Professional Documents
Culture Documents
RBS Credit Policy
RBS Credit Policy
Introduction ................................................................................................................................................. 3
Departments of RBS .................................................................................................................................. 4
Marketing Department of RBS: ............................................................................................................. 4
Credit Risk Management department of RBS: ...................................................................................... 5
Credit Administration Department RBS: ............................................................................................... 5
Secured loans ............................................................................................................................................ 8
Conventional Mortgages:...................................................................................................................... 8
CHARGES: .................................................................................................................................................. 8
N cash facility (Business Finance): ......................................................................................................... 10
WHEELS ................................................................................................................................................... 11
Charges: .............................................................................................................................................. 11
Cash near Cash ........................................................................................................................................ 12
Loan against Shares ................................................................................................................................ 12
Personal Loans ........................................................................................................................................ 13
Credit Cards Facility ................................................................................................................................ 14
CREDIT POLICY:
GENERAL DEFINITION: ............................................................................................................................ 16
OBJECTIVES: ............................................................................................................................................ 16
SBPS REQUIREMENT: ............................................................................................................................. 16
Credit Standards Followed By RBS: ......................................................................................................... 17
CENTRALIZED AUTHORITY: ..................................................................................................................... 18
FUNDED AND NONFUNDED FACILITIES .................................................................................................. 18
SECTORAL BASED LENDING..................................................................................................................... 18
NICHE MARKETING ................................................................................................................................. 19
UNAPPROVED SEGMENTS....................................................................................................................... 19
TIME REQUIRED FOR APPROVAL OF LOAN ............................................................................................. 19
PATTERN OF INSTALLMENTS................................................................................................................... 19
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CONCLUSION........................................................................................................................................... 25
INTRODUCTION
The Royal Bank of Scotland Group has grown from small beginnings nearly 300 years ago to
become the second largest financial services group by profit, in the world. With an AA credit
rating, RBS group has more than 40 million customers worldwide, operating profit in 2007
10.3 billion, and total assets, as at 31 December 2007, of GBP 1,900.5 billion. Today the
situation is different. Due to worldwide recession bank had a massive loss. According to
unaudited quarter report i.e30th June 2009 bank had a net loss of RS.584, 090,0001, compare
to net loss of RS.59, 703,0002 on 30th June 2008.now MCB Bank has bought the Pakistan
operations of the Royal Bank of Scotland (RBS), paying a price of PRs7.2 billion ($87.4 million)
for a 99.37% stake in RBS Pakistan3. RBS brands operate around the globe and down the street
to provide banking services for individuals, businesses and institutions.
VALUE PROPOSITION
Royal Preferred Banking offers its clients an unmatched blend of personalized banking and
wealth maximization opportunities.
PRODUCTS
Alongside a comprehensive range of premium banking products and services, RBS offers
fully integrated financial planning and investment advisory capabilities.
PRIVILEGES
From luxurious lounges to personalized attention, Royal Preferred Banking delivers its clients
exclusive services.
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Departments of RBS
RBS has a centralized banking system. Facilitating a loan is a continuous process here which linked up
THREE major departments namely;
MARKETING
CREDIT RISK MANGEMENT
CAD
Marketing Department
Credit Risk
Management
Department
Credit Administration
Department
ALL the departments work together to make the system more efficient and to satisfy the customers
properly.
Marketing Department of RBS:
Following are the duties of this department:
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OVERVIEW OF PRODUCTS
TRADED SERVICES AND SUPPLY
CHAIN
INTEGRATED CASH
MANAGEMENT SERVICES
Product/
Services
Cash
Management
PAYMENTS
COLLECTIONS
Cash
Withdrawl
Cash Deposit
Bankdraft
BankDraft
Cheque
Product/
Services
IMPORT
Documentry Credit
Issuance and
amendments of LC
LC Confirmation
Documentry
Collections
Special credit
Advising and
Negotiation of LC
Documents against
Acceptance &
Payments
Re-Imbursement
Undertaking
EXPORT
Cheque
Direct Debit
Documents against
Acceptance &
Payments
TREASURY / FINANCIAL
MARKETS:
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The figures above give a brief overview of products and services provided by a bank.
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Secured loans
Conventional Mortgages:
Following are the different mark-up rates for mortgages.
