18-10-05 - Loan Procedure 2015

Wegagen Bank S.
Credit
Procedure
Credit Procedure Page 1

Wegagen Bank S.C
July, 2015

Wegagen Bank S.C
Tables of Content
Chapter One
1. Introduction.........................................................................................................1
1.1. Background....................................................................................................1
1.2. Objective of the Credit Procedure..................................................................1
1.3. Governing Rules..............................................................................................1
1.4. Credit Process Structure................................................................................2
Chapter Two
2. Authority and Responsibility.............................................................................4
2.1. The President/CEO..............................................................................................4
2.2. V/P – Operations................................................................................................5
2.3. Director – Customer Relationship Management...............................................5
2.4. Director – Credit Appraisal................................................................................6
2.5. Manager – Credit Portfolio................................................................................7
2.6. Manager – Loans Workout...............................................................................8
2.7. Credit Approving Committee...........................................................................8
2.8. Chairman of Credit Approving Committee.......................................................8
2.9All Credit Officials................................................................................................9
Chapter Three
3.General Eligibility and Customer Classification....................................................10
3.1. General Eligibility.............................................................................................10
3.2. Credit Customer Classification......................................................................12
3.2.1. Objective....................................................................................................12
3.2.2. Scope of Classification...............................................................................12
Credit Procedure Page i

Wegagen Bank S.C
3.2.3. Responsible organ for Credit Customer classification...............................12

3.2.4. Credit Customer classification Parameters and Time...............................13
3.2.5. Credit customer classification Matrix........................................................14
Chapter Four
4. Credit Products and New Product Development.............................................15
4.1. Credit Products.............................................................................................15
4.1.1. Working Capital Loan:...............................................................................15
4.1.1.1 Overdraft Facility......................................................................................15
4.1.1.2.Overdrawal...............................................................................................17
4.1.1.3.Merchandise Loan Facility........................................................................17
4.1.1.3.1.Merchandise Loan Againt Goods in Transit...........................................23
4.1.1.4Warehouse Receipt Financing..................................................................24
4.1.1.5.Import Letter of Credit Facility................................................................25
4.1.1.6.Pre-shipment Export Credit (PEC)...........................................................26
4.1.1.6.1.Pre-Shipment Export Credit Facility against DBE Guarantee...............28
4.1.1.6.2.Pre-shipment Export Credit Facility against sales contract or L/ C.....28
4.1.1.6.3.Pre-shipment Export Credit Facility without sales contract................31
4.1.1.7.Advance Against Export Bills (AAEB)......................................................32
4.1.1.8.Letter of Guarantee (L/G)........................................................................33
4.1.1.9.Issuance of Letter of Guarantee ............................................................34
4.1.1.10.Procedure for handling guarantee claims.............................................37
4.1.2. Term Loan:.................................................................................................38
4.1.2.1.Agricultural Term Loan :..........................................................................39
4.1.2.2.Coffee Farm Term Loan Financing..........................................................40
4.1.2.3.Letter of Credit Settlement Loan............................................................41
4.1.2.4.Consulting Firm Financing.......................................................................42
Credit Procedure Page ii

Wegagen Bank S.C
4.1.2.5.Construction Bridge Term Loans (CBR):..................................................43

4.1.2.6.Inter - Bank Lending................................................................................43
4.1.2.7.Supply Chain Financing...........................................................................44
4.1.2.7.1.Specific Qualifyng Criterion..................................................................45
4.1.2.8.Micro-Finance Institution’s Loan............................................................45
4.1.2.8.1. Sepecific Qualifing Criterion................................................................45
4.1.3. Asset and Project finance..........................................................................46
4.1.4. Asset Finance ............................................................................................46
4.1.4.1.Types of Asset Finance Loan by Purpose................................................46
4.1.4.2.Construction Machinery or Equipment Loan..........................................46
4.1.4.3.Transport /Motor Vehicle Loan:..............................................................48
4.1.4.4.Agricultural Equipment Loan..................................................................51
4.1.4.5.Property Disposal Loan...........................................................................52
4.1.4.6.Mortgage Term Loans.............................................................................55
4.1.4.7.Project Financing.....................................................................................55
4.1.4.8.Project Financing Term Loans ................................................................57
4.1.4.9.Fundamental Aspect of syndicate Financing..........................................59
4.1.4.10.Loan Buyout..........................................................................................62
4.2 New Product Development and Approval...................................................63
Chapter Five
5. Credit Processing..............................................................................................64
5.1 Lending process initiation............................................................................64
5.2 Preliminary Interview..................................................................................66
5.3 Required document collected from credit applicant..................................67
5.4 Customer Business Visit...............................................................................68
5.5 Credit Information.......................................................................................69
Credit Procedure Page iii

Wegagen Bank S.C
5.6 Loan Approval Form (LAF)..........................................................................69

5.7 Credit Service Delivery Time (CSDT)............................................................70
5.8 Credit Analysis/Appraisal..............................................................................71
5.9 Credit Negotiation........................................................................................73
5.10 Credit processing procedures for selected credit product.........................73
5.10.1Project Loan Appraisal Process.................................................................73
5.10.1.1Task of customer Relationship Management.........................................73
5.10.1.2Task of Credit Appraisal Sub Process.....................................................74
Chapter Six
6. Credit Risk Rating..............................................................................................76
6.1 Credit Risk Grading......................................................................................76
6.2 Objectives.....................................................................................................76
6.3 Scope of application....................................................................................76
6.4 Authority and Responsibility.......................................................................76
6.5 Risk rating of affiliated borrowers/Linked Lending.....................................77
6.6 Borrowers’ Credit Risk Grading: Attribute, Process and Implication..........77
6.6.1Loan Account Performance........................................................................78
6.6.1.1Overdraft Facility.....................................................................................79
6.6.1.2Term Loans & one-Time Merchandise Loans...........................................79
6.6.1.3Revolving Credit Facilities.......................................................................80
6.6.1.3.1Revolving Merchandise Loans...............................................................80
6.6.1.3.2Revolving Merchandise Loans (Coffee)................................................80
6.6.1.3.3Pre-shimpent Export Credit..................................................................80
6.6.1.3.4Advance Against Export Bills................................................................81
6.6.1.3.5Revolving Letter of Credit Facilities......................................................81
6.6.1.4Advance Payment & Performance Bond Guarantees..............................81
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6.6.2 Financial Management System.................................................................82

6.6.3 Business Management..............................................................................83
6.6.4 Business/Industry Risk.............................................................................84
6.6.5 Customer Character and Relationship Risk............................................84
6.7 Interpretation of credit risk grades.............................................................85
6.8 Other Provision and Exception....................................................................87
6.9 Period of Rating/Grading.............................................................................87
6.10 Preparation of individual risk grading Action Plan follows up..................87
CHAPTER SEVEN
7. Collateral/Securities.............................................................................................88
7.1 Guiding Principle..........................................................................................88
7.2 Acceptable Collateral...................................................................................89
7.3 Collateral Types and Valuation....................................................................89
7.3.1 Collateral Types..........................................................................................89
7.3.2Collateral Appraisal Process.......................................................................96
7.3.3Collateral Assessment.................................................................................97
7.3.3.1Construction Machinery...........................................................................99
7.3.3.2Agricultural Machinery............................................................................99
7.3.3.3Mortgage Over Plants & Machinery........................................................99
7.3.3.4Merchandise...........................................................................................100
7.4 Clean loan criterion.....................................................................................101
7.5 Revaluation of Collateral............................................................................102
7.6 Release or Replacement of Collateral........................................................102
7.7 Legal Defects..............................................................................................103
CHAPTER EIGHT
8. Credit Approval System..................................................................... 104
Credit Procedure Page v

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8.1 Credit Decision Scheme and Process..........................................................104

8.1.1 Pervasive Guiding Principle......................................................................104
8.2 Lending Decision-Making Organs...............................................................105
8.2.1 Discretionary Lending Limit Authority.....................................................107
8.3 Quorum......................................................................................................108
8.4 The Credit Decision-Making Process..........................................................109
Chapter Nine
9.Contracts, Disbursement and Loan File Administration....................................11113
9.1 Communicating Credit Decision...............................................................11113
9.2 Appeal.......................................................................................................11113
9.3 Contracts designing, preparation and registration....................................113
9.4 Insurance.....................................................................................................115
9.5 Loan Disbursement.....................................................................................117
9.6 Loan Documentation..................................................................................120
9.7 Loan File Management................................................................................121
9.8 Loan Files Dispatch Procedure....................................................................122
Chapter Ten
10. Regular Loan Follow –Up Collection..................................................................123
10.1The Need for Regular Loan Follow-Up........................................................123
10.2 Early Warning Signals in Regular Loan Follow-UP...................................123
10.3 Regular Loan Follow-Up............................................................................124
10.4 Types of Regular Loan Follow-Up.............................................................126
10.4.1Physical Follow-up....................................................................................127
10.4.2Financing Follow-up.................................................................................127
10.4.3Legal Follow-up.......................................................................................128
Credit Procedure Page vi

Wegagen Bank S.C
10.5 Project Loan Follow-Up.............................................................................128

10.6 Pre-Shipment Loan Follow-Up..................................................................130
10.7 Evaluation of performing Loan Follow-Up Activity..................................130
10.8 Information expected to be reported by borrowers................................131
10.9 Loan Collection..........................................................................................131
CHAPTER ELEVEN
11.Non-Performing Loans Management................................................133
11.1 Overview.....................................................................................................133
11.2 Definition....................................................................................................133
11.3 Workout Principles.....................................................................................135
11.4 Conditions for Loan Cases Transfer to the Loan Workout.........................136
11.5 Workout Loan Process................................................................................137
11.6 Workout Loan Negotiation........................................................................140
11.6.1 Negotiation..............................................................................................140
11.7 Loan Workout Strategies:...........................................................................141
11.8 Detail Procedures of Loan Workout Strategies.........................................140
11.8.1Restructuring /Extension..........................................................................140
11.8.2Restructuring of NPLs that are not transferred for Legal Action............141
11.8.3Restructuring of NPLs under ALD (After Foreclosure/..............................141
11.8.4Restructuring with Injection of Additional Loan.....................................143
11.8.5Restructuring with Additional Collateral.................................................143
11.8.6Changing the form of the loan fully,or partially.....................................144
11.8.7 Settlement in Cash...................................................................................144
11.8.8Partial Settlement of a loan through voluntary Liquidation ..................145
11.8.9Rearrangement of the loan repayment structure...................................146
11.8.10Waiver of Repayments...........................................................................146
Credit Procedure Page vii

Wegagen Bank S.C
11.8.11 Injection of Additional Fund...................................................................147

