A PROJECT REPORT

ON
CREDIT AND COLLECTION
POLICIES
OF
ALLIED BANK LIMITED

AND
STANDARD CHARTERED BANK
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SUBMITTED TO:
SIR TAQEE RAZZA
SUBMITTED BY:
ROBINA NAZ
ROHEELA AFZAL
NAZISH JABEEN
SUMAIRA ANWAR
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In The Name of
Allah Who Is the
Most
Compassionate,
 Most merciful and
Most beneficent
whose help and
guidance we always
solicit at every step,
at every moment.
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DEDICATION

To The Creator of Crown of

Creation and of All.
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PREFACE
This is time of extraordinary changing. There is
prevailing an environmental and economic
threat for the firms which is obviously frightening
large on the whole sphere of Pakistan's economy.
Pakistan's firms must design and launch better
products and services and then introduce
enhanced products terms to market them. Because
once a thing regarded enough, remains no more
competitive so, there is a need to use the resources
efficiently. Today an organization is on the leading
edge.

We have tried to our best to peep into policies and

procedure's methodologies adopted by Allied
Bank Limited and Standard Chartered Bank for
their credit and collection.

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ACKNOWLEDGEMENT

First of all, we would like to thanks

ALLAH PAK, Who gives us strength to
perform this activity well. Now, we
are also very grateful to our
venerated Sir Taqee Razza and our
beloved parents who enable us to
achieve this objective.

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TABLE OF CONTENTS
 Serial No. Description Page No.

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1. EXECUTIVE SUMMARY
As we are examining the credit and collection policies of banks, we
come to know that the credit and collection policies of a firm involve
several decisions:

1: The quality of the account accepted.

2: The length of the credit period.

3: The size of the cash discount given.

4: Any special terms, such as seasonal dating.

5: The level of collection expenditures.

In each case, the decision should involve a comparison of possible

gains from a change in policy with the cost of the change. Optimal
credit and collection policies would be those that resulted in the
marginal gains equaling the marginal cost. To maximize profits arising
from credit and collection policies, the firm should vary these policies
jointly until it achieves an optimal solution. That solution will determine
the best combination of credit standards, credit period, cash discount
policy, special terms and level of collection expenditure.

When there are no credit standards (that is, when all credit applicant
are accepted) sales are maximized, but they are offset by large bad
debts losses as well as by the opportunity cost of carrying a very large
receivable position. The latter is to a long average collection period. As
credit standard are initiated and applicant rejected, revenue from sale
decline but so do the average collection period and bad debt losses.
Because the last two decline initially at a faster rate than sale, profits
increase. As credit standard are increasingly tightened, sales revenue
declines at a increasing rate. At the same time, the average collection
period and bad debts losses decrease at a decreasing rate. Fewer and
fewer bad credit risks are eliminated. Because of the combination of
these influences, total profit of the firm increase at a diminishing rate
with stricter credit standard up to a point, after which they decline. The
analysis in last several sections has purposely been rather general to
provide inside into the primary concepts of credit and collection
policies. Nevertheless, management must make estimate of these
relationships if it is to realistically appraise existing policies.

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STANDARD CHARTERED
BANK
SME MEDIUM
ENTERPRISES
 CONSUMER BANKING,
PAKISTAN
COUNTARY CREDIT
PROCEDURE

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1. INTRODUCTION:
The country credit procedure defines the execution aspects of the risk
management process for the SME, Medium Enterprise Business. It
defines practices in terms of process; checks and controls to ensure
that the standards lay down by group SME Banking are met and
complied with.

BUSINESS AND RISK ASSESSMENT:

The SME Business managed the following customer segments:

Small Businesses.

Medium Enterprises.