MARKUP:
Slabs
Benchmark
KIBOR
Spread
Total
Up to 4,999,999
1 year KIBOR+4.25%
12.93%
4.25%
17.18%
1 year KIBOR+3.75%
12.93%
3.75%
16.68%
1 year KIBOR+3.5%
12.93%
3.50%
16.43%
1 year KIBOR+3.25%
12.93%
3.25%
16.18%
CHARGES:
Actual
Legal Charges
3500
Processing Fee
Rs. 5,000/-
Enhancement Fee
Rs. 5,000/-
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Documentation, Stamp
Duty & Government Levies
Benchmark
KIBOR
Spread
Total
Up to 4,999,999
3 Month KIBOR+4.00%
12.60%
4.00%
16.60%
3 Month KIBOR+3.75%
12.60%
3.75%
16.35%
3 Month KIBOR+3.50%
12.60%
3.50%
16.10%
Charges
Enhancement case
processing fee
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N cash facility (Business Finance): with the Business Loan customer can invest in
project financing, capital investment, business expansion or balance transfer from a running
finance facility to a term loan.
Benchmark
KIBOR
Spread
Total
Up to 4,999,999
1 year KIBOR+4.00%
12.93%
4.00%
16.93%
1 year KIBOR+3.75%
12.93%
3.75%
16.68%
1 year KIBOR+3.50%
12.93%
3.50%
16.43%
Charges:
Enhancement case
processing fee
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10
WHEELS
RBS cherishes the relationship with its customers; they will be accommodated with assistance from
Relationship Managers who will facilitate them through the procedure until they find exactly what they
want.
Markup of Wheels
Slabs
Benchmark
KIBOR
Spread
Total
1 year KIBOR+4.50%
12.93%
4.50%
17.43%
1 year KIBOR+4.00%
12.93%
4.00%
16.93%
Charges:
Processing Fee
Up to Rs. 5,000/-
Up to Rs. 1,000/-
Partial Prepayment :
5% (on amount being prepaid)
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11
Acquire funds against your existing deposits or near cash instruments without liquidating
them.
Earn income from your pledged deposit or near cash instrument without it being
disturbed.
Slabs
Branch/Preferred Customers
RBS Staff
Charges
Balance Confirmation Certificates
Mark up Settlement
Charges:
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12
BTF is the most convenient, flexible, economical and easy-to-use loan facility designed to suit
customer needs and gives them the power to control their finances. It offers a variety of features
that provide the spending convenience a customer actually craves for.
Markup of BTF
Slabs
Benchmark
26.0%
29.9%
Schedule of Charges
Enhancement Fee
Up to Rs. 1,500/-
Up to Rs. 150/-
Personal Loans
Whether a customer want s to reorganise their finances, pay for a major purchase such as a car or
home improvements or simply give themselves more financial flexibility, RBS offer a range of
affordable loan options.
Benchmark
Salaried A&B
22.0%
Salaried C
25.0%
22.0%
29.99%
Unapproved Segment
28.0%
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Slabs
13
Schedule of Charges:
Processing fee*
Platinum Credit Card: It provides luxurious facilities to the customers and they can enjoy a
selection of the finest privileges complementing their superior preferences and lifestyle.
Air blue Credit Card: We can take credit to spend on Fuel Groceries, Restaurants, utilities,
entertainment, and anywhere else. Its a master card of RBS.
Gold Credit Card: Our Gold Credit Card charges a fixed rate on transferred balances, until they
are repaid. It could help to shrink your balance. This offer is available exclusively to existing RBS
current account customers and only available online.
Benchmark
39.0%
39.0%
18.0%
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Slabs
Schedule of Charges:
Annual Fees
Primary Cards
Supplementary Cards
Joining Fees*
Primary Cards
Supplementary Cards
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15
Tenure in months
6
12
18
24
30
36
42
48
54
60
CREDIT POLICY
GENERAL DEFINITION:
Credit Policy is the clear, written guidelines that set the following basic things:
(1) The terms and conditions for supplying goods on credit
(2) Customer qualification criteria
(3) Procedure for making collections
(4) Steps to be taken in case of customer delinquency.
It is also called collection policy4.
OBJECTIVES:
SBP regulations and economic conditions are kept in mind while designing the techniques and
objectives for credit management strategy. Following are some of the objectives of SPCBs credit
policy:
o Enable the bank to develop long-term business plans.
o Equip the bank to face the ever changing competitive scenario more effectively and act proactively
rather than reactively.
o To be a source of confidence to the lending officers and enable them to operate more effectively
within the framework of approved delegated authority.
o Provide a framework of reference and standards and to enable the bank to provide uniform
treatment to the borrowing customers.
o Provide guidance for what to do, not how to do.
o Properly serve the credit needs of current customers by satisfying them and establish long-term
relationship with them.
o Provide a framework in which to conduct business.
Source:businessdictionary.com
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16
bank should keep 2% of its total capital as reserves with the State
Net Assets of RBS as on June
Bank. SBP approves every loan and provides comprehensive
30, 2009 are Rs.