11.8.12 Partial Liquidation of the Property........................................................147
11.9 Re-Transfer of Regularized Loans..............................................................149
11.10Application of Penalty Rate on NPLs........................................................150
11.11 Legal (Foreclosure and Litigation) Process..............................................150
11.12 Litigation Process......................................................................................156
11.13 Acquisition of Property.............................................................................159
11.14 Exception to Legal Processes....................................................................159
11.15 Write-Off Procedure for Loans and Advances..........................................159
11.16Loan Workout Follow-up..........................................................................165
11.16.1Types of Loan Workout Follow-Up.........................................................166
CHAPTER TWELVE
12. Credit Decision on Exceptions..........................................................................168
12.1 Definitions..................................................................................................168
12.1.1 Deviations................................................................................................168
12.1.2 Exceptions................................................................................................168
12.2Revision of the Credit Procedure...............................................................169
12.3Repeal.........................................................................................................169
12.4Effective date..............................................................................................169
Credit Procedure Page viii

Wegagen Bank S.C
Chapter One
1. Introduction
1.1. Background
Wegagen Bank has aimed to bring about fundamental institutional level

changes in core business processes and the overall organizational structure of
the Bank where credit operations was subject to a rigorous scrutiny for it
amounts and continues to be the largest source of income to the Bank.
Therefore, the existing credit procedure has been changed in line with the
Bank’s organizational re-structuring .
1.2. Objective of the Credit Procedure
o To enhance credit process contribution towards the realization of the

Bank’s vision
o To enhance monitoring and control over credit operations
o To ensure standardization and uniformity on credit process
o To institute transparency and credibility
o To clearly specify duties and responsibilities of credit officials
o To promote and exercise prudent lending practices and working culture
o To implement the credit policy
1.3. Governing Rules
The overall credit processing and credit management should comply with
I. Applicable laws, regulations, conventions of the country

II. Regulatory organ’s directives
III. Self-credit policy

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IV. Risk Management and internal control guideline
1.4. Credit Process Structure
The credit process being one of the core process of the Bank, organized under
the CEO with Vice President Operations. For proper governance of the process
in line with afore stated objectives, the following shall be the structure of credit
operation.

Wegagen Bank S.C
Wegagen Bank Credit Processing Structure
The President/CEO
Vice President-Operations
Director- Credit Director- Customer

Appraisal&Portfolio Relationship
Management Management
 Sr. Credit Analyst  Sr. CRM

 Credit Analyst  CRM
 PropertyAssessor  Credit Administrator
(Checker)  Property
Assessor(Maker)
 Attorney
Credit Portfolio District Manager

Manager  CRM (Commercial
Legal Directorate cases)
 Sr.Credit Monitoring  Credit Administrator
Officer  Property Assessor
 Credit Monitoring Officer (Maker)
 Sr.–Credit Information  Attorney
Official
 Credit Information Officer
Loans Workout Manager
 Sr. Loans Workout Officer

District Credit Appraisal  Loans Workout Officer
Team  Sr. Legal Attorney
 Manager - Credit Appraisal  Legal Attorney
 Credit Analyst  Surveillance Officer/Legal aid
 Property Assessor
(Checker)
 Loans Workout Officer
 Attorney
 Credit Monitoring Officer
Credit Procedure
 Legal aid Page 3
Wegagen Bank S.C
Chapter Two
2. Authority and Responsibility
2.1. The President/CEO
1. The President has full credit approval authority at his /her discretion;
2. Decides on credit approval and problem loans resolution strategy.
However, he/she can delegate the credit approval and NPL resolution
authority to other teams or individuals.
3. Review, set, cancel and suspend lending approval and NPLs resolution
authority limit for all level of sanctioning as deemed necessary.
4. Approves credit procedures crafted within the scope of this credit policy
5. Approve and issue emergent circulars as deemed necessary;
6. Ensures credit related laws, regulations and directives enforcement by
concerned operating organ.
7. Ensure integration and alignment of the credit process with other
processes of the Bank.
8. Ascertain the overall Bank’s credit portfolio and management prudence
and quality
9. Decides on loan sanctioning limit
10. Ensure sound implementation of the Bank’s credit policy, procedures
and credit decisions following approval;
11. Take a leading role in credit policy change if necessary.
12. Initiate, review and approves the loan pricing of the Bank
13. Promotes team based check and balance induced credit
processing/management practice regularly
14. Review credit portfolio concentration and maintain within the tolerable
limit;

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15. Ensuring the implementation of controls that enforce the adherence to

established credit and risk elements;
2.2. V/P – Operations
1. Oversee and guides the overall credit analysis process of all loans and
advances;
2. Ensure existence of cross functional strategic alignment for an effective and
profitable fund utilization;
3. Initiate credit processing procedures and issue emergent circulars as deemed
necessary;
4. Follow-up timely development of the credit procedure of the Bank;
5. Assumes responsibility for smooth day to day operation and proper
implementation of credit policies, procedures and credit decisions;
6. Review credit portfolio concentration and ensure bank’s tolerance limit are
maintained;
7. Monitor timely development of loan pricing proposal and review it for the
consumption of the president;
8. Decide on loan proposals together with other committee members;
9. Ensure development and execution of action plan to maintain the bank’s loan
portfolio quality regularly;
10.Oversees the smooth operation of team based and check and balance induced
credit management practice;
11.Ensure prevalence of Legal and regulatory compliances in relation to credit;
12.Ensure that bank’s risk management and internal auditors reports are
proactively and timely rectified to minimize the bank’s credit risk exposure
periodically;
13.Ensure adequacy of the internal control system and compliance with credit
policy and procedure.
2.3. Director – Customer Relationship Management

Wegagen Bank S.C
1. Effectively coordinates the sub process customer relationship management day

to day tasks and coach and mentor performers in the team;
2. Regularly ensure the prevalence of single point of contact for customer;

3. Coordinate, recruit potential customers, maintain the exiting customers and
establish excellent customer relationship;
4. Ensure all the documents required for credit application processing are
adequately collected and updated across period;
5. Ensure that all loan requests are responded in line with the pre-specified
standard loan delivery time;
6. Make sure that deteriorating loans and advances are timely resolved;
7. Conduct loan follow up on case by case basis and ensure quality of loans and
advances;
8. Provide periodic follow up reports to the credit portfolio management team or
credit appraisal and loan recovery teams;
9. Ensure proper and timely classification of customers per the laid down
procedure;
10.Ascertain all collateral property valuation computed per the procedure on time;
11.Decide on loan approvals with other committee members;
2.4. Director – Credit Appraisal
1. Guides and coordinates the overall credit analysis and portfolio

management process of all loans and advances ;
2. Ensure fulfillment of all required loan processing documents and
information from Customer Relationship Management Team,
information/data/research from the database of the Bank (if available), or
from the market as deemed necessary before or while credit analysis is
conducted;
3. Ensure quality of credit appraisal and compliance with the standard loan
delivery time

Wegagen Bank S.C
4. Ascertain credit risk grading of each loan case conducted up on request and
on bulk review basis in a check and balance way;
5. Make sure existence of independent credit analysis on each credit requests;
6. Make sure maker- checker duties on each collateral are properly and timely
computed;
7. Decide on loan approvals with other committee members;

8. Monitor timely and proper classification and provisioning of loans and
advances regularly;
9. Ensure timelines and proper credit research and various report preparation
for internal and external purposes periodically;
10.Monitor and guide smooth functioning of the credit information exchange
system per NBE directive.
2.5. Manager – Credit Portfolio
1. Guides and coordinates the overall credit portfolio management process of

the bank;
2. Performs and prepare reports for provisioning of loan and advances
regularly;
3. Produce various loan reports for internal and NBE consumption;
4. Prepares loan portfolio reports to ensure that the Bank maintains a
balanced and managed credit concentration across different sectors,
geographical areas, maturities and product types based on the risk
appetites/ tolerance limit of the bank;
5. Compiles and reviews periodic follow up reports of Customer Relationship
Management Team and ensure effective follow up of loans and advances is
in place as per the Bank’s requirement;
6. Maintains relevant data/research/appraisal reports, written- off loans for
the consumption of credit analysis;
7. Ensures the timely rectification of audit findings related with credit process;
8. Proposes revision of credit policy and procedure;

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9. Make sure the designated credit information exchange performers support

credit process and comply per the pertinent directive;
10.Decide on loan approvals with other committee members;
2.6. Manager – Loans Workout
1. Guides and coordinates the overall loan recovery activities of the Bank;
2. Conducts negotiation with the borrowers of problem loans and advances,
propose resolution mechanisms,
3. Follow-up the re-structured loans and borrower’s business until the loans
and advances becomes regular;
4. Follow up and execute legal actions (foreclosure/litigation) and searches for
attachable properties in collaboration with lending branch;
5. Propose full or partial write-off of loans and advances after executing all
possible means;
6. Conducts post write- off follow up in collaboration with the concerned
branches and stakeholders of the bank;
7. Maintains register book/data for written-off loans and advances;
8. Prepare periodic follow-up reports and forward to the Credit Portfolio
Management Team & Risk and Compliance Directorate;
9. Decide on problem loan resolutions with other credit workout approving
committee members.
2.7. Credit Approving Committee
1. Review and decides on loan propositions based on its discretionary limits;

2. Ensure that all loan propositions are made in line with the Bank’s credit
policy and procedure and other directives;
3. Ensure that all loan propositions get timely decisions.

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2.8. Chairman of Credit Approving Committee
1. Guides the loan decision making;

2. Schedules the loan approving meetings;
3. Identify loan approval shortfall shares to the committee member.
2.9 All Credit Officials
Each individual/team involved in credit processing, approval or any other

credit related activities is responsible for becoming aware of credit policy and
procedure of the bank and directives of regulatory organ. Any negligence
and/or ignorance practices against these governing rules will bring
accountability.

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Chapter Three
3.General Eligibility and Customer Classification
3.1. General Eligibility
All customers applying for any type of credit facility must fulfill the following eligibility
criteria in general.
i. All persons (legal/physical) engaged in lawful trading activities and creditworthy

business is/are eligible to borrow business loans.
ii. All persons who have defined and sustainable source of income are eligible to
borrow consumer loans.
iii. The borrower/applicant should present active trade license for a current fiscal
year or investment license and principal registration certificate for new projects.
iv. Applicants/borrowers or guarantors or mortgagors must present a Tax

Identification Number/ TIN/ and if engaged in business Tax privilege certificate
for all of their income.
v. Applicants/borrowers or guarantors or mortgagors must present a Tax

Identification Number/ TIN/ and if engaged in business Tax privilege certificate
for all of their income. But Ethiopians and foreigners living abroad linked to
loan applications as guarantor, stakeholder or spouse of loan applicants or
guarantors are exempted until further notification by NBE.
vi. All borrowers or guarantors or mortgagors who are engaged in business must
present tax clearance certificate.
vii. The applicant and/or any of its major shareholders/subsidiaries must not have
any non-performing loans in any bank.

