer and
ensure full compliance with the terms of the delegation.

All credits emanating from a branch must be endorsed by the Business

Manager. He shall make sure all columns of the templates are correctly
completed before passing same to the credit officer for processing.

He shall also put in place adequate measures to verify information as to

customers’ places and nature of business as well as verify LPOs and Invoices
and commit himself on paper as to such verifications. He shall be held
responsible for any false information contained in any credit application.

The onus of recovering any advance to the customer first lies on the BM and the
Account Officer. Where the original BM and/or AO have been transferred to
other departments or branches, they shall be required to pursue full recovery
together with the new officers handling the accounts concerned. It shall not be
an excuse that an officer inherited the debt.

For staff wishing to exit from the system, the recovery of loans given to
customers through them shall form a condition precedent for their exit. This shall

56
also apply to personal loans of such staff. The BM and AO who packaged the
facility shall primary remain the primary owner of the risk.

3.1.6 LATE PAYMENT /DEBT RECOVERY PROCEDURE

These steps can be used as an escalation process to contact your customers

about an outstanding payment from friendly reminder through to letter of
demand and bad debt collection.

Be aware there are regulations for contacting your customers for overdue
payments,

1. Contact with a friendly payment reminder

Once the payment is overdue phone, email or mail the customer with a courtesy
reminder. The customer may have forgotten, paid into the wrong bank account
or other minor issue and your contact will be enough to get the invoice paid.
Include your payment options, banking details and contact information to make
it easier for your customer to pay you quickly.

2. Contact with an overdue payment reminder

If the payment remains outstanding and the customer has missed the next
agreed payment date, or there has been no contact, phone the customer or
send another email or letter reminder of the money owing and request payment.

3. Contact your customer with a final notice

When the customer has not paid as per the terms of payment, and has missed
any extended payment dates again, call or email them to discuss the
outstanding invoice and request payment.

4. Try to make direct contact with your customer

If there is still no payment or response, consider visiting the customer in person

(or phoning them if previous contact has been via email) to ask for payment.
This sometimes helps create a personal relationship with the customer that could
be useful for future payments.

57
5. Send a formal letter of demand

In the event that all attempts to contact them have failed, consider sending a
letter of demand. This should only be done as a last resort, as it can damage
your relationship with the customer.

If you still haven't been paid, then you may consider using a debt collecting
agency to collect the outstanding money from your customer. It is useful to check
a list of fair debt collection practices, developed by Consumer Affairs so you
know the boundaries of debt collection.

3.1.7 HOW TO PROCEED WHEN BORROWER ARE IN DEFAULT.

The wheels of economic development are oiled by the dispensation of

credit. The percentage of credit dispensation has increased many fold during
the last decade. The bank while sanctioning credit facilities to its customers,
secures the loan by asking for a security from the customer. There are two types
of securities, primary security which can be hypothecation of stocks and other
related items, and collateral security which can be third party guarantee of
usually two credit worthy persons, preferably one a salaried employee, or by
way of Mortgage of land. These securities should cover the amount of loan
sanctioned.

3.1.8 Who is this guarantor?

In ordinary parlance, it implies that the Guarantor guarantees that if the
borrower fails to repay the bank, the loan amount which has been availed by
the borrower, guarantor shall be responsible to repay the loan.
The Guarantor’s liability is joint, several and coextensive with that of the
borrower. This expression equates the Guarantor with that of borrower and it is
as if the guarantor has taken loan, and on his default the guarantor steps into
the shoes of the borrower and his liability crystallizes on the default committed
by the borrower. The only condition to be met by the banks to proceed against
Guarantor is to issue a notice to him/her intimating to take steps to impress
upon the borrower to repay the outstanding in the loan account.
There are usually three parties in the contract of guarantee: Creditor/Banker,
Principal Borrower and the Guarantor. Contract of Guarantee is complete when
the Guarantors execute a deed of Guarantee on Non Judicial stamp paper of
requisite value. The deed should be attested by a Notary Public and adhesive
stamp of requisite value is affixed thereon.
58
The bank can proceed against the guarantor without proceeding against the
principal borrower. The liability of the Guarantor is independent of borrower’s
liability. In case where there is one borrower and he has died prior to institution
of the suit, suit has been filed against a dead person, the suit abates to the
extent of the borrower it survives in respect of Guarantors.
The questions which crop up for adjudication in the courts have compelled me
to apprise the public about the contract of Guarantee.

3.1.9 What is Bankers Lien?

Lien empowers the bank with a qualified right to exercise over all the monies of
the borrower which come into any account and can set off this amount with
their outstanding. The banker is constrained to lay its hands on the guarantors
account and exercise lien, what in borrowers language called, ‘account has
been frozen.” The plea of the Guarantors agitated before the civil courts that his
salary account has been frozen is misconceived, as there is no salary account
of the borrower/Guarantor in the bank. It is pertinent to point out that
government employee who has opened an account with the bank, opens a
saving bank account and the salary is credited in this account. The bank does
not disburse salary and there is no salary account of the borrower/Guarantor.

3.1.10 Action against Guarantor:

It is my attempt to clear one more misplaced notion that if the borrower has
given collateral security in the shape of mortgage of land/house property and
the creditor/banker must proceed, in the first place, for sale of mortgaged
property, in case the account is not adjusted, only then comes the Guarantor.
This is not so. Law does not debar the bank to take action against any of them
and courts cannot direct the financial institutions to proceed against one and
leave the other. Banks have been given a right to proceed as per its own
choice and have a qualified right to proceed against both. The contractual right
to publish names and photographs of defaulting borrowers in local dailies, in
the event of their continuous default has been recognized by the courts and it
has been held that right to privacy fades out in respect outstanding bank dues.
The argument that the borrower is put to ignominy has been brushed aside in
view of larger public interest. So before any of us guarantee the loan he should
understand that it is as if he is the borrower.

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3.1.11 Debt Collection Practices

Terminologies:

The term "communication" means the conveying of information regarding a

debt directly or indirectly to any person through any medium.

The term "consumer" means any natural person obligated or allegedly

obligated to pay any debt.

The term "creditor" means any person who offers or extends credit creating a
debt or to whom a debt is owed, but such term does not include any person to
the extent that he receives an assignment or transfer of a debt in default solely
for the purpose of facilitating collection of such debt for another.

The term "debt" means any obligation or alleged obligation of a consumer to

pay money arising out of a transaction in which the money, property, insurance
or services which are the subject of the transaction are primarily for personal,
family, or household purposes, whether or not such obligation has been
reduced to judgment.

The term "debt collector" means any person who uses any instrumentality of
interstate commerce or the mails in any business the principal purpose of which
is the collection of any debts, or who regularly collects or attempts to collect,
directly or indirectly, debts owed or due or asserted to be owed or due
another. The term does not include --

1. any officer or employee of a creditor while, in the name of the creditor,

collecting debts for such creditor;
2. any person while acting as a debt collector for another person, both of
whom are related by common ownership or affiliated by corporate control,
if the person acting as a debt collector does so only for persons to whom it
is so related or affiliated and if the principal business of such person is not
the collection of debts;
3. any officer or employee that aims at collecting or attempting to collect any
debt in the cause performance of his official duties;
4. any person while serving or attempting to serve legal process on any other
person in connection with the judicial enforcement of any debt;
5. any non-profit organization which, at the request of consumers, performs
bona fide consumer credit counselling and assists consumers in the
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 liquidation of their debts by receiving payments from such consumers and
distributing such amounts to creditors;

The term "location information" means a consumer's place of abode and his
telephone number at such place, or his place of employment.

