What are the features of a good credit proposal?
A credit proposal is a summary of all information collected during a credit investigation. It helps the approving authority make an informed credit decision.
A good credit proposal must be complete, accurate, and well-structured.
Features of a Good Credit Proposal
A good credit proposal should contain the following features:
Purpose of the Request
A good credit proposal should clearly state the purpose of the loan. The proposal should mention the type of credit facility. It should specify the proposed limit, validity period, and applicable pricing or interest rate.
Existing and Proposed Credit Exposure
The proposal should provide details of the borrower’s existing credit facilities. It should mention the outstanding balances. The proposal should also include the proposed new or enhanced credit limits.
Total Group Exposure
A good credit proposal should show the total credit exposure of the borrower. It should also include all related or sister concerns. The proposal should confirm that the total exposure remains within the regulatory limits.
Security Summary
The proposal should include a comprehensive summary of all securities offered. These may include landed property, cash collateral, margin deposits, guarantees, and other forms of security.
Relationship and Account Profitability
A good credit proposal should explain the banking relationship. It should mention when the relationship started. The proposal should describe the repayment performance, account turnover, and overall profitability of the customer to the bank.
Company and Management Profile
The proposal should present information about the company. This includes its legal status, year of establishment, ownership structure, and shareholding pattern. The proposal should also describe the background and experience of the management.
Business and Industry Analysis
A good credit proposal should analyze the borrower’s business operations. It should describe the products and services. The proposal should explain the market position and industry outlook. It should identify the major competitors, sources of raw materials, and key customers.
Financial Performance
The proposal should analyze the last three years’ audited financial statements. The analysis should cover sales, profitability, inventory, and receivables. It should also evaluate working capital, liquidity, and other key financial ratios.
CIB Report
A satisfactory Credit Information Bureau (CIB) report from Bangladesh Bank should form part of the proposal. The report should confirm that the borrower has no adverse credit history.
Justification of the Proposed Limit
The proposal should justify the proposed credit facility or enhancement. It should explain the business need for the requested limit. The proposal should support the request with capacity utilization, market demand, projected sales, or expansion plans.
Critical Risks and Mitigating Factors
A good credit proposal should identify the major risks associated with the borrower. It should explain the possible impact of those risks. The proposal should also describe the measures to mitigate or manage them.
Regulatory Compliance
The proposal should confirm compliance with Bangladesh Bank regulations. It should ensure compliance with the Single Obligor Limit, Large Loan regulations, and other applicable prudential requirements.
Details of the Proposed Credit Facilities
The proposal should provide complete details of each proposed facility. It should mention the purpose, amount, tenure, and repayment source. The proposal should also describe the security, collateral, and key terms and conditions.
Branch Comments and Final Recommendation
Finally, the branch should assess the borrower’s financial strength and repayment capacity. It should evaluate the business prospects, security coverage, and relationship value. Based on this assessment, the branch should provide a clear recommendation such as Approve, Reduce, Hold, or Grow.
Credit Operations & Management, Module: B, 96th Exam Q1(c)