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viii. The applicant and/or any of its Major shareholders in a PLC, share company,
partnerships or corporate entities with 2% or above share of the prescribed
capital of such businesses shall have no NPLs record with the Wegagen bank or
any other bank;
ix. Without prejudice to statements given by article ‘vii’ herein above, although
credit history of an applicant may show previous defaults due to acceptable
reasons with Wegagen and other banks, if due diligence assessments report
confirms that the current statuses of the applicant is acceptable, his application
may be accepted;
x. The applicant and/or any of its major shareholders subsidiaries shall fully
settle any previous loss record to the Bank. To that effect, internal records shall
be thoroughly checked.
xi. The applicant must not have any record of mal-operation of checking account
in the banking system until the rehabilitation period is expired.
xii. The applicant must have never been engaged in tax evasion, or in a breach of
foreign exchange transaction regulation or in any other illegal/unlawful
dealings
xiii. The Credit Information Unit of the Portfolio Management Division is responsible
to collect, compile, and provide the information when requested, for the above
mentioned information under No. 7, 8 9and 10. To this effect, the Customer
Relationship Manager or Loan workout Officer as appropriate shall be
responsible to feed required bank’s borrower data on the credit reference
system and access the credit information from credit information system.
xiv. The applicant/borrower shall fulfill at least the required minimum equity
contribution but not from debt financing.
xv. The applicant and or his/her/its guarantor(s) shall give a written and signed
consent for the access of his/her/its credit information maintained with Credit
Reference System and sharing of same among all other banks.

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xvi. The applicant/borrower has to present all the documents/information

demanded by the Bank for the credit request processing purpose.
xvii. The applicant’s/borrower’s business must be legally acceptable, financially

viable, and technically feasible.
xviii. The applicant must be classified as Grade A or B or C. However, in exceptional

cases, new or additional credit may be considered for other Grades.
xix. The applicant/borrower has to fulfill the specific eligibility criteria for each type
of loan/credit facility as indicated in the credit product line.
3.2. Credit Customer Classification

3.2.1. Objective
Customer classification is segmentation of the wide ranging credit customers based

on their behavior and value to the bank’s profitability and growth with the aim of
achieving service excellence, availing tailored services flexibly, managing risk and
enhancing customer satisfaction.
3.2.2. Scope of Classification
The scope of the classification is limited to all established or potential business

customers undertaking lawful business activities. It also include with some
exception none business customers of the bank who can produce the relevant
document.
3.2.3. Responsible organ for Credit Customer classification
The mandate for classification and reclassification of credit customers is given to the
under listed credit processing performers at various level to ensure prudence with
responsibility.
a. When the customer is new, the Director- Credit Customer relationship shall
classify customers based on the documents and information available.

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b. The Credit Research and Portfolio Management Team shall revise the
customer’s classifications annually
c. Customers Relationship Manager will be assigned for each of the customers

classified as corporate and commercial;
3.2.4. Credit Customer classification Parameters and Time
The Bank shall classify its customers as trading and non-trading whereas the
trading customers include corporate and commercial classes while non-trading
customers are classified as consumer customers based on the service they require
such as personal loan, mortgage loan, car loan, educational loan, etc,.
The Bank applies the following criteria to classify its trading customers
i. Sales Turnover; (20%)
ii. Volume of credit Service/Product exposure with the Bank; (25%)
iii. Income generated from the customer; (30%)
iv. Customer Credit risk grade; (25%)
Weighted Credit Customer Classification Criterion
Criterion Range in Amount Credit Risk Type of

Weight Rating / Financial
Statement
20%  Audited
Customer’s Sales >25,000,000 10%  Provisional

Turnover (W)

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15%  Audited
10,000,000 < W< 25,000,000 8%  Provisional
10%  Audited
< 10,000,000 5%  Provisional
3%  CCR
Volume of credit >30,000,000 25%

Service/Product
exposure with the 20,000,000< X<
20%
Bank (X) 30,000,000
20,000,000< X<
15%
10,000,000
< 10,000,000 10%
> 5,000,000 30%
Income generated 3,000,000<Y< 5,000,000 20%

from the customer
(Y) 1,000,000<Y< 3,000,000 10%
< 1,000,000 5%
Customer Credit 25%  A

risk grade
15%  B
10%  C
5%  D
0  <E
3.2.5. Credit customer classification Matrix
Weighted Score (S)

Existing Borrower New Borrower
Classification category
Corporate 70 < S<100 50 < S<70

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Commercial S < 70 S< 50
N.B:Existing customer will be rated out of 100%
New customers will be rated out of 70%

Wegagen Bank S.C
Chapter Four
4. Credit Products and New Product Development
4.1. Credit Products
4.1.1. Working Capital Loan:
a) It is a loan extended by the Bank to bridge finance short-term financial

constraints/ cash flow problem of the borrower’s business.
b) It is availed by determining working capital requirement of the business using

appropriate technique based on historical financial information, business plan
supported by forecasted cash flow of the business ; and
c) The bank avails working capital finance to all credit worthy businesses in all
sectors. Some of the most common are merchandising businesses, import,
transport service, manufacturing, construction, star rated hotel and guest
houses, health service, miscellaneous domestic trading and service businesses
etc
Specific Qualifying Criterion
i. All applicable general eligibility criterion should be fulfilled

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ii. All applicants for working capital loan must submit a business plan as
appropriate revealing the applicants ability to meet its repayment
obligations for the working capital loans;
iii. Present all other relevant documents/information demanded by the Bank
4.1.1.1. Overdraft Facility
1. An Overdraft is a form of credit facility by which a customer may be

allowed to draw beyond the deposits of its current accounts for the sole
purpose of the day-to-day operational needs of a viable and ongoing
business. The outstanding balance of the Overdraft is repayable on
demand by the Bank. Interest is charged on the Overdraft Facility’s
outstanding debit balance on a daily basis.
2. Overdraft facility is renewable by its nature and usually extended for a

year unless the bank demand it to be reviewed in lesser period if the
utilization performance deteriorates
3. The customer or his/her legal agent must submit renewal request one
month prior to the expiry date, and the Customer Relationship Manager
should advice the customer in writing accordingly.
4. The bank at any time can call back the outstanding O/D loan balance at
any time when its performance deteriorates
5. The performance of overdraft facility shall be evaluated for the preceding

360 days from the ending date of latest calendar quarter per the relevant
NBE directive.
Specific Eligibility Criterion
I. The applicant has to be a customer of the Bank as borrower or depositor for

a period of at least one year with good current account operations. However,
the facility can be granted to new customers as deemed necessary based on

Wegagen Bank S.C
the applicant’s credit-risk grade , collateral strength and on the type of

sector involved
II. The bank promotes customers to have O/D facility in a single bank so as to
closely follow up and determine the utilization performance.
III. The bank may buy out overdraft facility with other banks, provided that the
customer is credit worthy and has excellent utilization performance.
IV. An overdraft facility shall be backed by relatively strong, durable and

acceptable collaterals. However, the Bank may also extend O/D facilities on
a clean basis to reliable exporters and credit-worthy customers.
V. Utilization of the overdraft account (i.e. swing and turnovers) must be

satisfactory to justify renewal for a further period. The performance and
classification of O/D shall be gauged per the requirement of the pertinent
NBE directive.
VI. The customer applying for O/D should present at least provisional financial
statement. But this shall not be considered as contradiction to the
requirement stated under loan processing section of this procedure.
VII. The current account and/or the O/D account performance of a business
with other banks is evaluated before it can establish an O/D facility with the
Wegagen Bank
VIII. The provision of an Overdraft facility shall be considered if the nature of the
business justifies it.
4.1.1.2. Overdrawal
An overdrawal is a temporary facility that grants a customer the right to withdraw a

specified amount of fund over and above the Overdraft limit or current account in
order to meet unexpected seasonal cash shortage.

Wegagen Bank S.C
i. Based on good track record of the customer and good swing and turnover O/D
transaction overdrawal may be allowed for a maximum period of three months
(90 days) and may be approved only twice in period of one year.
ii. Only Credit Approving Committee-A shall decide on Overdrawal requests of

credit customers.
iii. The Overdrawal shall be availed to Credit Risk Grade A or B customers.
iv. A new account shall not be opened only for the mere purpose of overdrawal
operation. Withdrawals & deposits (if any) are recorded in overdraft account.
v. The overdrawal amount shall notexceed 1/3 of the existing overdraft facility
limit
4.1.1.3. Merchandise Loan Facility
A Merchandise Loan is a short-term credit facility, which is granted through

physical possession of the merchandise under dual/sole control arrangement. It
could also be availed against acceptance of railway receipts or truck/airway
bills as documentary evidences for a customer whose credit risk rate is A or B
by undertaking tripartite agreement among the Bank, the customer and
transitory company.
The purpose of a Merchandise Loan Facility is to relieve the customer from

cash-flow problems arising from money being tied up in the merchandise.
General Attribute
The types of merchandise loans facility that the Bank extends are one time or
Revolving.
A. One-time Merchandise Loan: is a facility in which the loan contract

remains in force only up to ninety (90) days. However, depending on the

Wegagen Bank S.C
product nature maturity date of the advance might be extended up to six

month (180 days) by concerned credit committee.
B. Revolving Merchandise Loan: is similar to one time merchandise loan

except that it can be renewed periodically prior to maturity. The maximum
maturity period of revolving merchandise is one year though it is renewable;
1) Merchandise Loan Facility shall be reviewed every year unless the Bank
demands it to be reviewed by the Credit Approving committee for any remedial
action when the performance of the account is deteriorating.
2) Each advance shall be settled within ninety days except for the Merchandise
Loan Facility against export standard coffee that is one hundred eighty days.
3) The amount of Merchandise Loan Facility has to be up to a maximum of 80%

advance rate, depending on the type of merchandise, customer classification
and credit risk grading level. However, for customers who deserve unsecured
loans and advances, the Bank may extend the facility beyond 80% advance.
4) The CRM shall accept Exportable agricultural products on pledge as

merchandise in line with the following condition:
a. Up to 90% of value of the goods can be advanced for handpicked or

machine cleaned and graded coffee supported by a business sales
contract confirming that an irrevocable letter of credit will be opened
before shipment of the goods;
b. 70% of the value can be advanced for un-cleaned, un-graded coffee

without support of sales contract;
c. Handpicked or machine cleaned legume, such as peas, beans, lentils,

broad beans, oil seeds (whenever exports are permitted) supported by a
firm sales contract calling for prime banker’s L/C before shipment up to
90% value of the goods can be advanced;

Wegagen Bank S.C
d. Un-cleaned legume such as peas, beans, lentils, broad beans, oil seeds
without support of sales contract up to 70% of the value of the goods can
be advanced;
e. Other agricultural products such as wheat, maize etc that are supported
by a business sales contract and or letter of undertaking from the buyers
to remit funds directly to Wegagen Bank, up to 70% of the value of the
product can be advanced . Merchandise facility against these goods will
be held only if the bank is confident enough on the quality, price
stability, and available market and/or easy disposability for they might
perish after some time.
5) The CRM shall take due care in case of imported goods for local consumption
are not pledged with the intention of speculating price. Bering this in mind, In
case imported goods, up to 70% of the total valueof the goods excluding VAT
and withholding can be advanced;
6) In case of export merchandise, if the borrower tied up with stock and expect
export proceed through confirmed irrevocable L/C and not related to other
outstanding loan; the bank may occasionally consider release of merchandise
against the same ( i.e, confirmed irrevocable L/C document). The export
proceeds’ has to be channeled to the exporters merchandise loan account and
the CRM should follow up the process.
7) The sum of each outstanding advance at a time made by the Bank can stretch
up to the approved facility limit.
Specific Qualifying criterion
1. Goods acceptable for advance of merchandise or goods to be acceptable as