Any debt collector communicating with any person other than the consumer for
the purpose of acquiring location information about the consumer shall –

1. Identify himself, state that he is confirming or collecting location information

concerning the consumer, and, only if expressly requested, identify his
employer;
2. not state that such consumer owes any debt;
3. not communicate with any such person more than once unless requested to
do so by such person or unless the debt collector reasonably believes that
the earlier response of such person is erroneous or incomplete and that such
person now has correct or complete location information;
4. not communicate by post card;
5. not use any language or symbol on any envelope or in the contents of any
communication effected by the mails or telegram that indicates that the debt
collector is in the debt collection business or that the communication relates
to the collection of a debt; and
6. After the debt collector knows the consumer is represented by an attorney
with regard to the subject debt and has knowledge of, or can readily
ascertain, such attorney's name and address, not communicate with any
person other than that attorney, unless the attorney fails to respond within a
reasonable period of time to the communication from the debt collector.

3.1.12 COMMUNICATION IN CONNECTION WITH DEBT COLLECTION

Communication with the consumer generally. Without the prior consent of the
consumer given directly to the debt collector or the express permission of a court
of competent jurisdiction, a debt collector may not communicate with a
consumer in connection with the collection of any debt --

 At any unusual time or place or a time or place known or which should

be known to be inconvenient to the consumer. In the absence of
knowledge of circumstances to the contrary, a debt collector shall
assume that the convenient time for communicating with a consumer is

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 after 8 o'clock am and before 4 o'clock pm , local time at the
consumer's location;
 if the debt collector knows the consumer is represented by an attorney
with respect to such debt and has knowledge of, or can readily
ascertain, such attorney's name and address, unless the attorney fails to
respond within a reasonable period of time to a communication from the
debt collector or unless the attorney consents to direct communication
with the consumer; or
 At the consumer's place of employment if the debt collector knows or
has reason to know that the consumer's employer prohibits the consumer
from receiving such communication.

COMMUNICATION WITH THIRD PARTIES. Except as provided in the section of

Nigeria Law, without the prior consent of the consumer given directly to the debt
collector, or the express permission of a court of competent jurisdiction, or as
reasonably necessary to effectuate a post judgment judicial remedy, a debt
collector may not communicate, in connection with the collection of any debt,
with any person other than a consumer, his attorney, a consumer reporting
agency if otherwise permitted by law, the creditor, the attorney of the creditor, or
the attorney of the debt collector.

CEASING COMMUNICATION. If a consumer notifies a debt collector in writing

that the consumer refuses to pay a debt or that the consumer wishes the debt
collector to cease further communication with the consumer, the debt collector
shall not communicate further with the consumer with respect to such debt, except
--

 to advise the consumer that the debt collector's further efforts are being
terminated;
 to notify the consumer that the debt collector or creditor may invoke
specified remedies which are ordinarily invoked by such debt collector or
creditor; or
 Where applicable, to notify the consumer that the debt collector or creditor
intends to invoke a specified remedy. If such notice from the consumer is
made by mail, notification shall be complete upon receipt.
 For the purpose of this section, the term "consumer" includes the consumer's
spouse, parent (if the consumer is a minor), guardian, executor, or
administrator.

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3.1.13 Harassment or abuse

A debt collector may not engage in any conduct the natural consequence of
which is to harass, oppress, or abuse any person in connection with the
collection of a debt. Without limiting the general application of the foregoing,
the following conduct is a violation of this section:

1. The use or threat of use of violence or other criminal means to harm the
physical person, reputation, or property of any person.
2. The use of obscene or profane language or language the natural
consequence of which is to abuse the hearer or reader.
3. The publication of a list of consumers who allegedly refuse to pay debts,
except to a consumer reporting agency or to persons meeting the
requirements
4. The advertisement for sale of any debt to coerce payment of the debt.
5. Causing a telephone to ring or engaging any person in telephone
conversation repeatedly or continuously with intent to annoy, abuse, or
harass any person at the called number.
6. Except as provided, placement of telephone calls without meaningful
disclosure of the caller's identity.

3.1.14 False or misleading representations

A debt collector may not use any false, deceptive, or misleading representation
or means in connection with the collection of any debt. Without limiting the
general application of the foregoing, the following conduct is a violation of this
section:

1. The false representation of -- the character, amount, or legal status of any

debt; or any services rendered or compensation which may be lawfully
received by any debt collector for the collection of a debt.
2. The false representation or implication that any individual is an attorney or
that any communication is from an attorney.
3. The representation or implication that non-payment of any debt will result in
the arrest or imprisonment of any person or the seizure, garnishment,
attachment, or sale of any property or wages of any person unless such
action is lawful and the debt collector or creditor intends to take such
action.

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4. The threat to take any action that cannot legally be taken or that is not
intended to be taken.
5. The false representation or implication that a sale, referral, or other transfer
of any interest in a debt shall cause the consumer to -- lose any claim or
defense to payment of the debt; or become subject to any practice
prohibited by this title.
6. The false representation or implication that the consumer committed any
crime or other conduct in order to disgrace the consumer.
7. Communicating or threatening to communicate to any person credit
information which is known or which should be known to be false,
including the failure to communicate that a disputed debt is disputed.
8. The use or distribution of any written communication which simulates or is
falsely represented to be a document authorized, issued, or approved by
any court, official, or agency, or which creates a false impression as to its
source, authorization, or approval.
9. The use of any false representation or deceptive means to collect or
attempt to collect any debt or to obtain information concerning a
consumer.
10. The failure to disclose in the initial written communication with the
consumer and, in addition, if the initial communication with the consumer is
oral, in that initial oral communication, that the debt collector is attempting
to collect a debt and that any information obtained will be used for that
purpose, and the failure to disclose in subsequent communications that the
communication is from a debt collector, except that this paragraph shall
not apply to a formal pleading made in connection with a legal action.
11. The false representation or implication that accounts have been turned
over to innocent purchasers for value.
12. The false representation or implication that documents are legal process.
13. The use of any business, company, or organization name other than the
true name of the debt collector's business, company, or organization.
14. The false representation or implication that documents are not legal
process forms or do not require action by the consumer.
15. The false representation or implication that a debt collector operates or is
employed by a consumer reporting agency.

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 3.1.15 Unfair practices

A debt collector may not use unfair or unconscionable means to collect or

attempt to collect any debt. Without limiting the general application of the
foregoing, the following conduct is a violation of this section:

1. The collection of any amount (including any interest, fee, charge, or

expense incidental to the principal obligation) unless such amount is
expressly authorized by the agreement creating the debt or permitted by
law.
2. The acceptance by a debt collector from any person of a cheque or other
payment instrument post-dated by more than five days unless such person is
notified in writing of the debt collector's intent to deposit such cheque or
instrument not more than ten nor less than three business days prior to such
deposit.
3. The solicitation by a debt collector of any post-dated cheque or other post-
dated payment instrument for the purpose of threatening or instituting
criminal prosecution.
4. Depositing or threatening to deposit any post-dated cheque or other post-
dated payment instrument prior to the date on such cheque or instrument.
5. Causing charges to be made to any person for communications by
concealment of the true purpose of the communication. Such charges
include, but are not limited to, collect telephone calls and telegram fees.
6. Taking or threatening to take any non-judicial action to effect dispossession
or disablement of property if -- there is no present right to possession of the
property claimed as collateral through an enforceable security interest; there
is no present intention to take possession of the property; other property is
exempt by law from such dispossession or disablement. Communicating
with a consumer regarding a debt by post card.
7. Using any language or symbol, other than the debt collector's address, on
any envelope when communicating with a consumer by use of the mails or
by telegram, except that a debt collector may use his business name if such
name does not indicate that he is in the debt collection business.

