II. Credit monitoring
Maximum information should be obtained on the borrower's ability
to generate adequate cash
flow to service the debt. Sources of such information can be
other banks, companies dealing with the borrower (suppliers and clients as
well), newspapers.
Semi-annual financial statements should be required by the Bank
to have a constant opinion
on the borrower's creditworthiness.
Visits should be paid to clients to assure the Bank the most
accurate information on them.
III. Work-out strategies
1. Effective teamwork
The collection team should include:
- An account officer: being the first to get in touch with
the client, the account officer is the one supposed to have the maximum
information on the borrower. In addition, even if a client is in financial
distress today, he might be a good borrower tomorrow. For that
reason, he needs to be treated with care.
- A remedial management officer: he is responsible for
championing the recovery efforts.
He is also in charge of restructuring, monitoring and generating
appropriate reports.
- A legal department officer: his role is to assure that all
decisions and measures taken in the collection effort are lawful.
2. Incentives
The recovery of a loan is sometimes tiresome and boring
especially when it's lasting long.
This may discourage the collection team and they may abandon
sooner. A way to overcome
45 MBA in Banking and Finance
this problem may be to encourage by rewarding them with cash,
facilities as per how much money they recover and how quickly.
3. Additional risks
Caution should be taken not to unnecessarily extend more
`good money' to an already
stressed relationship with the hope of recovering the `bad
money'.
If the continuity of the borrower's activities is the only
condition to recover the loan, the Bank may assist the company but only in
acceptable limits of risk.
4. External debt collectors
We do not advise to carry the collection to external agencies. A
`bad borrower' today may be
a `good borrower' tomorrow and since theses agencies have no
client relationship to protect, they are likely to act with coercion.
In the special case where the Bank is obliged to carry
the collection effort to an external agency, care should be taken not to
abandon the recovery effort to these agents. They should
be given specific targets, monitored and require report to the
Bank.
5. Enforcement of collateral
The significance of the Collateral as a secondary means of
repayment should always be borne
in mind during the recovery process. This should influence the
bank's corporate disposition and efforts in managing security-related
elements in credit structuring: value, type, quality, insurance,
documentation deferral and perfection among others. Depending on the
psychology
of the local market, the actual process of liquidating
collateral may have to be initiated to
encourage, threaten or induce repayment.
46 MBA in Banking and Finance
| 