Wegagen Bank S.C
security, merchandise must meet the following condition:
i. It should be fast moving
ii. Shall be insurable for at least the estimated value of the merchandise
against fire and lightening, burglary/house breaking and flood;
iii. The merchandise should not be highly sensitive to change in consumer

taste;
iv. The price should not be fluctuating;
v. The quality and quantity should not decrease as a result of storage;
vi. It should not be short lived and perishable;
vii. The value should be easily determinable;
viii. It should not be with the intent of hoarding for speculation purpose.
ix. The merchandise should not have a short shelf life, slow moving items
and/or perishable goods whatever purpose they may serve. The following
are some among others
a. Chemicals
b. Packed foods
c. Packed water
d. Pharmaceuticals
e. Perishable food items
f. Salt
g. Batteries
h. Butter
i. Oil
j. Yeast and goods which in the Bank’s view are very risky

Wegagen Bank S.C
k. Obsolete and other risky good
2. The ownership title of the merchandise to be pledged should be ascertained

through documentary evidence.
a) For imported goods, customs declaration must be presented.
b) For locally purchased merchandise, on the other hand, valid invoices should
be presented, and the invoices should be checked against their respective
suppliers. In exceptional circumstance, however, the bank may determine
commodities purchased from farmers inferring official valid market price.
c) For manufactured goods, internal documents (production reports, for

example) have to be presented
3. Borrowers/applicant qualifying for release of merchandise against confirmed

irrevocable L/C document shall score credit risk grade ‘A’ or ‘B’.
4. Commodities with expiry dates shall be assessed before they are accepted as
pledges for a merchandise loan. No loan shall be extended against
commodities whose expiry dates are less than one year.
Management of pledged Merchandise
A. Prior to effecting any disbursement for Merchandise Loan Facility, the Customer
Relationship Manager must visit the storeroom of the merchandise to be
pledged, to verify the types and conditions of the goods and the storeroom, as
presented below.
i. Verify the ownership title of the merchandise through documentary

evidences.
ii. Check and verify the quantity /by conducting a physical count of the
merchandise/ and quality of the pledged merchandise.

Wegagen Bank S.C
iii. Check that the goods to be accepted for security are the same as those
considered by the Credit Approving committee.
iv. Determine the cost of the merchandise. To this effect, information from
Ethiopian Commodity Exchange, Ethiopian Grains Wholesale Trade
Enterprise, and the like can be used.
B. The Customer Relationship Manager shall assess the physical condition of the
storeroom to ensure that:
i. The storeroom is made of stone or bricks or hollow blocks or thick metal.
ii. Any internal door(s) of the storeroom leading to other storerooms or

rooms are sealed firmly with metal or strong material, for locks alone
are not sufficient.
iii. The door(s) are made of sheet metal having a minimum thickness of 0.2
mm.
iv. The storeroom is fairly accessible to main roads.
v. The windows and any ventilation openings are grilled with iron bars.
vi. The locks are of high quality and acceptable to the Bank.
vii. The owner of the store might be debtor or any third party.
viii. Fire extinguishers are placed at appropriate locations.
ix. A label “PROPERTY OF "Wegagen Bank" is posted visibly.
x. The security arrangements are adequate.
C. If the store is owned by the borrower, he/she/it has a title deed for the
storeroom; otherwise there should be a legally binding rental agreement with the
lease-giving party. Besides, consent of lease-giving party that declares the
ownership of merchandise should be required. Regarding this, the Customer

Wegagen Bank S.C
Relationship Manager shall verify the lease terms, payments, and provisions for
extension of the lease agreement, rights and obligations of both the lessee and
lease-giving party on the leased property.
D. The physical possession of the pledged merchandise can either be under sole
control of the bank or dual control by the borrower and the bank.
E. In case of dual control of merchandise, the pledged merchandise is stored in a

warehouse owned/ rented by the borrower or third party acceptable to the
Bank;
F. In the presence of the Credit Relationship Manager both the Branch manager
and the borrower should safely lock the warehouse so that the goods cannot be
removed except in their presence.
G. Both the Bank and the borrower should take individual possession of their key.
H. An undertaking signed by the borrower must be obtained absolving the Bank

from any responsibility for the safe storage of the pledged merchandise;
I. The borrower must give a written undertaking to transfer possession right of

the pledged merchandise to the Bank.
J. The Customer Relationship Manager shall make sure that security guards
(watchmen) have been recruited and assigned to watch over the storeroom. The
Bank shall employ the watchmen, but their salaries shall be paid by the
borrower. A room for the watchmen shall be arranged outside the storeroom.
The following guide line should be employed to manage pledge merchandise;
i. The Branch Manager or the Loan section head/ Officer should from time
to time supervise the status and condition of the pledged merchandise;

Wegagen Bank S.C
ii. If the merchandise is under sole control of the Bank, it should be stored
systematically arranged leaving corridors within blocks to facilitate easy
movement during counting and checking;
iii. In the case of dual control, it must be ensured that the merchandise is
properly stored as explained above;
iv. The Branch Manager or the Customer Service Officer together with the
Internal Auditor (if there is any) must make 100% physical count of the
pledged merchandise both in sole and dual control situations;
v. In both sole and dual control situations supervision and follow-up on a

monthly basis should be conducted and take relevant measures to
protect the merchandise from damages that can be brought by rats, rust,
moisture, insects etc.;
vi. Expenses such as fumigation or any up- keeping have to be covered by

the borrower;
vii. A label reading “Property of Wegagen Bank” should be posted in a visible

place.
4.1.1.3.1. Merchandise Loan against Goods in Transit
It is short term working capital credit facility availed to credible creditworthy

customers, like merchandise loan against the pledge of economic goods, except that in
this case the loan advanced is used for the settlement of L/C documents prior to the
physical pledge of the goods.
Alongside requirement of merchandise loan for pledge of commodities, the following

additional procedures applied in financing a merchandise loan against goods in
transit:

Wegagen Bank S.C
1. A reliable transitor selected by Wegagen Bank shall clear the goods. And the L/C
documents shall be released to the transitor upon the signing of a tripartite
agreement among the borrower, the transitor and the Bank.
2. In the agreement, a clause to deliver the goods to the Wegagen bank at the place
appropriate for the pledge shall be included, as part of the obligation of the
transitor.
3. The facility shall be settled or converted to a merchandise loan within 60 days.
i. The goods must be imported via Wegagen bank and the customer must have a
working capital constraint to settle the confirmed irrevocable L/C documents.
The L/C documents shall be released against the merchandisein Transit if the
margin of the L/C opened is above 30%. If its margin, nevertheless, is less than
30%, the customer shall pay the difference.
ii. The customer shall apply for a loan within ten days after the Bank has advised
him/her/it about arrival of the L/C documents.
iii. The customer shall be willing to cover all the transit and associated costs of the
goods to be imported.
4.1.1.4. Warehouse Receipt Financing
Advance Against Warehouse Receipt(AAWR) is a short term working capital

financing in the form of merchandise loan for members or clients of the Ethiopian
Commodity Exchange (ECX) against pledge of the warehouse receipt issued in their
name by the warehouse operator (ECX) as negotiable ownership certificate by
endorsement. Advance against Warehouse Receipt can be availed as one time or
revolving facility with certain limit.
Electronic Goods Received Notes (e-GRN): it is electronically generated confirmation

documents physical received commodities by the ECX warehouse with certain
specified quality and quantity features.

Wegagen Bank S.C
Warehouse Receipt (WHR):is a receipt issued by the ECX and is legally transferable
by endorsement or delivery as it states the goods specified for delivery to the bearer or
to the order of a named person.
Commodity is a standardized agricultural produce deposited in the custody of an

authorized warehouse operator for which a warehouse receipt has been issued by the
operator as an evidence of the deposit
Member/ client’s Daily position report (MCP Report): it is a list of Electronic

warehouse receipts (e-WHR) issued to its members or client’s with ID reference and all
the necessary attributes which includes ECX client/member name, ID, Quantity/Lots,
expiry date, quality or grades etc. so as to be utilized for determination of the approval
amount, tenure, terms and condition of each advance.
Electronic Signature: is data in electronic form --- affixed to or logically associated

with - a data message which may be used to identify the signatory in relation to the
data message and to indicate the signatory's approval of the information contained in
the data message.
In financing this product Wegagen bank shall have a dedicated exchange settlement
team responsible for all information exchange between the bank and the ECX.
Qualifying Criteria
Apart from the general eligibility criteria for credit the applicant shall fulfill the
following product specific criterion
1. Commodities accepted against ECX warehouse receipt are commodities traded

in ECX floor ,i.e , agricultural exportable items.
2. All applicant should present complete electronic Goods Received Note from ECX
4.1.1.5. Import Letter of Credit Facility
1. The Import Letter of Credit facility is a credit product that the Wegagen Bank
extends to applicants engaged in the import business, or other applicants who
import for various purposes on payment of a certain percentage of the value of

Wegagen Bank S.C
the document while opening a Letter of Credit.
2. The Import Letter of Credit facility amount to be availed to the customer is up

to a minimum of 30% margin of the document value depending on the
financial strength of the customer, the letter of credit facility account
performance, and marketability of the import goods for a period of one year
against valid import documents. However, the Bank may exceptionally
consider below this minimum margin for its prominent customers.
3. Import Letter of Credit facility shall be renewed every year unless the Bank
demands it to be reviewed by the credit approving team for any remedial
action when the performance of the account is deteriorating.
4. The sum of each advances made by the Bank (net of each margin paid by the
customer) shall not exceed the facility limit. However, the customer can use
the facility up to the approved limit
5. The Bank may extend a one-time and/or revolving Import Letter of Credit
Facilities:
6. A one-time Import Letter of Credit Facility is a non-renewable letter of credit

facility extended to applicants, such as investors, importers, and others that
have no Import Letter of Credit Facility or who want to import over and above
the existing Import Letter of Credit Facility limit.
7. Revolving Import Letter of Credit Facility is a form of credit facility where the
limit is renewed periodically when the customer fulfills the Bank’s
requirement.
8. Such L/C facilities shall be secured against valid import documents.
9. The facility limit and the margin paid may vary from customer to customer,
depending on the type of the L/C to be opened, the financial strength and
track records of the customers in settling the previous L/Cs, the nature and
marketability of the goods to be imported and the loan applicant’s relations
with the Wegagen bank.