3.1.16 Validation of debts

(a) Within five days after the initial communication with a consumer in connection
with the collection of any debt, a debt collector shall, unless the following

65
 information is contained in the initial communication or the consumer has paid
the debt, send the consumer a written notice containing --

(1) The amount of the debt;

(2) The name of the creditor to whom the debt is owed;

(3) A statement that unless the consumer, within thirty days after receipt of the
notice, disputes the validity of the debt, or any portion thereof, the debt will be
assumed to be valid by the debt collector;

(4) A statement that if the consumer notifies the debt collector in writing within
the thirty-day period that the debt, or any portion thereof, is disputed, the debt
collector will obtain verification of the debt or a copy of a judgment against
the consumer and a copy of such verification or judgment will be mailed to the
consumer by the debt collector; and

(5) (a) A statement that, upon the consumer's written request within the thirty-
day period, the debt collector will provide the consumer with the name and
address of the original creditor, if different from the current creditor.

(b) If the consumer notifies the debt collector in writing within the thirty-day
period described in subsection (a) that the debt, or any portion thereof, is
disputed, or that the consumer requests the name and address of the original
creditor, the debt collector shall cease collection of the debt, or any disputed
portion thereof, until the debt collector obtains verification of the debt or any
copy of a judgment, or the name and address of the original creditor, and a
copy of such verification or judgment, or name and address of the original
creditor, is mailed to the consumer by the debt collector.

(c) The failure of a consumer to dispute the validity of a debt under this section
may not be construed by any court as an admission of liability by the
consumer.

3.1.17 Multiple debts

If any consumer owes multiple debts and makes any single payment to any debt
collector with respect to such debts, such debt collector may not apply such
payment to any debt which is disputed by the consumer and, where applicable,
shall apply such payment in accordance with the consumer's directions.
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  Legal actions by debt collectors

(a) Any debt collector who brings any legal action on a debt against any
consumer shall --

(1) In the case of an action to enforce an interest in real property securing the
consumer's obligation, bring such action only in a judicial district or similar legal
entity in which such real property is located; or

(2) In the case of an action not described in paragraph (1), bring such action only
in the judicial district or similar legal entity --

(A) In which such consumer signed the contract sued upon; or

(B) In which such consumer resides at the commencement of the action.

(b) Nothing in this title shall be construed to authorize the bringing of legal actions
by debt collectors.

 Furnishing certain deceptive forms

(a) It is unlawful to design, compile, and furnish any form knowing that such form
would be used to create the false belief in a consumer that a person other than the
creditor of such consumer is participating in the collection of or in an attempt to
collect a debt such consumer allegedly owes such creditor, when in fact such
person is not so participating.

(b) Any person who violates this section shall be liable to the same extent and in
the same manner as a debt collector is liable for failure to comply with a provision
of this title.

3.2 CREDIT FILES

3.2.1 CONTROL

1. Credit files are strictly confidential and must be kept in locked steel and
fireproof cabinets when not in use. Only senior officers, Account Officers,
and RMG Staff will have access to credit files. All credit files must be
returned to the Credit Department each day, but if this is not practical,
they must be kept under lock in steel cabinets overnight. Under no
67
 circumstances should credit files be removed from the bank premises
except by order of a competent court of law.

2. It will be the responsibility of CAD to track the movement and custody of

credit files by having an adequate record keeping system in place.

3. Only photocopies of documents in credit file shall be released to eternal

Solicitors or Recovery Agents.

4. Pagination of files is also desirable to prevent or detect unauthorized

removal of some pages in the files. This will enable a check at a glance.

3.2.2 ORGANIZATION

All credit files must, at minimum, contain the following:

1. Borrower’s application for facility.

2. Basic Information Report/Account Plan
3. Financial Statements details/spreads
4. Legal documents executed by the borrower committing him to the
transaction.
5. Documentation.
6. Collateral/Site Inspection and Call Reports.
7. Customer Correspondence.
8. Internal Correspondence.

For ease of reference, it is recommended that the first section in each file should
contain the credit approvals, filed in chronological order.

3.2.3 CROSS REFERENCE

When lending to groups, including cooperatives, societies etc a separate file

should be maintained for each borrowing entity and consolidated file maintained
for the group. The group and individual files must be cross-referenced to related
entities.

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 3.2.4 CULLING AND RETENTION OF FILED MATERIAL

Except for classified credits all files must be culled periodically and at minimum
once annually at the time of each annual review. Culling of credit files will be the
responsibility of RMG. All culled material should be stored for a period of three
years after final adjustment/repayment of the customers’ liability.

The following retention periods are recommended:

1. Credit Approvals - Current plus two years.

2. Basic Information Reports - Most current.
3. Account Plan - Most current.
4. Spreads - Last three financial years, plus most current projections.
5. Credit Checking - most current: adverse checkings in Permanent
Section.
6. Documentation - All legal correspondence to be permanently retained.
Original legal documentation should be kept in the vault, with
photocopies only in the Credit file.
7. Correspondence - Last 12 months.
8. Collateral Inspection Report - Most current.
9. Valuation reports- Most recent

3.3 COLLATERAL STATEMENTS

1. Where we hold a charge over inventory and/or receivables, all

borrowers will be required to submit monthly statements of all stocks and
receivables within 15 days of each month end. Stock statements must
indicate opening and closing stocks of all finished goods, work in
progress raw materials and stores and spares.

2. It will be the responsibility of the CAD to check these submissions and

report any omissions to the concerned Account Officer, with copy to the
Managing Director/Chief Executive Officer.

3.4 COLLATERAL INSPECTIONS

1. For all loans secured by a charge over either inventory or receivables or

both, collateral inspections must be carried out at least quarterly either by
69
 a competent bank employee or, preferably, by an outside professional
agency. Any deviations from inspection requirements must be approved
by the required level of approval for the credit.

2. It is expected that if an outside agency is used, the charges for such

inspections must be negotiated and billed to the customer with his
consent.

3. Whenever collateral inspections are required subsequent to lending, the

new requirement should be clearly communicated in writing to the
customer and he should be aware that the Bank will make random calls
on him without prior notice.

4. The objective of a collateral inspection is two-fold:

1. Perform a physical count of the client's stock or receivables and

verify numbers against latest inventory report.

2. Meet with the business client on a surprise basis and see how he
runs the plant/keeps his books in true form (i.e. without regard to
preparations for external inspections, etc...).

5. Bearing the above in mind, our approach to the collateral inspection will
therefore be as follows:

1. Prepare an internal time schedule of relevant customers and visit

them on those dates without prior notice. Even if the principal
contact (e.g. Chief Accountant or Financial Controller) is not
available the next person in line should be contacted.

2. The meeting should always start with a discussion with this contact
on general issues affecting the company's operations i.e.

- Present state of plant, or business, e.g. is it running smoothly

and producing to capacity?

- If a trader in any of our market branches enjoying inventory

finance, estimate value of stock.
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 - Number of shifts/employees.

- Any market problems affecting the company?

3. Review company's order book for the month and also review the
stocks/receivables ledger as of the nearest date and make a
physical check of stocks against the stock ledger.

A collateral inspection could also be combined with a site visit. During the tour, the
reviewer should make observations on all aspects of the company facility and ask
any relevant questions. It is recommended to take photograph on such visit. This is
especially appropriate on site visit and can be very useful to demonstrate progress
between visits.