Following are the segments managed by the ME umbrella;

Facility type Tenor

 Trade finance 180 days

Working capital finance 1 year

Bank guarantees/ performance 5years

bonds

FM products: Max 6 months

FX forwards

Partially secured term loans Max 5 years

3-INDUSTRY SEGMENTATION:
Following low risk industries would comprise as main target markets

Textile and Allied

Food and Beverages

Automobiles

Pharmaceuticals

Paper, Printing and Packaging

Leather and sports goods

Services

Travel Agencies

Light Engineering

Electrical

4- CUSTOMER ASSESSMENT AND CREDIT

APPROVAL:

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Credit initiation will also ensure;

Proposals conform to the selected target market and risk

acceptance criteria.

Proposals do not violate any regulatory.

Proposals address risk adequately.

5- LENDING TO PERSONAL BORROWER:

All corporate and related personal limits should be aggregated for
approval purposes.

The repayment is from business cash flows and credit assessment is

based on the business.

LENDING TO HOLDING COMPANIES:

Lending to holding company needs to be based on a through analysis

of the underlying risk with clear understanding of the group structure,
debt structure and restriction on up-streaming of dividends.

6- CREDIT EVALUATION AND DECISION

FACTORS AFFECTING CREDIT DECISION:
1. Management strength
2. Financial strength

Financial analysis

Income statement analysis

Balance sheet analysis

Cash flow analysis

Projection analysis

3. Group company strength

 4. Bank statement analysis

5. Industry risk

6. Security assessment

7. Ethical risk

8. Other relevant risk

7- CREDIT GRADING:
Each risk grade in the banks master scale is defined by a PD
range and can be mapped out ratings maintained by external
rating agencies.

PARENTAL SUPPORT:

Credit rate adjustment is also based on the premise that the

supporter is not only willing but also able to provide support.
Parental support used for credit grade adjustment must be
contractual.

RESPNSIBILITY FOR RISK GRADING:

The manager is responsible for calculating the risk grade of a

customer

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8- RISK GRADE MAPPING FOR

REGULATORY REPORTING:
SBP CREDIT GRADE Equivalent current credit grade

1 1A-4B

2 5A-6B

3 7A-7B

4 8A-8B

5 9A-10A
 6 10B-11A

7 11B-11C

8 12A-12B

9 12C

10 13

11 14A

12 14B

It may be noted that CG-14 is mapped across two credit risk ratings of
SBP that is 11 and 12.

9- APPROVAL AUTHORITIES:
Delegation of authority and approval limits to SME credit unit shall be
inconformity with the guidelines/ authorities established by the office
of the head of credit SME.

10- CRITERIA FOR SELECTION:

Ability to structure credit product offerings

Ability to communicate clearly

Adequate knowledge of credit analysis

Understanding of the business cycle

Knowledge of Standard Chartered policies and procedures

11- CREDIT RISK CONTROL:

CRC would perform the following:

Check the documents.

Completeness of the documents.

Act as a custodian of the documents.

 Maintain the documents.

Insurance has been done as a security.

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12- QUALITY AND ASSURANCE:

1. PURPOSE;
The purpose of this memo is to document the revision to the process of
quality assurance process of credit approvals for discretionary lending
outlined previously with an objective to make the process more
efficient and effective. This memo will supersede the previous
guidelines on the subject.

2. OBJECTIVE;

Provide regular feedback.

Help to make the policies.

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COLLECTION POLICIES OF
STANDARD CHARTERED
BANK OF PAKISTAN
 1.Objective

The purpose of the SME (Small Business) Collection Manual is to

document all policies, processes and procedures related to collecting
past due loan outstanding amount of all Mortgage backed overdraft
portfolios in the SME small business.

Collection Head and Regional Collections Managers will ensure that the
guidelines outlined in this manual should be duly followed by the
relevant staff members of the Collection Unit.

2.Product Programs
This manual covers Collection policies and procedures for all
mortgage backed lines programs.

1. Business Power

2. Business Finance

3. Agri Deal

4. Textile (TANA BANA & Rang Hi Rang)

5. Pharmaline.

Overview of the Product Programs:

.

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1. BUSINESS POWER
Running finance facility for the purpose of working capital. This is an
ex_UNB portfolio and is largest in terms of ENR and number of
accounts out of all SME SB products.

2. Business Finance
Running finance facility for the purpose of working capital against
purely residential owner occupied properties.