Wegagen Bank S.C

i. The importers applying for an Import Letter of Credit Facility should present
their import trade licenses.
ii. In the case of non-importers applying for a one-time Import Letter of Credit
Facility, however, an investment certificate or appropriate license from the
concerned government organ and Proforma Invoice can be accepted.
iii. The applicant has to settle at least one non-revolving L/C facility amicably
up on advice at any banks.
iv. The Bank shall finance only those import letters of credit opened at its end.
4.1.1.6. Pre-shipment Export Credit (PEC)
Pre-shipment Export Credit is an advance extended to exporters to bridge their

temporary working capital requirement for purchase of exportable items,
processing and converting them into finished goods, transporting, warehousing
and packing until such time the goods are shipped.
Pre-shipment export financing is considered for exporters who have bankable

credit risk rating, high integrity and truck record in meeting commitments as
justified by due diligence assessment report and who deal with credible foreign
buyers.
General Attribute
 The Pre-Shipment Export Credit Facility shall be reviewed every year unless the
Bank demands it to be otherwise or in lesser period for any remedial action
when the performance of the account is deteriorating.

Wegagen Bank S.C
 The selling price of the exportable item shall be within acceptable range and
confirmed from International Banking Directorate, ECX and NBE as
appropriate.
 Under normal condition, for non-china exportable commodities traded outside

ECX the maximum advance rate shall not exceeds 80% of the value of the sales
contract. Whereas, the maximum rate for each advance on ECX traded none
china exportable items shall not exceed 90% of the sales contract.
 The export proceed has to be channeled to the exporter’s account only through
the opening branch of Wegagen Bank.
 The facility shall be released on a clean basis, upon presentation of the sales
contract or valid irrevocable L/C document. However, if the applicant is a
company, the borrower or the major shareholder(s) shall sign a personal
guarantee.
 The facility might be advanced against the dual control or against a tripartite
agreement among the Bank, the borrower and a licensed clearing and
warehouse company.
 The advance amount shall be settled from the export proceeds of the respective
Letter of Credit/CAD/Advance Payment and the CRM must meticulously and
dutifully follow up to ensure per schedule settlement and avoid diversion of
fund
 Regardless of the category of the customer and based on the exporter’s
performance, additional collateral could be required
 The applicant’s name should not be one found in NBE’s list of delinquent
exporters published monthly.
 The pre-shipment export credit facility may be financed in one of the following
forms:
I. Pre-shipment Export Credit facility against Irrevocable L/C
II. Pre-shipment Export Credit facility against sales contract

Wegagen Bank S.C
III. Pre-shipment Export Credit facility against DBE guarantee Scheme
IV. Mix of the above Pre-shipment Export Credit facility financing modalities
4.1.1.6.1. Pre-Shipment Export Credit Facility against DBE

Guarantee
If the facility is availed against the DBE guarantee, the eligibility, amount,
tenure and other criteria of the pre-shipment export loan shall be set per the
NBE directive no.
4.1.1.6.2. Pre-shipment Export Credit Facility against sales

contract or Irrevocable Letter of Credit
Wegagen bank may advance pre-shipment export credit facility against sales
Contract/a bona-fide purchase order or against irrevocable L/C for credit worthy
customers provided the qualifying criterion are fulfilled.
Pre-shipment export credit facility against sales Contract or irrevocable L/C can be
one-time or revolving. For revolving pre-shipment export credit facility, the sum of
advances shall not exceed the limit approved.
1. If the facility is to be availed against sales contract:
a) The applicant’s credit risk rating shall be Grade A or B. however, on exceptional

bases or as a resolution effort for problem loans financing may be considered for
grade C and D customers.

Wegagen Bank S.C
b) The applicant shall be in the export business for two or more year. However, this
might be relaxed for Wegagen bank’s new and existing credit worthy well
established customers who planned to engage in export sector.
c) The applicant exporter should have generated at least USD 500,000 or equivalent
of other currencies Non-China export proceeds during the past one year preceding
the date of application. The proceeds shall be ascertained based on the export
proceed receipts.
d) Both existing and newly applying exporters who have been working either with our
bank or other bank and unable to earn the minimum export proceed indicated
under item ‘C’ should meet the following conditions:
i. The applicant should have been engaged in any viable venture for more than
one year or shall offer collateral worth of at least 70% of the approved limit
for grade A and B borrowers;
ii. The applicant should have been engaged in any viable venture for more than
one year or shall offer collateral worth of at least 80% of the loan for grade C
borrowers;
iii. The applicant should have been engaged in any viable venture for more
than one year or shall offer collateral worth of at least 100% of the loan for
grade D and above.
e) The applicant shall present registered sales contract/a bona-fide purchase order
( for coffee export) and / or Genuine sales contracts (not necessarily registered)
from a reputable foreign buyer clearly stating method of payment with beneficiary
bank , shipment date and condition,
f) The payment system in the bona-fide purchase order shall be Irrevocable L/C,
Cash against Document (CAD) and advance payment. The credit performer’s choice
of the method of payment depends on the level of risk attached with the borrower.
g) Exporters financed with advance payment method needs to have: satisfactory

export performance for more than two years with well-established export market;
Advance payment shall be collected before the disbursement date; Wegagen bank’s
name should be explicitly stated as advance payment beneficiary in the bona-fide
purchase order and finally the borrower shall sign undertaking to settle the loan
from the advance received before the shipment of the good.

Wegagen Bank S.C
h) The facility shall require opening of irrevocable Letter of Credit for each advance
made by the Bank.
i) The applicant shall provide receipt of export precedes in the 12 months preceding
the date of application from local other banks for Pre-Shipment Export Credit
Facility.
j) Exporters financed under this modality should give a written undertaking to
Wegagen bank not to open the letter of credit pertaining to the sales contracts
through other banks,
k) Replacement of sales contracts or L/Cs which the bank has already
financed/discounted is not acceptable unless approved by the appropriate credit
approving committee
l) To avoid double financing, The CRM should take utmost care not to discount L/Cs
of sales contracts already discounted. To this end, discounted Sales Contracts
Register should be referred.
m) The CRM should follow-up timely opening of L/Cs for sales contracts discounted
2. If the facility is to be availed against irrevocable L/C:
Apart from the above articulated requirement under item a, c, d, i and j, applicant for
pre-shipment export credit facility against opening of irrevocable L/C shall qualify to
the following requirements
i. The borrower should fulfill the general eligibility criterion
ii. The borrower should submit valid bona-fide purchase order with Irrevocable export
L/Cs opened clearly stating method of payment with beneficiary bank , shipment
date and other specific condition,
iii. At least one-year experience in the export business with proven management
capability and excellent financial management;

Wegagen Bank S.C
iv. high integrity and truck record in meeting commitments

v. The borrower should submit evidencing document that certify availability of own
processing /clearing warehouse. Otherwise, he / she /it shall present an
acceptable rental agreement that can give the right to make use of a third party’s
clearing facility.
vi. Cancellation or replacement of export L/Cs which the bank has already
financed/discounted is not acceptable unless approved by the appropriate credit
approving committee
vii. Discounted export L/Cs should be recorded in Discounted Export L/Cs Register
and dates of negotiation of the discounted L/Cs should be recorded in the register
as soon as negotiations are undertaken.
4.1.1.6.3. Pre-shipment Export Credit Facility without sales

contract
The bank may advance a portion of the Pre-shipment Export Credit Facility without
presentation of sales contract/a bona fide purchase order.
Qualifying Criteria
a) The applicant should have been in the export business for at least two years.
b) The applicant should have excellent pre-shipment export credit facility utilization
and settlement performance with the bank at least for one year.
c) The applicant should have been engaged in coffee or sesame seed export business.
d) During the past twelve months;
1) More than 50% of the export proceeds should have been channeled through
Wegagen Bank.
2) The pre-shipment export credit facility shall be turned over at least to its limit
or the customer should have channeled a minimum of USD 5 million or
equivalent of other currencies through Wegagen Bank.
Conditions:
1. The advance amount should always be channeled through the ECX pay-in-account
maintained at the branch of Wegagen Bank.

Wegagen Bank S.C
2. The maximum amount that can be advanced without submission of sales

contract/a bona-fide purchase order shall be 30% of the approved pre-shipment
export credit facility limit.
3. To ensure timely settlement of the advance and avoid the risk of fund diversion, the
CRM shall strictly follow-up timely purchase and shipment of the goods. There
shall also be adequate turnover within the given period of time.
4.1.1.7. Advance Against Export Bills (AAEB)
1. Advance on Export Bills is a post shipment export credit extended to

exporters , upon presentation of all relevant export documents supported
by sales contract with the exception of bill of lading, to bridge the financial
constraintbetween the shipment of goods and the realization of proceeds;
2. The customer (exporter) shall not be provided with a Pre-shipment facility

Export Credit or Facility on the same sales contracts. To this end, the
Relationship Manager/branch shall make sure that no further credit facility
is availed for the same export documents.
3. One time Advance against Export Bills shall be advanced for a period of
three months;
4. Advance against Export Bills facility can be extended for tenure of one year
on revolving basis;
5. Renewal of the facility can be considered if and only if all the requirements
of Wegagen Bank such as satisfactory financial conditions and operational
results evidenced by acceptable financial statements;

Wegagen Bank S.C
6. The Advance on Export Bills margin will be set according to the financial
strength of the customer. However, the maximum advance should not
exceed 90% of the amount of the L/C.
7. In order to advance the facility, the customer shall submit the following
export documents, indicating the shipment of goods to the port:
a. Irrevocable Letter of Credit;

b. Waybills such as truck way and railway;
c. Insurance contract;
d. Certificate of cleanliness (quality certificate) from appropriate
organ; and
e. Other documents as specified in the Letter of Credit.
8. The documents shall confirm that the goods are in transit.
9. The Loan Administration Officer/ Branch Manager shall assist the

Customer Relationship Manager in ensuring the timely settlement of each
advance made to the customer. To this end, follow up should be made to
make sure that the revolving export advance is settled within a maximum of
60 days, starting from the date of disbursement, from the proceeds of the
export;
10. The customer Relationship Manager shall advise the IBD, that the proceeds
of the export have been used to settle the facility. The IBD, on its part, must
notify as soon as the payment is transferred.
11. In cases where Special overdrafts or a merchandise facility is availed for the
exportable commodities, the customer Relationship Manager/ branch
manager shall ascertain that the revolving export LC advance is applied to
the settling of the existing balances thereof;
Specific qualifying criterion

i. An exporter has to present complete and satisfactory export documents in
compliance with the terms and conditions of the Export Letter of Credit
ii. The exporter has to have rich experience and good truck record

Wegagen Bank S.C
4.1.1.8. Letter of Guarantee (L/G)
A Letter of Guarantee Facility issued by the Bank is a written promise/irrevocable

obligations by the Bank to compensate (pay a sum of money) to the beneficiary (local
or foreign) in the event that the obligor fails to honour his/her/its obligations in
accordance with the terms and conditions of the guarantee/agreement/contract.
Wegagen Bank may extend a one-time or renewable Letter of Guarantee Facilities:
i. A one-time Letter of Guarantee Facilityis a non-renewable letter of

guarantee extended to applicants who have no recurrent requests.
ii. Renewable Letter of Guarantee Facility is a form of credit facility where

the limit is renewed periodically when the customer fulfills the Bank’s
requirement. The Bank may avail the facility to customers who have
recurrent requests.
1. Regarding the terms and conditions of the contract concluded between the
beneficiary and the obligor, the Bank’s legal officer shall check the document
to protect the interest of the Bank.
2. The facility shall be availed for one year but can be renewed every year unless
the Bank demands it to be reviewed by the credit approving team for any
remedial action when the performance of the account is deteriorating.
3. The Bank provides guarantee services to both local and foreign customers.
4. A foreign-currency permit from the NBE should, however, be obtained for any
form of guarantee that the Bank is requested to issue in favour of foreign
beneficiaries.
5. The duration (term) of any guarantee instrument will depend on the
contractual agreement signed by the parties involved in the guarantee
contract.
6. The Bank shall collect in advance all service charges as per the
terms and tariffs when issuing a bank guarantee.