3.5 COLLATERAL VALUATION METHOD

The following professionals shall be used in valuation of security for the loan. By
security, we mean immovable property such as land and house.
1. Professional valuers
2. Estate surveyors
3. Legal practitioners to conduct search

The findings of professionals which shall be received by way of report will form
basis of opinion as to acceptability of collateral or otherwise.
 REGISTRATION OF SECURITY
Standard register shall be maintained for registration of all collaterals into a
hard copy and soft copy registration system.The collateral shall be kept in a Fire
proof cabinet.
 UNACCEPTABLE COLLATERAL
The following categories of collateral shall be totally rejected for the purpose of
securitisation.
1 Land /house outside the Abuja is unacceptable. This is because Abuja is our
core jurisdiction.

2. Land/house whose Force Sale Value is less than 200% of facility amount.
3. Land/ house that is located in bad topography area.
4. Land / house with negative search report.

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 5. Land with symbols of dispute, with court orders on them or court has taken
possession.
6. Land without Certificate of Occupancy.
7. Fairly used cars are not acceptable

3.6 COLLATERAL SALES PROCEEDS:

Sales proceeds from collateral sold are credited to the obligor’s loan account or
the servicing account upon classification. The sale value is usually higher than
exposure to the bank, hence, balance after delinquency satisfaction is left for the
customer to access. Prior to sales of collateral, sales notification is issued to the
customer to further carry them along in the sales exercise in line with agreements
abinitio. All fees as agreed from the contract inception are applied accordingly.
 Sales agreement and process conditions:
 Notification of intention to sell collateral
 Collateral is sold at FSV and not Market value which is predetermined at
inception of loan.
 Collateral is usually 200% of the loan sum i.e. FSV
 Collateral is usually valued by estate valuer who has professional license
 Cost incurred in the course of disposing of a collateral is clearly made
known to borrower.
 Cost of perfecting the collateral is made known to customer
 Force Sale value is 70% of open market value
 Net off loan value and make reasonable amount left for customer

3.7 CALL MEMORANDUM

Frequency of customer contact, levels contacted and the nature of calls are usually
determined by the type of relationship and its problems or potential. However, the
following guidelines on the frequency and scope should be considered:

3.7.1 FREQUENCY

Non-classified relationships - Once a month minimum.

Classified Credits - Twice a month or as dictated by

the established action plan in each situation. Frequency of visit must
be flexible because of the volatility of the Nigerian business landscape.

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 3.7.2 SCOPE

For non-classified credits, a detailed call memorandum should be prepared

quarterly covering all marketing issues as they relate to the Marketing Plan,
and an overall financial and qualitative update. For classified credits,
fortnightly or monthly call memos, co-related to the action plans for the credit,
plus financial updates. Some classified credits require close monitoring.

3.7.3 PROSPECTS

For all prospects on the Target Market list, each Account Manager must
maintain at least a twice monthly calling frequency, and all call reports must
be circulated to Credit Department before filing. A system should be in place
to ensure timely follow-up action. Possible conversion dates for the
commencement of the borrowing relationship should be reported.

3.7.4 RELATIONSHIP UPDATE

For all key relationships, the Bank should perform a semi-annual relationship
update (in-between annual reviews) addressing:

- Interim financial performance

- Major developments within the company

- Any negative industry developments that may affect the customer

- Overall progress against our credit and marketing expectations

- Value chain possibilities and future potentials in the relationship

3.8 CHECKINGS

3.8.1 BANK/TRADE

Formal and informal reports obtained from outsiders can represent an

important independent source of information on our customers. Formal
checkings constitute those obtained from banks and, in some markets, from
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the trade (suppliers, buyers, etc.). Informal reports are usually obtained on
probing, are verbal, as those obtained from competitors and customers, and
are usually more reliable and useful than any checkings obtained in writing.
Such information must be subjected to scrutiny and must be double-checked
as some can be misleading and overstated.

Formal Bank checkings must be obtained on all customers once a year. For
unstructured companies/borrowers, checking must be more frequent.

Formal trade checkings must be obtained with similar frequency. Irrespective

of whether formal trade checkings are available or not, Account Officers
should informally contact a cross-section of the market (competitors,
customers, suppliers, etc. of the subject of enquiry) on the general financial
standing of the customer. Care, discretion and tact will obviously be required
in soliciting this kind of information, so as not to embarrass either the bank or
the borrower. As in every situation, this will require good judgement on the
part of the Account Officer. All information obtained must be recorded in the
Credit file.

Print and none print media can also afford the bank some useful information
on trade checking.

3.8.2 REGISTRAR CHECKING

Prior to accepting any charge over a company's assets, a search must be

carried out at the appropriate government department to confirm that no prior
charges have been registered against the security being offered. This
exercise must be repeated with each renewal request to ensure that our
security position remains unchanged and has not been diluted by the assets
being charged to another lender during the year under review and that
security is free from encumbrances (landed properties)

Where such official records are not easily accessible, the services of an
approved notary or lawyer may be required.

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3.9 REVIEW OF OVERDRAFTS/EXCESS

REVIEW

The Group Credit Officer shall be responsible for a weekly review of all
temporary overdrafts and excesses over approved lines. In so doing, the
officer will ensure that the necessary follow-up has been implemented to
regularize the overdraft or excess.

In addition, the following procedures will apply:

- All Temporary Overdrafts (TODs) must have the prior Executive

Management’s approval except where such approval has been
delegated to other officers of the bank in any manner hereinbefore or
hereinafter described.

- No Temporary Overdraft granted under delegated authority should be

outstanding for more than seven calendar days.

- If not liquidated within 10 days, the TOD should be regularized by

restructuring into a regular loan or advance facility.

- If however, it is outstanding for 30 days or more without any effort to

restructure into a formal loan, or if it is restructured but the repayment
schedule is not followed, it should be transferred to Past Due Obligations.

- Any officer of the Bank found culpable for any unauthorized overdraft
shall be held responsible to regularised. Drastic measures shall be
adopted to enforce this rule including offloading such debit into such
officer’s account and if the trend persist, the affected staff may face
greater sanctions including disengagement from service.

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 SECTION FOUR
PROCEDURE AND PRACTICE

4.1 CREDIT PACKAGES: FULL ANALYSIS

 RELATED HIGHLIGHTS IN CREDIT ANALYSIS

1. Analyst prepares statement of comprehensive income of borrower where

expenses and incomes are juxtaposed. Expenses such as Administrative
expensive, selling, other bills, educational expense, and distribution
expenses and other general expenses. Fortis also prepare debt ratio
analysis such as loan-stock ratio, debtor collection period, debt to sale,
returned on capital employed.
2. Gross profit and Net profit of business is calculated to obtain profit.
Income and expenditure analysis of business.
3. Repayment capacity is determined via adequacy of cash flow occasioned
by high level of stock turnover.

 LOAN PRODUCTS ENVIRONMENTAL AND SOCIAL FACTORS IN

ANALYSIS

In the bank’s loan analysis process, attention is given to environmental and

social factors that can largely affect the loan repayment and all other related
issues. In doing this, products are segmented and streamlined to fit in to
what season we are to lend high and when to lend low in line with the
bank’s risk appetite and acceptance criteria.
Seasonal analysis is done on Agricultural loan, block molding business,
table water production and similar industry analysis.