3. Agri Deal
Running finance facility for the purpose of working
capital to wholesales and retailers of Agri inputs like seeds, pesticides
and fertilizers etc.

4. Textile (TANA BANA & Rang Hi Rang)

Running finance facility for the purpose of working
capital to weavers and dyers of textile fabrics.

5. Pharmaline
Running finance facility for the purpose of working
capital to wholesalers and retailers of pharmaceuticals.

3-Scope
This manual covers the routine operations of SME secured Collection
shop of any size and interfaces its requirements with the system and
other related departments/units. It covers the following:

1. General

2. Collection Strategy
 3. Collection Process

4. Review of Collection Activity

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1.) General

To standardize and streamline the procedure in other SME Secured

collections with a view to achieve an effective understanding of
collectors scope of responsibilities and execution.

This responsibility will commence from the time an account becomes

delinquent until it is regularized by means of payment and full due
amount is collected/received.

2.) Collections Strategy

Its important to maintain a good relationship with the customers. Soft
approach, which is intensive on telephone contact and dung process,
should be used initially to ascertain the reasons for Front-END (1_SS29)
Delinquency and motivate the customers to pay.

Professional approach, which will have more insistence in personal

visits by the collection Officer to the customer at opportune time and
motivate him\her to settle the accounts. However, professional attitude
must be maintained at all times.

The order of priority for collections should transcend from high balance
to low balance accounts. Hence, this should be taken into
consideration when deciding on the accounts to be handled first.

The overall operational strategy will have specialized approach with

breakdown of the collection force into front-end, MID-range and 90+
DPD Buckets teams, unless the quantum of accounts in small shops
may not be feasible.

2.1) Pre-Call Planning

First contact with the customer dictates how successful we are in

collecting the outstanding dues. A Strong, courteous, intelligent call
can mean maximum co-operation from the customer. Like wise a
discourteous and ill planned contact can hurt and delay collectors
chances for timely collection.

An early contact with a customer on a past due account is especially

important to see the tone for the future paying habits.

Therefore, the starting point of every strong collection call is

preparation.

Four factors of pre-Calling are:

2.1.1) Target

A collection should always target to collect the total amount dues.

2.1.2) Research

A collector should be able to check previous collection efforts and

examine customer payment records.
2.1.3) Interest
A collector should motivate the customer to clear his dues.

2.1.4) Plan
An alternate payment plan should always be discussed with the
customer. Adequate flexibility should be built in either case to
accommodate the customer while guarding banks interests.

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2.2) Different Strategies as per DPDs

2.2.1) Front-end (FE) is the first collection bucket i.e. 1-29 DPD in
which delinquent accounts are queued . In FE, the focus is on
telephone calling, supported by dunning letters and essential field
visits. COs will be responsible for in-house collection activities. Front
End COs major responsibility is to educate customer to pay their dues
in time and field coordinator (FC) will be responsible for external
visits (if required). The customers ability / tendency to pay reduce
in the lower buckets therefore, to strengthen FE and choke forward
flows, the FCs are assigned to support the Co.

Main features of the FE are:

a) Create call contact, there are few customers who may pay
through one or two reminder calls, the remaining need build up
of call through constant reminders,
Particularly once the promise is broken.
 b) Accounts appear in FE work list according to the following Sorting
Criteria
Principal Balance Amount
Delinquent Amount
c) All accounts entering in FE will be equally distributed in COs work
queues who
are responsible for these accounts till the normalization /
forward flow to the next

bucket.

Strategy

a. COs will make efforts to establish contact, the

moment account flows into the FE bucket.
Telephone calling should be conducted in a manner in line with
the customer service level. CO must always do an inquiry
through

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a. the system, to have an idea about current

situation of the account to avoid
misunderstanding with the customer.
b. Initial telephone contact may be directed at
office. If customer cannot be reached or
contacted then the mobile number or residence
number should be tried.
c. Upon successful contact to customer, CO will
inquire into the reason for delay in
payments. Information regarding current address,
employment and telephone numbers should be
ascertained and changes must be recorded in the
system history.
Letters Dunning
a. At 5 days past due (DPD) of an account entering
 the FE, if no
Payment is received., first automated late
payment letter (Letter attached as Annexure-A)
will be sent to the customer.

b. Letter can be triggered manually at any stage.

c. Dunning letter should alert the customer of their
total monthly payment due. The content of the
late payment letter are tactful and polite
requesting for immediate payment.