9,346,762,000.
directions to every bank in the prudential regulations. These
instructions are same for every bank but banks could make certain
changes in the level of deposits, advancement ratio and their loan portfolio. Total amount of loan
advancement is totally dependent on SPCBs credibility situation.
DIVERSIFICATION:
RBS being a clever financial institution doesnt invest in just one sector. It follows the basic rule
i.e.
LIMIT OF LOANS
50 million
50-350million
Above 350 million
Agriculture
financing is just 12% because SBP
makes it essential
for the bank.
SAFETY:
RBS follow the SAFETY-FIRST principle i.e. Money given as loan
must be used properly. The credit risk management department handles this principle.
The following five elements(Cs) help a banker in
arriving at the conclusion regarding safety.
Character: Borrowers intention to repay the
RBS focuses on 3cs:
advance, since his honesty and integrity is of
CHARACTER,
CAPITAL.CAPACITY
significance.
Capacity: Mixture of academics and experience in
the relative field and ability to repay. And How well
do we understand and know the relevant customer.
Capital: it means how much you are willing to invest your money.SBP restricts the
misuse of banks money.
Conditions: Bank should analyze the economic, business and socioeconomic
conditions to secure the loan.
Cash-flows: Cash flow statement of the customer should be analyzed to secure the
loan. We analyze the inflow and outflow of cash.
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SECTORS
Small Medium Enterprise (SME)
Commercial Sector
Global banking and Markets
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LIQUIDITY: bank should analyze the liquidity condition of its and its
customer.
PROFITIBILITY: Profits are as important to RBS as are to the other
organizations as they also have different types of expenses. The
main source of income for RBS is the amount it charges from its
customers as mark up. Therefore, the RBS may prefer a customer
with low risk and reasonable markup to ensure an optimal profit.
Liquidity condition
means tendency of
convertibility of
assets into cash.
DESIRABILITY: RBS focuses that money should be used for agreed purposes.
CREDIT RISK AND RETURN: The Credit risk management focuses risks associated with
the loans and their repayments.RBS focuses on short term loans to avoid defaults.
CENTRALIZED AUTHORITY:
The decision making power regarding credit policy and any loan approvals is centralized in RBS. They are
moving toward the hub concept. This has a negative impact on potential or prospective customers
because any person wanting to acquire a small loan in a few days time has to wait a lot and as a result a
number of applicants cannot be satisfied. RBS credit policy hinders such activity because having no
power and setup to verify credentials etc, the process at the head office takes minimum 15days. But this
step is also going to show the confidential output by bank.
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18
RBS extends loan to almost all the sectors except for certain unapproved segments. However, RBS
focuses on consumer, commercial, corporate, agriculture, construction, engineering, automobiles and
fertilizers sector. No loans are available for textile sector this time because of the bad conditions of this
sector. RBS is moved the directions of its credit policy toward the recovery of its loans.
NICHE MARKETING
Their marketing objectives and techniques are based on niche marketing. They target on salaried class
which they have named as Category A. This is because salaried class is more conscious about making the
payments on time and it is easier to recover loan from them as compared to any other class. In current
economic conditions of Pakistan and worldwide recession, its the basic pillar of RBS which is not only
secured but also profitable but because of rapidly unemployment, RBS not advancing loans to this sector
but again we will say that they are not destroying their customers of this sector even at the time of
recovery. They are providing their non funded facility mostly to salaried based sector after all they are
golden pillars of RBS.
UNAPPROVED SEGMENTS
Unapproved segments are the segments to which bank does not extend loan due to some reasons.
These include lawyers, journalists, farmers, money changers, politicians.
PATTERN OF INSTALLMENTS
RBS prefers quarterly payments as part of their selling terms set with the customers in advancement of
the loan. However, such terms may vary from customer to customer and situation to situation.
CREDIT CARD
Client can withdraw cash up to 75% of the available shared credit limit (if he is holding more than one
RBS Credit Card). For example, if your shared credit limit is PKR 300,000 and your cash withdrawal limit
is 75%, you can withdraw up to PKR 225,000.
NPL Ratio
RBS NPL ratio is comparatively good if we consider the financial crisis and current position of the bank.
Reason behind this is that they dont accrue their revenues .Instead they are recorded when actually
incurred. Thats why their books show the good position.
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Their policy also changed according to risks and opportunities in the market like payment incentives
54(flat rate, computed rate) and low risk credit policies (advance payment & LC). So according to this
policy, now a day RBS is working with flat rate
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The credit policy is revised at least quarterly to incorporate the economic and financial changes in the
country. Similarly, any change in the prudential regulations by the State Bank of Pakistan and socioeconomical factors can prompt the bank to revise its policy in the given scenario accordingly.