4.1.1 BORROWER INFORMATION/BACKGROUND ANALYSIS

In analysing customer’s application, background information about him and

his business are very vital. These include name, nature of business, location,
volume and the extent of relationship with the Bank. In analyzing the credit
analyst must insist on all necessary/requisite documents and information for a
particular facility as collection of same in bit and pieces will result in time
wastage and loss of man hour.

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4.1.2 FINANCIAL/CASH FLOW ANALYSIS

Here the financials of the borrower are analysed. This is to establish the
extent of apportionment of capital. This analysis would show the cash flow
pattern, capital allocation, and the prudence or otherwise of management of
the business. Of vital importance here are financial statements, bank
statements, sales records, stock purchases ledgers and oral information. Care
must be taken to detect irregularities in these records since borrowers may
present false information to facilitate their requests. Dexterity in spread sheet
and balance sheet analysis is a must for the designated officer.

4.1.3 CHARACTER CHECK/WILLIGNESS

Recourse should be made to other banks as well as borrower’s competitors.

Confidential enquiries could be made to ascertain the credit worthiness of
any applicant. Sources of such information must not be divulged to the
applicant and findings in such enquiries are confidential. Customer’s
character can also be checked through regular visits to the customer’s house
and interaction with some relations and business associates.

4.1.4 CAPACITY/ABILITY

To determine borrower’s capacity to properly manage funds if availed,

recourse should be made to the average turnover he/she does per chosen
time. If facility is required for working capital, it is not advisable to drastically
migrate such applicant beyond the limits he/she does. The basic rule is to
approve the maximum of 100% of average monthly turnover sampled for a
six months period. If the facility is meant to be repaid over several months, no
single instalment should be more than the average turnover borrower makes
within the same period. However, for start-up businesses which may not have
a prior cash flow records, the business plan would indicate the cash flow
projections which must be studied carefully to guide the decision to be made.
Such cash flow must be realistic and realisable before it can be admitted and
adopted as a basis for sanctioning transaction.

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 4.1.5 COLLATERAL/FALL BACK

For the purpose of this manual collateral is anything of value that makes the
bank comfortable to advance money to a borrower. It could be landed
property, cheque, vehicle, share certificates, or any other commitment the
value of which must be at least 120% of the total value of facility being
sought. For shares, a minimum of 150% cover must be obtained to put the
bank in a point of strength and only shares of blue chip and multinational
companies would be considered acceptable. Care must be taken to verify all
title to property pledged as collateral. Where such property belongs to a
third party, he/she must execute the 3rd party legal mortgage form to indicate
a willingness to part with the property if the borrower fails to pay up the
facility.

Collateral must be something the value of which is either constant or keeps

on appreciating. It must not be an illegal commodity and must be something
the borrower would not ordinarily be willing to part with. For long term loans,
collaterals must be reviewed twice a year to ascertain their validity and
value. Where the value depreciates, borrower should be required to update
it by bringing additional collateral.

Note: Lending against negative pledge and goodwill shall be discouraged

4.1.6 CAPITAL/EQUITY

Borrower’s capital in the business and returns on same would determine the
extent of financial viability of the business. The bank should be interested in
sponsoring the proposed business activity because of the prospects it has for
growth. If working capital is being eroded by expenses, it would mean the
business is not doing fine. If the bulk of the capital is being used on
overheads, then there is an indication that the business is nose-diving.

4.1.7 CONDITION

Social, economic, and political conditions in the business environment must

not be ignored. Here the analyst must keep track of the social environment
to see factors that might adversely affect borrower’s business. If the
proposed activity is generally unacceptable within the location of borrower’s
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 business, embarking on it will be inviting for trouble. The political
environment may also be chaotic and unstable thus having adverse effect
on business. In such instances lending must be done cautiously. Government
regulation may also bar certain activities which the bank must not support.
Some conditions can also be imposed on a borrower to check their
activities. Such may range from restriction from paying dividends,
incremental borrowing, public donations etc.

4.1.8 PROFITABILITY ANALYSIS/YIELD

This is where the interest and fees chargeable on the facility are computed
and estimated expenses on same deducted to show the return on amount to
be approved. When the percentage return is good, and given that all other
pointers are also favourable, the Credit Analyst might recommend the facility.
The return on amount is weighed against the cost of processing the facility
from application up to full recovery.

4.1.9 JUSTIFICATION

This is where reasons are deduced as to why the facility should be given.
These are drawn from the background analysis, cash flow analysis and
profitability analysis, value chain and composite value of the transactions.

4.1.10 RISKS ANALYSIS/WAYS OUT/MITIGANTS

1. This is a very important part of the credit application remarks and must
draw from both historical and projected results to determine specific
vulnerabilities of a specific borrower, and why the risks are acceptable
or not. As a general rule, each loan will have at a minimum, two ways
out: the first one being the company's cash flow generation, the second
one being exercising rights on the security.
2. A very clear statement on the number of ways out should be made to
determine how the risks are hedged. A comment on market value and
solvability of security is desirable. Where we have a charge over assets,
the analysis should also include a liquidation analysis, which takes into
account a conservative and realisable market value of the assets.

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This section should also specifically address all the risks associated with the
borrower, as well as the industry and then address all the mitigants. Risk analysis
must be scientific and show clearly if risk is measurable and within the (RAC) Risk
Acceptance Criteria of the bank. A good risk analysis will also help approving
authority to determine the extent of exposure and whether identified mitigants are
potent enough to handle the said risks. History is usually the best example of a
company's ability to cope with the future and to the extent that they have failed
or succeeded in the past, we can draw some conclusions on the future. Every
borrower has weaknesses. We must analyze these objectively. Risk could be
internal (micro: management, financial structure, poor product quality, outdated
technology etc.) or external (macro: price controls/declining market demand,
credit ceilings, supply, distribution, import controls, etc.).

4.1.11 STRATEGY AND RECOMMENDATION

1. Finally, the analysis of all the above must translate into specific credit
recommendations indicating purpose and whether the recommendations
are consistent with the risk and the client's needs.

2. Specific line recommendations, must also be consistent with an overall

relationship strategy which could be one of three – stay, increase
exposure or work-away (usually applies to no Target Market names or
classified IIs and worse). For classified credits, the recommendation
should provide action plan, triggers and target dates.

4.1.12 BASIC INFORMATION REPORTS (BIRs)

The BIR is intended to be a compressed but comprehensive profile on the

borrower, and should communicate to the reader all essential facts. The report
should state if relationship is existing or a new connection. All blocks should be
completed in as much accurate and relevant detail as possible. The BIR should
contain factual information on management/key decision makers (i.e. age,
number of years with the company, previous experience) whereas the CA
Remarks should highlight changes over the year, e.g. key position changes,
introduction of critical management process, etc.; As much relevant continuing
data is possible (on management, or products) should be loaded onto the BIR.

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4.2 CREDIT PACKAGES: CHEQUE PURCHASE LINES, BONDS AND GUARANTEES

1. Where withdrawals are authorized against uncollected funds, there is a

potential exposure for the bank in the event that an instrument is returned
unpaid while we have already advanced the customer some funds under
the expected payment.

2. Similarly, whenever the Bank issues bonds or guarantees to third parties,

unless these are supported by 100% cash collateral, there is a potential
credit risk, which should be addressed before the issuance of such
guarantees. As a rule, all guarantees should be 100% secured by cash
collateral or alternatively, a corresponding secured credit line.

3. The following preparation guidelines will apply:

1. Credit Application face and brief remarks

2. BIR

3. Marketing Plan

4. Audited accounts for all corporate names should be requested.

5. Where feasible, bank checkings should be obtained from drawee's

banks (i.e. where funds are regularly received from the same
source).