Mid Range

a. Midrange (MR) consists of two buckets i.e 35dp and 65dp

b. MR is the bucket where an account is actually considered as
delinquent and is part of the delinquency ratios (30 + DPD coincident
and lagged). Thus collection effort must be more professional attitude
in MR accounts.

c. Experienced resources are deployed in these buckets that are

responsible to call and visit on all accounts designated to them.

d. When Front End collection efforts fail to obtain the payment the
account will automatically enter into next MR bucket. Collections will
send an automated letter as reminder of his outstanding balance and
telling him / her that the loan is in the cancellation stage and use it as
a negotiating tool.

e. Once CO establishes the reason of delinquency, which can be

due to service and other bank related problems. May use
reversal of Service / Late Fee as effective negotiation tool.

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For any such offer, prior approval is required to be taken as per
approved delegation matrix.

a. Accounts flowing into MR are parked into two buckets i.e. 30+DPD
and 60+DPD.

Strategy

b. CO must exercise professional approach for accounts flowing down

into 30+

As customer has failed to submit payment even after FE collection

efforts.

c. The accounts that flowed from 30 DPD bucket into 60 DPD bucket
and customers who have already made broken promises need
persistent approach.

d. The daily review of the work list is carried out to ensure that
payment is sufficient to cover minimum payment due or full payment
depending on the customers response.

e. Telephone calls must be made to every customer listed in the 30

days delinquent account category on the work list. The CO must review
and analyze the reason for delay in payment. Upon successful contact
with customer, CO must secure a payment date and it must be
recorded in the system as a PTP (promise to pay) to be recalled by the
system on a later date to monitor the payment.

3- Letter Dunning

a. Collections will send a letter at 35 DPD and 65 DPD and inform

customer about seriousness of his account.
 4-Concept

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For any such offer, prior approval is required to be taken as per

approved delegation matrix.

a. Accounts flowing into MR are parked into two buckets i.e. 30+DPD
and 60+DPD.

Strategy

b. CO must exercise professional approach for accounts flowing down

into 30+

As customer has failed to submit payment even after FE collection

efforts.

c. The accounts that flowed from 30 DPD bucket into 60 DPD bucket
and customers who have already made broken promises need
persistent approach.

d. The daily review of the work list is carried out to ensure that
payment is sufficient to cover minimum payment due or full payment
depending on the customers response.

e. Telephone calls must be made to every customer listed in the 30

days delinquent account category on the work list. The CO must review
and analyze the reason for delay in payment. Upon successful contact
with customer, CO must secure a payment date and it must be
recorded in the system as a PTP (promise to pay) to be recalled by the
system on a later date to monitor the payment.
 3- Letter Dunning

a. Collections will send a letter at 35 DPD and 65 DPD and inform

customer about seriousness of his account.

4-Concept

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a. Minimizing the delinquencies and saving of banks assets is the key

goal for all collections professionals. The ability to reach and motivate
ambiguous delinquent customers at this stage in the most appropriate
manner is a key to success.

b. 90+DPD Buckets consists of 90 DPD till 720 DPD Buckets.

c. Customers listed in 90+DPD Buckets category of delinquency are

considered as defaulters and are probable future losses as compared
with those in F.E & M.R. They must be handled with a focused approach
with intensified efforts.

d. CO must be innovative and can use different tactics to contact /

approach customer i.e. through reference, neighbors, colleagues.

e. In view of customers ability to pay, prepayment settlement is

offered to those customers where subsequent collection effort is not
expected to be cost effective.
 3- Strategy

a. Telephone calls must be made on every customer listed in the 30

days delinquent work list. CO must review and analyze the reasons for
delay in payment. Upon successful contact with customer, CO must
secure a payment date and advise customer to make full payment. The
payment date must be recorded on the system as PTP (promise o pay)
to be recalled by the system on a later date to monitor the payment.