INCOME REQUIREMENT
Minimum Income of Salaried, SEB, SEP, NTI & Branch Banking Segment are:
Segments
A,B,C, Unapproved & Contractual
SEP
SEB/ NTI *
Branch Banking
Where;
A includes bankers and clients with a good pay back history. They are given credit up to 4times
of their salary.
B includes all the employees related to the textile sector. They are given credit up to 3times of
their salary.
C includes the government employees. They are given credit up to 2times of their salary.
Unapproved are given credit up to2 times of their salary.
LC FACILITY
RBS focused on hypothecate based facility.
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Bank focuses on financing backed up by a security. Because there is no proper documentation system
and Corruption rate is high!!
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SAFTY MARGIN:
For funded based facilities: 10 to 25 percent is the average safety margin rate. It varies
customer to customer. Its also varies by securities and liquidity position of the customers.0%
safety margin can also be for those customers who are most reliable customers.
For non- funded based facilities: on average the 15% to 35% safety margin is taken.
If government has to stop the imports of anything to support the local production, SBP ordered to
increase this safety margin. For critical items like perishable items this safety margin can be 100%.
SPREAD:
RBS is stated to be charging around 2%-4% spread to its customers with negotiations or bargains with
customers even though they might not always be providing ancillary business to RBS. This depends on
the customers track record and his credibility.
RBS invests extensively in mortgages and as fewer mortgage investments are present, RBS has the
opportunity to charge high mark ups. The high charges cover the costs incurred on those who have
defaulted.
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RBS deals with flat rate because flat rate does not consider TIME VALUE CONSTRAINT. Being customer
friendly it helps the customer to forecast his budget .this is rate is not affected by economic conditions.
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PAYMENT INCENTIVES:
Sole Proprietor:
Call report
Id card.
Address and other business related information.
BBFS (Borrower Basic Fact Sheet).
E-CIB report.(Electronic Credit Information Bureau Report)
Credit Worthiness Report
Bankers Report
Partnership:
Call report
Id card.
Address and other business related information.
BBFS (Borrower Basic Fact Sheet).
E-CIB report.(Electronic Credit Information Bureau Report)
Partnership deed.
Credit Worthiness Report
Bankers Report
Company:
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Call report
Basic Information Report
Companys e-CIB report.
Id cards of Directors.
Financial Statements.
Directors search and Assets Charges search report.
BBFS (Borrower Basic Fact Sheet).
Credit Worthiness Report
Bankers report
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Security Based:
Based on different securities, bank requires the following documents:
Cash deposit: Letter of Lien on cash deposit with the signature of borrower.
Govt. securities: Letter of Lien on Govt. securities e.g.; T-Bills etc.
Shares: Letter of Lien obtained by bank with the help of ID assigned by SECP.
Property:
Title document:
o Sale deed
o Lease deed
o Transfer letter
Memorandum of deposit of title deed.
Personal guarantee by third party.
Letter of Lien on property.
Approved map of the location where the property is located.
General Power of Attorney (GPA).
PT-1 form is required for old cities, which had been settled by Settlement Commission during
partition.
Mortgage Deed (except DHA).
Faard and Letter of Lien are required from registrar in case of agriculture land.
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23
SUGGESTIONS
24
A strong forum of all the stakeholders should be made, where the state representatives,
industrialists, bankers and the concerned people can gather together and give valuable
suggestions for the betterment of the whole financial system e.g.; Federal Reserve of U.S.A.
SECP should be more helpful to the banks; it should work more efficiently in providing the
details of Ranking charges and Pari-Pasu charges.
Keeping the current economic scenario of the country, RBS must also focus on agriculture
sector because Pakistan is an agricultural country and providing loans to this sector will lead
towards prosperity.
RBS should give a customer friendly credit facilities at most in each of its branches so that the
customer feels more convenient.
RBS should held meetings and seminars for their customers to give them suggestions and
advices to improve their credit worthiness. Moreover to guide the customers about their loan
products and procedures.
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CONCLUSION
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25
Due to worldwide recession RBS has faced huge losses in current times; RBS in Pakistan is not
advancing long-term loans to corporate sector or other sectors as well due to the bad social and
economic conditions in the country. When RBS re-branded the name of ABN-AMRO formally
last year, total branches of RBS in Pakistan were 85 but now the number has reduced to 73.
Similarly the net value of assets of RBS in Pakistan has also been reduced to 23 billion PKR from
73 billion PKR. Moreover, more than 90% share of RBS Pakistan has been purchased by MCB
and this take over will be completed in the upcoming year. In the current business environment
with reduced sales and threats of recession RBS is under great pressure to manage their cash
flows productively; in this regard RBS has kept somehow a lenient credit policy (in consumer
financing i.e. short-term) as compared to other banks so that it may be able to retain its
customers in future for upcoming year.