6. Recourse Agreements approved by legal counsel and signed by

authorised signatories are required for all cheque purchase lines.

7. Guarantees are generally 100% cash collateralized but where

such cover is not available, a full risk analysis must be performed.

8. Facilities must be reviewed annually.

9. The Customer Service Unit must be provided with a copy of the

approved Credit Application face.

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4.3 CREDIT PACKAGES: PERSONAL OR POLICY LOANS

1. Credit packages recommending policy loans should contain a Credit

Application with a remarks section. The remarks page should cover:

- Purpose/line structure
- Relationship Background
- Justification for Credit Extension
- Security Support
- Recommendation

2. A policy loan is defined as a loan made to:

- An individual (except a staff member)

- To an entity where the proprietorship is used essentially for personal
accommodation.

3. The following procedural guidelines will apply:

- All Policy loans must carry the full Executive Management approval
including the Managing Director/Chief Executive Officer.
- Borrowers will be confined to individuals associated with Tier I
Group of customers only.
- Amounts must not exceed single obligor limit as defined by CBN.
- Tenor must not exceed two (2) years; because of this,

- Real estate loans are specifically excluded from the Personal loans
program.

4. All exceptions to the above will require the approval of the Board. In
addition, once a year as of December 31, the Bank must prepare a
summary of all outstanding Policy loans and submit the summary to the
Bank’s Board of Directors for review The report should be in the following
format and must be submitted by January 31 of following year.

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 PERSONAL OR POLICY LOANS REPORT

NAME OF CORPORATE APPROVED OUTSTANDINGS SECURITY/ EXPIRY

BORROWER AFFILIATION FACILITIES (000) SUPPORT DATE
(000)

4.4 PROCEDURES FOR GROUP LENDING

Fortis Microfinance Bank shall lend both to individuals and to groups. These could be
private individuals or juristic persons. It could also be groups. Lending to groups is
easy when such groups are formally registered with any relevant government agency.
Where they are not registered more work will be involved in processing the group to
make it lendable. This section describes the procedures for lending in each case.

4.4.1 FORMAL GROUPS

These are organizations, co-operatives or associations formally registered with

government regulatory bodies. In this case the Registration Certificate,
Constitution as well as Memorandum and Articles of Association give details of
the leadership and operations of such group.

Formal groups must operate a corporate current account with the Bank to
qualify for any loans. Each beneficiary under the group for the group loan shall
also open an account. Both will be required to operate these accounts
satisfactorily in order to qualify to benefit from a credit facility.

Lending here will be done to the group and funds disbursed through the group’s
account for onward remittance to the individual beneficiaries after fees are
taken. One offer letter shall be made to the group to be accepted by the
executives. It shall state the total sum approved to the group and make
reference to the approved list of beneficiaries. Each beneficiary shall also be
issued with a contract letter stating the terms and conditions of the offer and the
modalities for repayment. Repayment will be done by the individuals through
deposits into the group account and the sum taken by the bank.

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4.4.2 INFORMAL GROUPS

These are groups without registration with any regulatory agency. Lending to
such groups is difficult because the law does not recognize their existence.
Such groups cannot possibly have corporate accounts with the Bank but
individual members must have personal accounts in order to benefit from any
credit facility. In any case there is always a common factor that has brought
such group together. Their application for facility would be treated as a group
application but only those individuals that qualify will be issued contract letters
based on the approval. Funds will be disbursed directly into such personal
accounts and repayment also processed directly from there. A letter of comfort
from the group should be obtained as quasi-commitment of the group in the
transaction.

4.4.3 GUARANTEES UNDER GROUP LOANS

Group loans have dual guarantees. Under formal groups the EXCO members
shall give personal guarantees each for the group loan. Individual beneficiaries
shall also give cross guarantees for the group sum. In this way the group as
well as each individual beneficiary shall be responsible for the recovery of the
last amount advanced by the Bank under the facility.

Informal groups however would need a guarantor who is not a beneficiary

under the facility being sought. In addition they shall provide cross guarantees
for the total sum applied for under the group.

Where necessary, the bank shall divide the whole group into sub-groups and
advance facilities in batches getting those benefitting at present to be
guaranteed by those on the waiting list. In this way those who are awaiting
their turn will prompt the current batch to hasten and pay off so they too could
enjoy the facility.

Cross guarantees are essential in group lending because the group itself can
expunge those that have poor credit history among them.

4.4.4 GROUP BONDING

The Bank shall create groups for the purpose of lending where none existed
prior to the request for the facility. The need for grouping may arise in order to
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 secure the funds to be advanced especially where individual applicants find it
difficult to get a guarantor. In bonding them together some commonalities shall
be looked for, for example, nature of business, location of business, amount
applied for, sex, or any other factor that may facilitate bonding. The essence of
bonding is to ensure that the beneficiaries themselves serve as a check on one
another for the purpose of repayment.

4.5 AVAILMENT/OFFERING TICKETS

4.5.1 AVAILMENT TICKET

Under normal process guidelines, the Bank will prepare a credit package, take it
through all approval steps and obtain all the necessary documentation before
releasing the line for customer use. If this has been accomplished, and provided
that the same product, limits, and the tenors approved in the Credit Application
are being availed, then the disbursement, whether done in the loans department,
or over the counter, represents an availment. For transactions other than availments
under facilities for advances in current account, an availment ticket (AT) will be
prepared for securing approvals in accordance with the guidelines in Section One
of this Manual.

4.5.2 OFFERING TICKET

In exceptional situations, the bank may be requested to do a one-off transaction

where production of a full CA package would not be warranted. For such
situations, the processing of the disbursement can be on an offering basis, and an
Offering Ticket (OT) can be prepared for securing the necessary approval as per
Section One of this Manual. OT approval is also appropriate if credit facilities
have been approved, but not all conditions have been complied with.

4.5.3 ROUTING/TRANSACTION DYNAMICS

1. Except for overdrafts (where an availment ticket is done for the line not for
individual debits), all disbursement requests should be routed through
operating departments who will review the request and prepare a ticket
describing the proposed transaction.

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 2. This ticket, along with supporting documents will be passed to the Credit
Administration Department, which will indicate the approval lines, and
present outstandings and whether the documentation is complete and in
order. The Credit Department will also state whether or not the transaction
is within lines and pass the ticket to the Account Officer.

3. The Account Officer will confirm the pricing for the transaction, obtain
necessary Executive Management approval and (in the case of OTs)
indicate time frame for correcting the irregularities on the transaction (eg.
formalising the transaction as a facility, obtaining missing documentation,
etc….).

4. The Account officer will pass the ticket to the Credit Administration
Department, which will confirm that the approvals are regular and return
the tickets to the Operating Department for processing.

5. After processing, the Operating Department should photocopy each ticket

and pass on a copy (if this is an AT) to the Credit Administration
Department against the proper initials. In the case of OTs originals will be
kept by the Credit Administration Department, while the Operating
Department will keep a copy, also initialled by the Credit Administration
Department.

For ease of reference by Customer service and other Operating

Departments, copies of all approved CAs and any amendments thereof
should be made available to all such units.

4.6 INTEREST EARNED NOT COLLECTED

1. Interest earned on advances in current account may be debited to the

customer’s account to create an OD (Overdraft) provided that the excess
over the approved line is liquidated within 7 days. If after a period of 30
days from original booking date this OD is not liquidated, it should be
reversed out of income (i.e. crediting Interest Earned not Collected and
debiting Profit and Loss – Adjustments and Refunds of Profits Previously
Taken).This process should be monitored ardently. Warehousing interest in
a separate account and reversals as well as P and L issues are delicate

86
 transactions. All transactions of this nature must be checked and approved
by appropriate authorities before deals are consummated.