Wegagen Bank S.C
4.1.1.9. Issuance of Letter of Guarantee
The bank may issue a Letter of Guarantee in favour of beneficiary under any of the
following situation:
a. When a local customer requests the bank to issue a letter of guarantee
in local currency to a local beneficiary.
i. The lending branch shall issue Letter of Guarantee to the beneficiary against
cash collateral in line with a maker -checker principle. The cash blocking
process is handled per the laid down procedure
ii. The Bank shall use standard format for guarantees but under special
circumstances the Attorney may design the guarantee document taking in to
account the specific terms and conditions of the contract.
iii. If the guarantee request is backed by non-cash collateral, approval the
Customer Relationship Manager and the Attorney may jointly issue a Letter of
guarantee in favour of a beneficiary, after formal credit approval process.
iv. Unless backed by cash collateral, Letter of guarantee shall not be issued
without obtaining approval by the appropriate credit committee
b. When a local customer requests the bank to issue a Letter of

Guarantee in a foreign currency to a foreign beneficiary;
1. The IBD-Trade Service may issue Letter of Guarantee when a local

customer requests the bank to a foreign beneficiary against cash collateral.
2. If the guarantee request is backed by non-cash collateral, it shall be
processed and approved through the Credit Processing Centre, and IBD-
Trade Service shall issue the guarantee in favour of the beneficiary.
c. When a correspondent bank requests the bank to issue a guarantee
in favour of a local beneficiary:- the Trade Service Central Processing
Centre shall issue the guarantee in favour of the beneficiary
Type of Guarantee Issued

Among others, the most common form of guarantees issued on behalf of Wegagen
Bank customer are described as follows:

Wegagen Bank S.C
a. Advance-payment guarantee;
b. Performance-bond guarantee;
c. Bid-bond guarantee;
d. Customs-bond guarantee;
e. Suppliers’ credit guarantee;
f. Credit Sales Guarantee
g. Retention guarantee; and
h. Other types of guarantees as deemed necessary.
a. Advance Payment Guarantee (APG)

This is a type of guarantee issued to employers or suppliers for a certain percentage of
money being advanced out of the total value of contract entered. An advance payment
guarantee ensures that the seller or contractor will return the advance payment made
by the beneficiary, in case of failure to supply the goods or services on time, in part or
in their entirety. An advance payment guarantee may be issued by the Bank to a
foreign beneficiary only after the bidder has obtained a foreign currency permit from
the NBE.
a. Performance Bond Guarantee (PBG)

A performance bond is a type of guarantee that the Bank issues in favor of a
beneficiary or employer at the request of the bid winner to meet any claims to be made
by the beneficiary, in case the bid winner fails to deliver the goods or to perform the
services in accordance with the terms and conditions of the contract. A performance
bond guarantee may be issued by the Bank to a foreign beneficiary only after the
bidder has obtained a foreign currency permit from the NBE.
b. Bid Bond Guarantee (BBD)

Bid bonds are issued either to local or foreign beneficiaries on behalf of clients to
enable them participate in bids. A bid bond may be issued by the Bank to a foreign
beneficiary only after the bidder has obtained a foreign currency permit from the NBE.

Wegagen Bank S.C
c. Customs Bond Guarantee (CBG)

This is a guarantee issued by the Bank in favor of the Customs Authority (the
beneficiary) to meet the requests of the beneficiary in respect of customs duties in
circumstances where the goods imported without payment of customs duties are not
re-exported and the respective customs duties have not been paid.
d. Suppliers’ credit guarantee;

This is an open ended guarantee issued for transactions of one time or revolving
nature usually to suppliers on behalf of customers.
e. Credit Sales Guarantee

This is an open and revolving type of letter of guarantee issued mostly to customers
like Travel Agents in favor of International Air Transport Association (IATA), Fuel
Stations in favor of oil companies etc in order to enable our customers enjoy credit
sales.
f. Retention Guarantee (RG)
Retention guarantees are guarantees issued by the Bank in favor of the party
accepting to release the retention (Beneficiary), upon the request of the seller or
contractor, to provide security to a beneficiary, in the event that the seller or the
contractor fails to perform his/ her/its obligation as per the terms and conditions of
the contractor. RG arises when a seller or contractor wishes to collect any retention
held on a contract by presenting a bank guarantee to the party accepting the release
of the retention.
g. Other bank Guarantees

The Bank may issue bank guarantees to pay any claims, in case the applicant fails to
perform her/his/its obligation in accordance with the terms and conditions of the
contract.

Wegagen Bank S.C
4.1.1.10 Procedure for handling guarantee claims
Alike other credit facilities, Letter of Bank guarantees entail potential risk, when the
customers fail to discharge contractual obligation. Therefore, when a claim is lodged to
the Bank from the beneficiary, the procedure described below should be strictly
followed:
1. Up on the claim lodged at the Customer Relationship Manager shall contact the
customer by phone advising him to amicably settle the claim immediately.
2.If there is no response within the stated period, a first written reminder shall be served
advising the customer to settle the claim within five (5) days from the date of
issuance of the first reminder;
3.If no response is made within five days of the first reminder, a second reminder should
immediately follow asking the defaulter to make payment for the claim within five
(5) days from the date of the second reminder. A meeting should be also arranged
with the beneficiary and the customer to discuss on how the matter should be
resolved at the earliest possible time;
4. If all efforts made under items 1 to 2 above fail and the reasons forwarded by the
customer for no settlement proved to be unsatisfactory, the following steps shall be
taken:
5. Document all the efforts made by the Customer Relationship Manager (CRM) from the
date of first notice ;
6. Recommend the case to appropriate credit sanctioning committee for decision;
7. The appropriate Credit committee shall deliberate on default of the guarantee cases
received from the Customer Relationship Manager (CRM) and may either decide to
convert to term loan or take legal action as found necessary.
8. Classify proceeds of the guarantee amount as non-performing loan category from

the date of the appropriate Committee decision. The applicable interest rate shall be
interest charges for short term miscellaneous loan plus 3 percent penalty.
9. The Customer Relationship Manager shall execute the process as decided by the
Committee

Wegagen Bank S.C
4.1.2. Term Loan
A Term Loan is a loan granted for working capital, and/or project finance to be repaid
within a specific period of time with interest. The loan is repaid in a lump sum on
maturity, or in periodic installments (i.e. monthly, quarterly, semi-annually, or
annually), depending on the nature of the business and its cash flow.
The maximum duration of Short-Term Loan, Medium-Term Loan and Long-Term Loan
shall be one year, five years and fifteen years, respectively inclusive of any grace
period. The interest rate applied on term loans vary depending on the product type
and shall be referred from the bank’s loan pricing manual.
Grace period is a period during which the borrower is relieved from principal
repayments. However, there shall not be any grace period for interest payment unless
otherwise stated in the credit policy and this procedure and approved by the BOD
and /or the president/CEO. The Bank may provide a maximum grace period of one
year for medium term loans and three years for long-term loans. Among others, the
following peculiar type of working capital financing are financed by Wegagen Bank per
the following laid down procedure.
4.1.2.1 Agricultural Term Loan
It is short-term agricultural loan granted to meet working capital requirement for crop
harvesting,processing, packing, animal husbandry etc . It is also availed for purchase
of fertilizers, improved seeds, and agro-chemicals etc. The applicant can be
Associations, Cooperatives, Unions, Commercial Farms or agro processing industries,
and Individuals.
The Bank gives priorities to modern commercial agriculture ventures that produce for
export market.

Wegagen Bank S.C
The Bank may use specialized agricultural credit and risk analysts to handle the
requested loan when the need arise.
1. The applicant shall provide authenticated Land Holding Certificate and/or Land
Lease Agreement, as the case may be.
2. If the applicant is individual, he/she shall provide a supporting letter that

confirms its/his/her past performance from Wereda Agricultural Bureau,
Association, Cooperative, Organizing Agency, or other appropriate government
body as deemed necessary.
3. The applicant should have been in the business for at least two year and with a
good business track record.
4. Applicants shall provide provisional or audited financial statements with

business performance and plan.
5. For applicants that are established as Associations or Cooperatives have to

acquire legal personality from the concerned governmental organ; present
Minutes of a resolution on the credit request passed by at least three-fourths
of the members of the General Assembly and should have a management
structure incorporating proper financial management system.
6. In addition, if the applicants are Associations, Cooperatives, Unions, or

Commercial Farms, they shall provide a document that confirms acquiring or
renting basic infrastructure, such as appropriate office and store (working
premises).
7. The applicant should present the required collateral preferably in the form of
building and/or other acceptable forms of collateral, motor vehicle or
machinery etc as appropriate.
8. The land acquired for investment shall be offered as collateral and registered
by the appropriate registering government organ.

Wegagen Bank S.C
9. Applicants shall purchase appropriate insurance coverage for the farm and of
the properties as deemed necessary.
4.1.2.2. Coffee Farm Term Loan Financing
Coffee farming loan refers to short term loan granted to Associations, Cooperatives,
Unions, Private Limited Companies, Share Companies or individuals who are engaged
in commercial coffee growing (medium or large scale) to finance working capital needs
for post sowing cultivation activities, harvesting, processing and based on production
capacity, previous year sales performance and other cost requirements .
1. The applicant shall be an expert or recruit expert or experienced in the area to

manage the overall activities of the farm.
2. The applicant shall provide land holding certificate and/or land lease agreement
as the case may be. The land holding right shall be binding until the tenure of
the loan period plus two years and shall be registered by the appropriate
registering government organ.
3. The applicant should present evidence that lease payment of the current period
is effected to the concerned authority.
4. The applicant shall have a minimum of 30 hectares of land for coffee growing
5. The applicant shall present business plan and required financial statement
according to the exposure
6. If the applicant is an Association, Cooperative, or Union it shall fulfill the

requirements stated under agricultural term loan part of this procedure.
7. If the borrower is a member of the Ethiopian Coffee Growers, Producers and

Exporters Association, he/she/it shall present a letter of recommendation from
the association.

