Georgia Banking School

Transcription

1 GEORGIA BANKERS ASSOCIATION Georgia Banking School 2017 Georgia Banking School May 7-12, 2017 UGA Hotel & Conference Center Athens, Georgia

2 Credit Policies & Procedures Instructor: Scott Swafford Sponsored by Georgia Bankers Association Athens, GA May 10,

3 What are Policies & Procedures? A POLICY is a principle or course of action chosen to guide decision making. Prudent Management. Rules or statements of position. A PROCEDURE is an established series of steps. A certain way of getting something done. What people follow to carry out policies. A PRINCIPLE is a rule or code of behavior, moral or ethical standard, integrity! 3

4 What s it all about? Why do we need policies and procedures? Who do they apply to? What are they good for? What happens if we ignore them? Are they in place to make regulators happy? 4

5 Why do we need policies & procedures? Comply with Laws and Regulations Guidance for each and every department Assist in managing risk associated with each aspect of banking from deposits to loans to investments Achieve rational outcomes Address intent 5

6 Policies are many, Principles are few, Policies will change, Principles never do 6

7 Who do they apply to? All lenders Collection Department Management/Board Auditors Tellers Operational Staff 7

8 What are they good for? Establishing acceptable standards Training Managing profitability 8

9 What happens if we ignore them? Collection/Delinquency problems with loans Increased Losses Decreased profits Open the door to possible fraud Regulators can issue memorandum of understanding Cease and Desist Order Potential failure 9

10 Are they in place to make regulators happy? Absolutely They will reference them in exams They will ensure the bank adheres to them 10

11 Impact Intended effects Policies are typically instituted to avoid some negative effect that has been noticed in the organization, or to seek positive benefit. Example: Rate Floors & Ceilings Unintended effects Policies frequently have side effects or unintended consequences. Example: DTI and Beacon Score minimums (Reduce loans in certain markets) 11

12 Content Purpose statement Applicability and scope Effective date Responsibilities Policy statements Background Definitions 12

13 Who are we.. Community Bank that seeks to meet the needs of the communities in which it operates and receives deposits Primary markets are the counties in which we operate Secondary market-counties contiguous to our primary markets 13

14 Regulatory policies These policies limit the discretion of individuals or agencies Compel certain types of behavior Best applied when good behavior can be easily defined and when bad behavior can be easily regulated and punished through fines or sanctions 14

15 Bank Loan Policy Loan Policy Addresses several areas Defines who we are Credit Culture Lending Philosophy Markets 15

16 Lending Philosophy Quality assets-performing, desirable loans Profitable relationships Strategic Growth A team approach A do-business attitude 16

17 Credit Culture Credit Culture is defined as the behavior, beliefs, philosophy, organizational structure and policies relating to the management of the entire credit process Quality is the foundation of the credit culture What is your credit culture??? 17

18 It Defines our primary lending areas.. Nationwide Statewide Countywide 18

19 It defines the categories of loans we make Consumer Small Business Commercial Real Estate Professional Agricultural 19

20 It describes the types of loans we Installment Single-Pay Lines of Credit Overdrafts make.. Letters of Credit Secured Unsecured 20

21 And some loans we want to think about further. Restaurants Start-Up Businesses Over-the-Road Trucks Mobile Homes without Land Airplanes Floor plans Receivable & Inventory Equipment Stock 21

22 It s about how long we want to loan our money And discusses appropriate Maturities for Real Estate Personal Inventory/Equipment Working Capital 22

23 It tells us what to consider when pricing loans Degree of Risk Customer Relationship Term/Collateral of the Loan Administrative Costs Management Costs Competition 23

24 It cautions us against concentrations of credit risk Borrower Collateral Industry 24

25 Provides guidelines for maximum loan amounts and LTV s Federal Banking Laws FDIC Real Estate Guidelines State Banking Laws Board of Director Decisions 25

26 It establishes guidelines by which lending authorities for individuals and committees are determined Experience Performance Expertise Need 26

27 It requires a certain amount of financial information from our borrowers Credit Application Credit Bureau Report Individual Financial Statements Business Financial Statements Tax Returns 27

28 Characteristics of Loan Quality Excellent Character Proven performance Adequate capitalization, or personal net worth Adequate financial information Adequate collateral 28

29 And it tells us what to do when things don t go as planned Risk Ratings Past Dues Collection/Recovery Non-Accruals Charge-Offs Bankruptcies 29

30 Loan Policy Exceptions An exception from policy is a departure from accepted guidelines Why do we have exceptions When should we have exceptions Who should approve exceptions 30

31 Documenting Exceptions Approval process follows the same authority as the loan approval process Involves sound judgment and common sense The exception and justification should be in writing and part of the approval Where does Fair Lending fall into this? 31

32 Acceptable and Unacceptable Credits Loans to finance accounts receivable and inventory Working Capital Term loan to purchase equipment Loan to a new relationship graded 5 or lower Loans for a political campaign Loans secured by restricted stock 32

33 Doable versus Desirable Loans Desirable loans equal relationship Doable loan equals transaction What do you think the mix of these two are at your bank? 33

34 Risk Management Standardized credit policies and procedures Strong credit infrastructure Risk must be monitored to be managed Integrity of risk rating system Prune the portfolio 34

35 Our Policies are dynamic- They change as we change!!! 35

36 Five C s of Credit Character Capacity Capital Collateral Conditions 36

37 CASE STUDIES Create a policy on when to obtain a financial statement from a customer Create a policy on loan officer lending authorities Create a policy on incremental loan authority Create a policy on employee loans Create a policy on loan terms for different types of collateral i.e. mobile homes/autos/recreational Create a policy for Appraisals & Evaluations Create an overdraft policy Create a policy on loan reviews Create a policy on opening a deposit account As a class create a policy for rates/credit score/collateral/term (if time permits) 37