2. With regard to interest on temporary overdrafts, since TODs by definition

are temporary and should be cleared within 7 days, interest on TODs may
be debited to the customer’s account, but if principal is unpaid after 90
days, the TOD should be transferred to non-accrual and interest accrual
reversed out of income.

4.7 PAST DUE OBLIGATIONS - NON ACCRUAL ASSETS

4.7.1 SCHEDULE FOR TRANSFER OF ASSETS TO PAST DUE OBLIGATIONS

Loans and Advances: These assets are transferred to PDO according to

the following schedule:

1. Single payment loans that are unpaid 15 days after maturity.

2. Single payment loans and demand notes with interest payable at

stated intervals where an interest payment is due and unpaid for
15 days. When an interest payment is past due, the entire unpaid
principal must be transferred to Past Due Obligations.

3. An instalment that is unpaid (principal or interest) for 30 days on

consumer, mortgage, or term corporate instalment loans. When an
instalment is past due, the entire unpaid balance must be
transferred to Past Due Obligations.

4. Casual overdrafts not paid within 15 days. Overdrafts extended

under formal lines are considered past due when not covered per
the terms of the underlying agreement or in any event 15 days after
the line has expired.

5. Advances under Letters of Credit: Any outstanding items

exceeding 30 days will be transferred to PDO automatically by the
Operating Department.

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 6. Bills Negotiated: Cheques purchased will be transferred to PDO if
they remain unpaid for 30 days.

7. Bills Discounted: Will be treated as single payment loans.

4.7.2 RESPONSIBILITY FOR LIQUIDATION OF PAST DUE OBLIGATIONS

1. Where a new PDO is created, it is the responsibility of the Account

Officer to ensure follow-up to obtain liquidation.

2. The impact of the creation of a PDO item on an account relationship

should result in our taking a close look as to continued accommodation
although as a general rule no further credit, irrespective of lines, will be
permitted until the PDO item is liquidated and only then after full Executive
Management approval.

4.7.3 TRANSFER TO NON-ACCRUAL STATUS

(i) If interest and/or principal remains unpaid for a period of 90 days

from the date due (and not from date of transfer to PDO), all
outstanding to the borrower should be transferred to PDO - Non-
Accrual and all unpaid interest reversed out immediately to the
debit of Profit and Loss - Adjustments and Refunds of Profits
Previously Taken. The entire asset should be transferred to PDO
Non-Accrual and not just the unpaid instalment.

(ii) When an outstanding is classified III previously accrued and

unpaid interest must be reversed out as under (i) above.

4.7.4 PAYMENTS ON PAST DUE ITEMS

The following guidelines will apply:

1. Past Due Obligation, on accrual, not reserved against. Payments

received are to be applied as follows:

1. Outstanding interest first.

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 2. Then principal after all interest cleared.

2. PDO, on accrual, partly or wholly reserved against:

1. Payments specifically tendered by client, as interest will be applied

first to interest, then to principal.

2. If no specific application mentioned by client, then funds to be

applied first to principal and,

3. After all principal is paid, additional amounts will be applied to

interest.

3. PDO, on non-accrual, whether reserved against or not. Payment

applications will be in the order given:

1. Principal.

2. After all principal repaid, then additional funds to interest.

4. Items written off and only a claim record is maintained.

1. First application to principal.

2. After all principal is repaid, then application to memo interest.

3. All funds applied to interest, in the case of non-accrual PDOs and

claims should be credited to Profit & Loss Sub-division Adjustment
and Refunds of profits Previously Taken only to the extent that IENC
was originally reversed out to the debit of Profit & Loss. Memo
interest over and above this out-off should be credited to Interest
and Discount.

4. Whenever doubts exist, applications of funds received against

PDOs on accrual, will be referred to the Executive Management or
Managing Director/Chief Executive Officer.

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 4.7.5 REPORTING

The Credit Administration Department Head will report to the Executive

Management each calendar month end, all PDOs outstanding. The
report should indicate Name, Amount, Number of days outstanding, and
the Account Officer's action plan "to get the past due obligations
regularised. The Board of Directors will be kept informed of PDO
outstandings on a quarterly basis, and monthly if any PDO item is
classified IA or worse.

4.8 CANCELLATION, FREEZING/CLOSING OF ACCOUNTS

4.8.1 CANCELLATION/FREEZING OF LINES

Any cancellation or freezing of lines should not be instituted without

formal notice to the borrower. A unilateral decision in this regard, if not
communicated to the borrower, may expose us to litigation brought
against us by the borrower.

4.8.2 CLOSING OF CURRENT ACCOUNTS

1. Before a current account is closed, reasonable notice must be given to

the customers so that they can make alternative arrangements except in a
fraud scenario which has been proved beyond reasonable doubt or if
account has been identified for clearing cloned instruments. Blockage of
account is also a subtle measure if account requires to be investigated for
any malpractice.

2. All officers are asked to ensure strict compliance as negligence on the

part of the Bank could prove to be very costly.

4.9 CENTRAL LIABILITY RECORDS

4.9.1 RESPONSIBILITY

Unless or until the Bank transaction processing is automated, the Credit

Administration Department will be responsible for the maintenance of
accurate and up-to-date Central Liability records.
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 4.9.2 DEFINITION

A Central Liability ledger is a ledger card where each customer’s direct

and indirect obligations are recorded.

4.9.3 PROCEDURE

1. All borrowing customers’ direct and indirect obligations must be

controlled against the relative approved credit lines and commitments.

2. Even if borrowers' obligations are not supported by credit Lines, these

should still be recorded on a ledger card with notation to indicate "No
Line" or "Approved on OT" basis or otherwise.

3. For bills purchased and advances in current accounts, individual cards

held by Customer Service Unit will be used in lieu of Central Liability
Ledgers. Please note that the latter outstanding are not reflected in Central
Liability ledgers.

4. One ledger card will be maintained for all products/obligations

(including sub-limits). A customer with five different products will have all
his outstanding recorded on one card.

5. When reporting outstanding on an availment or offering ticket, care must

be taken to ensure that all of the borrower's outstanding in the various
cards including Customer Service records have been picked up to arrive
at the total outstanding figure.

4.10 STANDARD LINE WORDING

4.10.1 OBJECTIVE

The objective of this section is to provide a description of the more

common banking products. This guideline will help the writer/reviewer of
a credit to ensure that each credit line is fully described giving tenor,
maximum period, sublimit provisions, etc.

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 4.10.2 DESCRIPTIONS

The following are standardized line descriptions which may be used for
short-term facilities. When lesser risks are to be included in a line, use the
line description of the greater risk rather than “and/or” descriptions.
When the purpose of the line is not exactly described, select that
description most closely approximating your risk, making sure your risk is
equal to, or less than that of the selected description.

1. For advances in current account.

2. For temporary overdrafts in current account.

3. For special advances in current account repayable on 48 hours’ notice.

4. For own note borrowings.

5. For discount of own promissory notes.

6. For demand loans.

7. For clean credits, guarantees or undertakings.

8. For the purchase of up country checks.

9. For short-term credit in any form guaranteed by ……………………..

10. For short-term credit in any form supported by ………………………

4.11 STANDARD ABBREVIATIONS OF CREDIT FACILITIES

For the purpose of abbreviating facility descriptions, the following liability

symbols may be used. Any other type of liability should be stated in words which
clearly describe the nature of the risk.