Wegagen Bank S.C
8. The applicant shall hire guards to protect the farm from theft. Besides, the
applicant should ensure that there should not be combustible items in the
vicinity of the plantation.
9. The locality of the plantation shall be in the area where the altitude is between
1,000m and 2,300m above sea level and the amount of rain, if the farm is rain
fed, to be between 900mm and 2,300mm per annum.
10. Considering the risk exposure, new applicant should be able to offer additional
collateral covering 60% of the loan in the form of building and/or other
acceptable forms of collateral,
11. Existing customer who have the required business strength and that score
credit risk grade ‘A’ or ‘B’ shall not be mandatory requirement to seek
additional collateral
12. Forest coffee (coffee plants that are not planted by the project) shall not be
considered for working capital computation
4.1.2.3. Letter of Credit Settlement Loan
Import Letter of Credit Settlement term loan is a form of loan extended to a

borrower by converting the outstanding import letter of credit document’s value
either to a merchandise loan facility or a term loan for a maximum period of one
year when a customer is unable to clear the L/C documents due to shortage of
working capital. Furthermore the following defines attribute of this product.
a) If it is converted to a merchandise loan facility, the requirements stated

under merchandise loan facility shall apply. For conversion to a
merchandise loan facility, a tripartite agreement shall be signed among the
customer, the Bank and Maritime &Transit Services Enterprise or any
selected credible transistor.

Wegagen Bank S.C
b) Accrued interest on advance account if any shall be fully paid in cash at the
time of request.
c) The Bank grants the loan with or without collateral depending on the nature
of the goods imported and the credit risk grade of the customer. Before
releasing the import L/C document, the Bank should conclude a term loan
and mortgage/pledge (if any) contracts with the applicant and make
collateral registration (if any) with appropriate registrar office.
d) The customer can enjoy this facility twice during a fiscal year of the Bank.
e) Repeated and/or consecutive requests for such credit facility may entail
downgrade in the credit risk grade of the customer.
1. The customer credit risk shall be grade ‘A’ or ‘B’.
2. The Bank shall finance only import letter of credits opened at its end.
3. The applicant shall not have any other long outstanding import letter of credit
document arrived (other than the requested one).
4. The customer shall apply for loan within 5 days after the Bank advised the
arrival of letter of credit documents.
4.1.2.4. Consulting Firm Financing
Consulting Firm financing is a form of short-term loan extended for the purpose of
Working capital financing to business professionals engaged in rendering professional

Wegagen Bank S.C
Services such as Engineering, ICT, Law, Accountancy, Management, Architecture, Art,

etc.
1. Valid professional license from the concerned government body.
2. The applicant shall have a minimum of one-year experience.
3. Up-to -date financial statements (Audited or Provisional) including forecasted

cash flow statement and business plan.
4.1.2.5. Construction Bridge Term Loans (CBR):
It is a form of advance to building contractors or general contractor to meet working

capital shortage, i.e., to mobilize materials required to construct complex buildings,
roads, dams, etc based on contracts concluded with employers.
Repayment can be scheduled on a quarterly, semi-annually or settlement of balance

with interest at maturity due to the nature of business.
1. The proposed customer shall provide previously executed project list by status
with substantiating document and also current contract at hand
2. The borrower shall present payment certificate for outstanding project at hand
with business plan
3. For new applicant, depending on the risk exposure deduced from assessment
and by the credit risk rating, the CRM shall seek acceptable collateral and the

Wegagen Bank S.C
maximum amount to be financed should not exceed 50% of the contractual

value of the project.
4. For existing borrowers with sustainable cash flow and credit risk grade A and B,
the collateral requirement shall not be mandatory
4. The customer shall be encouraged to conclude a tripartite agreement among the

Bank, the contractor and the employer in order to secure direct channeling of
construction revenue/proceeds loan installment settlement.
5. The project promoter shall give undertaking to credit the loan repayment from
the matured payment until loan settlement
4.1.2.6. Inter - Bank Lending
An Inter -Bank Lending is a short - term loan extended to alleviate liquidity shortage of
other commercial banks. In rendering this credit service, the credit analyst shall
evaluate the request based on the banking business performance indicators. The
Wegagen bank may negotiate on the lending interest rate with the applicant.
1. The applicant bank has to have a minimum of two years experience in banking
business.
2. The applicant bank should present document that confirms the fulfillment of
the minimum reserve, provision, liquidity and other requirement of the NBE.
3. The financial data of the applicant bank should justify the requirement of
additional fund.

Wegagen Bank S.C
4. The latest NPL position of the applicant bank should not be more than 5% as
confirmed by the NBE supervision department.
4.1.2.7. Supply Chain Financing

Supply Chain Financing is a form of short-term loan rendered to potential credit
customers recommended by existing wegagen’s prominent customers engaged in
domestic production, wholesaling, retailing or supplying businesses with which they
have a business relationship.
i. The following issues show be understood while financing the loan. The loan is
provided after the supplier or producer/ manufacturer provides unconditional
letter of guarantee to Wegagen bank or other type of acceptable collateral.
ii. The guarantor shall present the recorded business relationship including
payment track record and level of purchases/sales.
iii. Financial statements and cash flow statement of the two parties along with the
capacity of the guarantor to repay both loans in case of default shall be carefully
analyzed.
iv. The Bank may finance up to 75 % of the submitted sales contract value and
maximum of 70% for vehicles.
v. The financing should be extended only on the bases of current sales contract and
it shall not finance previous sales contracts.
vi. The applicant or the would-be customer applies for credit having letter of
recommendation from the guarantor.
viii. Supply Chain financing should not be rendered to affiliated companies, associates
or subsidiaries.

Wegagen Bank S.C
4.1.2.7.1. Specific Qualifying Criterion
1. The application letter is lodged by potential customer along with letter of

consent and recommendation from guarantor.
2. The guarantor (Producer/manufacturer/wholesaler) shall provide personal

and/or corporate guarantee to the Bank on behalf of the borrower.
3. The guarantor’s credit risk grade should be ‘A’ or ’B’.
4. The proposed customer shall provide current purchase order or sales contract.
4.1.2.8. Micro-Finance Institution’s Loan
A Micro-Finance Institution’s Loan is a working capital short term loan availed to

alleviate Micro –Finance Institutions fund shortage in providing credit to micro-
entrepreneurs who in turn providing financial services such as credit and savings to
the low-income (actively poor) segments of society.
4.1.2.8.1. Specific Qualifying Criterion
1. Micro-Finance Institutions should have a high quality loan portfolio, saving

mobilization, loan-approval system, loan recovery performance and similar
performance indices.
2. Micro-Finance Institutions should also ascertain that they are legally registered
with the National Bank of Ethiopia and abide by and meet all relevant policies
and directives of the National Bank of Ethiopia regarding:
I. Reserve requirement;
ii. Liquidity requirement;
iii. Capital adequacy requirement; and
iv. Minimum paid -up capital requirement and others.

Wegagen Bank S.C
3. Micro-Finance Institutions that could obtain a credit-guarantee scheme from an

appropriate guarantor shall come up with at least 50% of the principal loan as
security.
4. The loan shall not be used other than the specified purpose. To control the end
use of the loan the Bank may disburse the loan on a phase-by-phase basis.
4.1.3 Asset and Project finance
4.1.4 Asset finance
It is a Medium-Term Loan financed for acquisition and/or leasing of fixed business

assets (leased land, buildings, machinery, equipment, public transport vehicles,
trucks and trailers, etc.) Whose business nature justifies, or require, such financing
and periods of time for implementation and repayment of the loan.
1. The applicant for Asset finance -Term Loan must be able to submit a
detailed study of the capital investment good or a business plan.
2. The applicants should raise the required Equity Contribution as a
percentage of cost of asset to be acquired
3. Present all other pertinent documents/information demanded by the Bank,
4.1.4.1. Types of Asset Finance Loan by Purpose
Among other the following peculiar characteristics term loan which demand detailed
procedure are presented by purpose of financing with respective specific eligibility
criteria to avoid ambiguity.

Wegagen Bank S.C
4.1.4.2. Construction Machinery or Equipment Loan

A Construction Machinery Loan is an asset financing term loan availed for the
purchase of construction machinery such as dozers, graders, loaders, excavators,
scrapers, rollers, asphalt pavers, crushers, concrete batching plants, concrete pavers,
cranes, drilling rigs, wagon drills, chip spreaders, and concrete mixer mounted on
trucks. But, the loan does not consider spare part cost.
The payback period of the loan set might equal to the useful life of the asset to be
purchased depending on the condition,
Specific Eligibility Criterion
1. The construction machinery or equipment to be financed should meet the

standard specification of the concerned government body, if any.
2. The bank entertains the request of both new brand and used construction
machinery or equipment purchase only if the borrowers qualify the eligibility
criterion
3. The applicant shall be companies or sole proprietorship businesses who are

engaged in a feasible construction machinery leasing or construction
business. It is availed to contractors, sub-contractors who have valid
contracts
4. In case of sub-contractors the applicant should come up with letter of intent
which state principal contractor has a valid contract and sub contract
recognized by contract awarding institution.

Wegagen Bank S.C
5. The applicant shall be in the business at least for half a year and the
management should have ample business exposure/experience / expertise
for construction machinery leasing or construction business. However, for
contractors or sub-contractors they should have stay in the business at least
for two years.
6. The sub-contractor credit applicant should at least present one year contract
at hand
7. The applicant should deposit equity contribution as required in a blocked
account with a Wegagen bank Branch after the loan is approved so that it will
be forwarded to the supplier.
8. Grade A or B applicants should make an equity contribution of at least 30%
of the purchase value of the machinery. In addition, the applicant must offer
additional collateral preferably in the form of building, whose estimated value
is at least 20% of the loan amount requested.
9. Grade ‘C’ customers must make equity contribution of at least 35% of the
purchase value of the machinery to be bought. In addition, the applicant
should offer additional collateral in the form of building, whose estimated
value is at least 45% of the loan requested.
10. Alternatively, if Grade ‘A’, ‘B’ or ‘C’ borrowers make an equity contribution of at
least 50% or above of the purchase value of the machinery, they shall not be
required to offer additional collateral
11. If the customer can contribute more than the stipulated equity contribution
between the range 35% and 50%, the required additional collateral shall be
reduced proportionately
12. For grade D borrowers the construction machinery financing may be
considered as a resolution strategy if the borrower business is set to
rehabilitate through such measures.
13. For credit applicant with Grade A, B, C requesting purchase of used vehicle,
the equity contribution should be at least be 50% of the motor vehicle cost
and additional collateral of 20% required.
14. For borrower with grade D, If the vehicle to be purchased is a used one
irrespective of the amount of the equity contribution /down payment and its

Wegagen Bank S.C
manufacturing year, additional collateral acceptable to the Bank should be

sought based on the risk level;
15. In exceptional cases the amount of financing for Grade ‘A ‘ customer can go
more than 70% up to 85% for corporate customers of the bank.
16. If the applicant imported the machinery duty -free, he/she/it must submit a
testimonial document together with his/her/its application.
17. The borrower should submit one proforma invoice from notable supplier if the
supplier found to be only one. However, if there are different suppliers of the
specific machinery to be purchased the applicant must submit three
proforma invoices
18. The additional collateral offered should be located or operate in major towns
of Regions.
19. The construction machinery to be bought should be held as collateral and
registered with the appropriate government organ.
4.1.4.3. Transport /Motor Vehicle Loan
It is a term loan granted for purchase of motor vehicles for borrowers in the transport
sector as well as other business sectors. Thus, all loans to be availed for the purchase
of new transport vehicles like; dump trucks, tankers, public transport buses, and
freight trucks to licensed operators. But, the loan does not consider spare part cost for
it is treated in the form of working capital finance.
In addition the loan could also be extended to other business sectors as well —to buy
other types of vehicle, including, large-, medium - and small -sized trucks, mini-buses,
pickups and automobiles, that are needed to facilitate the borrower’s existing
business.