b. When the customer breaks a promise for payment, immediate

telephone call should be made and if necessary CO should visit these
accounts, CO may accept one TMP as a last resort. Constant telephone
calls must be made to establish contact with customers who have
numerous broken promises.

c. If customer cannot be contacted over the telephone or visits at the

office and residence, then CO should review accounts file/application
thoroughly to trace out the customer. Contact should be made at
personal references, family members, employer and past
correspondence address to obtain useful information to assist on
tracing customer.

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3- Collections Process

Goal of collections process

The primary goal of the collections process is to obtain payments
promptly while minimizing collection expense and write-off costs while
maintaining customers goodwill through high standards of service.

The secondary goal of collections is to protect the assets of the bank.

This can be achieved by identifying early indicators of delinquencies
thus minimizing losses.It is expensive to acquire a new customer at the
same time it is costly to write-off an account.

Elements of Collection Process

Collections Process involves:

1. Service

2. Locate

3. Contact

4. Convince

5. Legal Option

Now, we discuss these collection processes one by one;

1. SERVICE:

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Update customer information address and telephone numbers

 etc.

Probe for reasons of delay in payment.

Need to maintain the account at current level.

1. LOCATE:

Application form of customers must be scrutinized;

Other individuals/ references

2. CONTACT:

Officer must adopt a useful method for collecting the contacts.

3. CONVINCE:
When the manger succeeded to convince the customer
then the amount is deposited into the bank.

Manager must involve with the special skills.

4. LEGAL OPTION:
When all collection procedures fails then the
manager must use legal options as a last means of recovery.

EFFECTIVE COLLECTION SYSTEM:

Effective collection system include the following points;

Facilitate methodical and timely identification of the accounts.

Determine the risk level of the accounts.

Organizations structure must have flexibility.

Monitoring all the collection policies.

ROLE AND RESPONSIBILTY OF A

COLLECTOR:
1- A collector should not involve in any type of transaction that
makes him strange.

2- Adopt different methods which provide better results.

 3- Collection officer should always comply with code of conducts.

4- Collection officer must be tactful and careful when he makes the

initial contracts.

5- Collectors should take immediate action on collection letters.

6- Collector should be responsive to customer service.

7- Collectors must be aware of the limitations which imposed by the

law.

ROLE AND RESPONSIBILITY OF A MANAGER

COLLECTIONS:
Manager collections major tasks are:

1. To set job targets.

2. Motivate the collection team.

3. To review the collection module comment reports.

4. Maintain the professional relationship.

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1. Eliminate the risks and frauds in the early stages.

2. Keep the management informed of all important developments.

3. Follow up the write-off loans.

CHANNELS FOR CONTACTING CUSTOMERS:

1. Telephone bills.
2. Dunning letter.

3. Customer visits.

4. Customer personal interview.

5. External collections.
Now we discuss these points one by one;

1. TELEPHONE BILLS:
2. Identify the customer yourself and the company.
3. State the reason of the call.

4. Pause and listen.

5. Payment plan.

6. Overcome objections.

1. DUNNING LETTER:
Delinquent letters are generated according to the type of delinquency
in order to highlight the seriousness of the delinquent account. Letters
are generated manually and forwarded to the customer.

2. CUSTOMEWR VISITS:
When a customer is not traceable or had to failed to honor his financial
commitments, a visit to the customer is necessary, especially in high
balances cases.

3. CUSTOMER PERSONAL INTERVIEW:

On certain occasions customers may want to visit and to meet the
collection manager to explain his circumstances for relief in payments.
Customers may visit the bank officers for his purpose.

4. EXTERNAL COLLECTIONS:
1. LEGAL
This method of collection should be considered when internal efforts
fail to proceduce results.

2. FORECLOSURE

This method of collection should be considered when collections/legal

efforts fail to produce results.

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THE END
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