AG - Advances in C/A - Guaranteed.

AS - Advances in C/A - Secured.

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 AX - Advances in C/A – Clean

BA - Bankers Acceptances discounted or purchased

CL - Clearings and cash Items.

IN - Interest Earned Not Collected (Booked).

LG - Loans - Guaranteed.

LX - Loans - Clean

TLG - Term Loans - Guaranteed.

TLS - Term Loans - vs. Securities

TLX - Term Loans - Clean

OA - Our Account

OD - Overdraft (Current or Their Account).

RC - Account Receivables

LCU - Loan Commitment - Unused

ST - Special Transaction.

These liability symbols may also be used in correspondence and memoranda, where
applicable but should not be used in completing "Description of Credit Facilities" on
Credit Application.

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4.12 COMPROMISE SETTLEMENTS AND ABANDONMENT OF
RECOVERY EFFORTS

4.12.1 GENERAL

1. With some problem credits where a protracted work out is anticipated,

where the principal amount is wholly or partially reserved or likely to be
reserved in the near future, and when the legal, opportunity and carrying
costs are high, it may be worthwhile to negotiate a compromise
settlement with a borrower. Such compromise settlements may include the
foregoing of part or all of interest and even part of principal.

2. Any form of compromise settlement or moratorium on principal or interest

(accrued or memo) requires approval at the same level of credit authority
as would be required if the total relationship were adversely classified.

3. The Board of FORTIS MFB must be consulted for any such transaction
before a commitment is made. Once approved, the Internal Control
Department of the Bank must be promptly advised.

4.12.2 ABANDONMENT OF RECOVERY EFFORTS

Decision to abandon recovery efforts must be taken by the Credit

Committee, including the Managing Director/Chief Executive Officer for
amounts up to N100, 000.00. For amounts exceeding N100, 000.00
approval by the Board of Directors must be obtained.

4.12.3 FORMAT FOR USE IN RECOMMENDING COMPROMISE SETTLEMENTS

1. Name of client

2. Outstandings N

Currency
Equivalent

i) Direct Outstandings ……………

ii) Indirect Outstandings ……………
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 iii) Total Outstandings ……………
iv) Any other expenses (eg Legal Fees) ……………
___________
v) Grand Total
==========

3. Security

- Description:
- Liquidation Value:
- Expected Time span to achieve liquidation:

4. Compromise Amount

5. Amount of Charge Off

(i.e. Grand Total (2v) – Indirect Outstandings (if fully covered by Cash
Collateral) (2ii) – Compromise Amount (4) = Amount of Charge Off.)

6. Reasons for Compromise Settlement:

- Brief Background on Client

- Relationship with FORTIS MFB
- Steps taken before Settlement
- Financial Condition
- Other Interests
- Sources of Repayments for Compromise Settlement Amount.

7. Write-off for Tax Purposes

(i.e. Direct Outstandings (2i) – Compromise Amount (4)

4.13 CREDIT EXTENSION REPORTS

All operating units are required to submit a weekly statement of

outstanding Risk Assets to the Credit Department indicating name of
customer, amount approved, expiry date, outstandings and classification
where applicable. The Credit Department will collate same in a monthly
report to the Executive Management.

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4.14 RISK ASSET REVIEW GUIDELINES

1. The Risk Asset Review (RAR) procedures are an integral part of the credit
management process of FORTIS MFB. Risk Asset Review’s mission is two-
fold:

- To conduct an independent examination of the credit health of the

Bank’s portfolio and the risk asset management process, and

- To report to management and the Board of Directors, through the

Head of Internal Control, the results of such examinations.

2. Risk Asset Reviews are conducted on an annual basis and the scope of
the review must cover all of the bank’s risk assets.

3. Risk Asset Reviews may be done independently of the yearly audit. But
where the Executive Management decides otherwise, it shall form part of
the brief for the yearly audit, in which case the review must be given due
attention and its report comprehensive.

4.14.1REVIEW GUIDELINES

The guidelines presented here below are intended to assist the Bank during the
three main phases of the audit:

4.14.2PRE-AUDIT PREPARATIONS

Prior to the review, the Bank must prepare a package covering the following
items:

4.14.3 PORTFOLIO COMPOSITION AND STATISTICS

- A summary of all Lines and outstanding.

- A breakdown of portfolio by industry segment.

- A list of all outstanding account receivables.

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 - Details of all contingent outstanding.

- A copy of the General Ledger.

4.14.4 PERSONNEL RELATED MATERIAL

- The Bank's organization chart.

- List of account officers (credit officers) biographical data.

- Account assignment list.

- Personnel turnover during the period under review.

- Summary of credit training programs for the current and coming year for
the credit and marketing staff.

4.14.5 OTHER REPORTS

- If prior reviews have been conducted, a copy of the last risk asset
reviews report, last operations inspection report and (if any) last Central
Bank inspection report.

- If the Bank has any classified portfolio, copies of the classified loan
reports for the last six months should be provided.

- A copy of the Bank's plan/strategy paper and Target Market Study.

- A list of all past due obligations as of date.

- A list of temporary overdrafts as of date.

- A list of CA maturities, including any past due CAs.

- A list of non-Target Market and work-away names.

- A list of the 10 most profitable accounts, including last full year account
profits or current year to date account profits.
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 - A list of all deals turned down during the year.

4.14.6 APPROACH TO THE AUDIT

1. The Audit team normally advises their proposed arrival well in advance
and sometimes may request that the review package be forwarded to
them a few days before review date usually the week-end before. Upon
arrival at the Bank the Auditors normally hold discussions with the Bank
Management to understand the business environment, regulatory
restrictions, exchange controls, lending ceilings, etc. Other issues covered
include competition, FORTIS MFB’s market share and business plan and
plan progression for the current year under review.

2. After these discussions, the reviewers then proceed with a review of credit
files and this exercise brings out strengths as well as weaknesses both in
the credit process as well as the portfolio. All the files are reviewed
against the process cycle blocks of Target Market, Credit Initiation,
Documentation and Disbursement, Credit Administration, Problem
Recognition, Policy, Practice and Procedures, Remedial Management and
Organization/Staffing.

4.14.7 POST REVIEW

After completion of the review, the Auditors will give the Branch a rating on
both the portfolio quality as well as the process quality. These ratings vary from
Above Acceptable to Acceptable, Below Acceptable and Unsatisfactory in
descending order of merit. Management will institute a pre-Audit meeting with
all branch heads for proper briefing of expectation and issues relating to the
Audit.

4.14.8 FOLLOW-THROUGH ON REVIEW

1. Often, the review will surface a number of weaknesses either in the main
process or specifically related to some accounts. Additionally, the
reviewers may make recommendations, which need to be incorporated
within existing systems and controls.

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 2. To ensure that all these are addressed within a reasonable time-frame, the
comments and recommendations are put on a corrective grid, which
describes the comments and identifies the necessary individual or
department to carry out the necessary corrective action. This grid is
subsequently reviewed in future process meetings and all deficiencies
have to be corrected before the next audit. All audit exceptions are to be
handled on individual merits with update to Executive Management on
the regularization or compliance of same. Repeat comments are a serious
affair and every effort has to be made to avoid them.
4.14.9. We are keen to strictly enforce 7 client protection principles which
are:

1. Appropriate product design and delivery.

2. Prevention of over-indebtedness
3. Transparency
4. Responsible pricing
5. Fair and respectful treatment of clients
6. Privacy of client data
7. Mechanisms for complaint resolution

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