Wegagen Bank S.C
1. The financing of transport / motor vehicles should ascertain compliance of the

standard specification of the Ministry of Transport and Communication –
Transport Authority. In this regard, recognized suppliers list by the Transport
Authority shall be consulted.
2. The bank entertains the request of both new brand and used transport / motor
vehicles purchase only if the borrowers qualify the eligibility criterion
3. The vehicle to be bought should be held as collateral and registered with

concerned authority
4. Any additional collateral in the form of building should be located in Addis

Ababa or in one of the major towns of the Regions. In exceptional cases,
however, buildings that are found in other towns, too, might qualify for the
purpose, provided that the pertinent credit-approving committee believes that
the real -estate market of the town is promising.
5. If the motor vehicle is to be used in the transportation sector, it should have the
following minimum loading capacity (manufacturing loading capacity):
I. For dry cargo transport: a truck with trailer with 300 quintals
loading Capacity.
II. For fuel cargo transport: a fuel tanker with trailer with 40,000 liters
loading capacity.
III. For public transport: a bus with 25 seats.
IV. For dump truck: with loading capacity 9m
V. In addition trucks like FSR, NPR, Isuzu etc regardless of the loading
capacity
6. The minimum equity contribution for motor vehicle purchase should at least be
30% for all borrowers other than exceptionally treated grade” A” corporate

Wegagen Bank S.C
customers. The amount of the equity contribution shall, however, be

determined based on the type of business, the borrower’s relevant experience
and the additional collateral offered.
7. The source of fund for the borrower’s equity contribution should not come from
any form of borrowing. To this end, verification shall be made by evaluating the
applicant’s financial statements, account performance and credit information.
8. If the loan request is for the purchase of new vehicle, applicant with credit risk
grade of A and B, should make an equity contribution of at least 30% of the
purchase cost or the invoice value of the vehicle.
9. For grade A and B customers if the vehicle is brand new additional collateral
may not be required on the top of the vehicle purchased;
10. For grade C customer’s buying new vehicle, equity contribution of 30% and
additional dependable collateral worth 25% of the loan amount should be
sought
11. For Grade D borrowers the motor vehicle / transport financing may be
considered as a resolution strategy if the borrower business is set to rehabilitate
through such measures.
12. For credit applicant with Grade A, B, C requesting purchase of used vehicle, the
equity contribution should be at least be 50% of the motor vehicle cost.
13. For borrower with risk grade D If the vehicle to be purchased is a used one
irrespective of the amount of the equity contribution /down payment and its
manufacturing year, additional collateral acceptable to the Bank should be
sought on risk level;
14. In exceptional cases the amount of financing for Grade ‘A’ customer can go
more than 70% but up to 85% for corporate customers of the bank.
15. Applicants for fuel cargo trucks should submit a tripartite agreement or
commitment letter involving the borrower/association, the oil company and the
Wegagen bank. The agreement shall clearly state that:

Wegagen Bank S.C
I. The oil company will transfer the payment directly to the borrower’s
loan account until the loan fully settled
II. The oil company shall give assurance which state the truck’s service
will continue uninterrupted at least for a period of years sufficing
enough to settle the loan.
4.1.4.4 Agricultural Equipment Loan:
It is medium / long term loan granted to Associations, Cooperatives, Unions,

Commercial Farms, PLCs, share companies or Individuals engaged in commercial
farming for purchase or lease of buildings, agro-processing machinery and equipment
(such as water pumps, generators, combine harvesters, tractors, vehicles, etc) for
plant, and crop production, animal husbandry in small/medium/large-scale farming.
1. The Bank may use specialized agricultural Credit and Risk Analysts handle the
requested loan. Moreover, the Bank may require consultation and technical
advice from appropriate professional associations, agricultural bureaus and
agricultural experts/consultants.
2. The payback period of the loan can be set equal to the useful life of asset and
Repayments are arranged to suit business cash flow
3. The Bank gives priorities to modern commercial agriculture ventures that

produce for export market.
4. The Bank may provide a maximum grace period of one years for agricultural
produces.
Specific Qualifying Criterion:

Wegagen Bank S.C
1. If the request is to purchase or lease of buildings, agro-processing machinery

and equipment’s, Reasonability of price of the proposed asset to be acquired
shall be checked by the Credit Analyst.
2. The applicant shall contribute at least 50% of the cost of Agricultural

equipment from his/her/its own source of income.
3. If the applicant is able to offer additional collateral in the form of building

and/or other acceptable forms of collateral, the equity contribution shall be
lowered to 30% in proportionate to the value of the collateral.
4. The land acquired for investment shall be offered as collateral and registered by
the appropriate registering government organ.
5. The land holding certificate shall be binding until the tenure of the loan period
plus two years
6. The applicant should submit lease payment evidencing document for the current
period
7. The major shareholders of plc or share companies shall sign personal guarantee
for the loan
8. If the applicant is an Association, Cooperative, Union, Private Limited Company

or Share Company ,among other, they shall submit letter of authorization
empowering delegates to borrow and Minutes of a resolution passed by three-
fourths of the member s of the General Assembly of the Association,
Cooperative, or Union shall be presented to acknowledge and authorize the
loan;
9. The applicant shall provide design, specification and bill of quantities for farm
infrastructure (buildings and constructions).
10.All applicants shall provide provisional and/or audited financial statements.
11.All applicants shall provide acceptable collateral to the Bank as demanded.

Wegagen Bank S.C
12. If the applicant imported the machinery duty -free, he/she/it must submit a
testimonial document together with his/her/its application.
13. The borrower should submit one proforma invoice from notable supplier if the
supplier found to be only one. However, if there are different suppliers of the
specific machinery to be purchased the applicant must submit three proforma
invoices
14. Applicants shall purchase appropriate insurance coverage for the Properties as
deemed necessary
15.The Bank shall disburse the approved amount directly to the supplier or leaser.
4.1.4.5 Property Disposal Loan
Property Disposal loan is partial financing scheme whereby the Bank covers a portion
of the Auction price of foreclosed and acquired properties presented for sale by the
Bank.
These properties mean buildings, vehicles, machinery and business establishments

that are either held as collateral or acquired by the Bank.
The purpose of partial financing scheme is to expedite the recovery of the Bank’s non-
performing loans and to foster the disposal of acquired properties.
The repayment period shall be determined based on the cash flow of the business/ the
applicant and physical condition of the property. However, maximum repayment
period as indicated in the table below shall be applied. This may include grace period
of maximum three months.
Interest accrued during grace period shall be paid when matured per the approval.
Specific Qualifying Criterion:

Wegagen Bank S.C
1. The applicant (business or employees) should have a reliable source of income

for the repayment of the loan.
2. If the source of repayment is salary:
I. Borrower’s obligation ns inclusive of the repayment to the Bank

should not exceed one -third of his/her salary that has to be
confirmed by a letter from the employer. The Bank may consider the
salary/income of the spouse when the borrowers want to borrow
jointly.
II. The employee should present recent income tax payment and
employment certificate from the employer.
III. The employee shall be able to settle the requested loan before one-
year of his/her retirement age.
Period
No. Type of property Maximum Repayment
1 Buildings/Business Establishments 15 years
3 years
2 Vehicles
4 years
3 Machinery
3. The employee shall present an undertaking letter from the employer which state’s
that the employer shall notify the Bank immediately in case of termination of
service or dismissal,

Wegagen Bank S.C
4. The applicant should be able to pay 30% minimum down payment in cash
immediately and offer the property purchased as collateral.
5. If the value of building or business establishment is greater than Birr 10 million,

the Bank may relax the minimum down payment requirement up to 10%. For
such types of cases, the Loan Recovery Officer shall prepare profile of the
building or business establishment and present to President of the Bank for
decision on the required down payment prior to auction floating. However if the
value of the building or business establishment is less than Birr 10 million the
Bank shall maintain the minimum 30% down payment. The profile may include
the following items:
I. Value, number and type of building,
II. Value, type, nature and number of machinery, and other

corporeal parts with the building,
III. Ratio of machinery and other corporeal parts in the total

value of the business establishment,
IV. Other relevant information as appropriate.
6. In case of financing for foreclosed and/or acquired properties, if requested

amount exceeds the floor price of the auctioned/foreclosed property the
applicant should offer additional collateral in the form of building to fully cover
the excess amount of loan.
7. The Bank shall consider the auction floor price of foreclosed property as the
collateral value of the approved loan.
8. If the applicant is new to the Bank and to the business and the source of
repayment is the purchased property, business plan and forecasted cash flow
statement that justifies full repayment of the loan shall be submitted. Moreover,

Wegagen Bank S.C
the applicant shall sign an undertaking to submit the business license and tax
identification number from pertinent issuing government organ soon after the
purchased property is transferred in applicant’s name.
4.1.4.6 Mortgage Term Loans
It is a medium term loan advanced for purchase of residential houses and commercial
buildings or mixed use commercial buildings for individuals, PLCs, share companies,
Associations, etc.
1. The applicant shall qualify the common qualifying criteria for Asset financing
2. The applicant should raise minimum equity contribution of 30% of the house
and / or the Bank will inclined to finance up to 70% of the estimated value or
transaction value of the building to be bought, whichever is lower
3. The source of repayment towards the loan could be either from monthly salary
for employed persons or income from business for business people;
4. If source of repayment is from salary income, not more than one-third of the
monthly basic salary of the borrower should be considered for a loan
repayment;
4. If the credit applicant is employed, the loan amortization period should be less
than the retirement period of the borrower by two year;

Wegagen Bank S.C
5. If the credit applicant is a business (other than salaried persons) , he/she/it

must have adequate management experience, employ proper financial recording
system, submit a properly drawn-up business plan and meet any other
requirements necessary to effectively run the business;
6. The credit applicant should offer primarily the building to be purchased as

collateral for the loan and/or other acceptable collateral.
7. Disbursement should be effected directly to the seller after the transfer of

ownership (title deeds) in the name of the borrower is completed and submitted
to the Bank and also upon registration of same with the appropriate
government authority.
4.1.4.7 Project Financing
It is a medium or long-term loan financed for the establishment of a new project and
the expansion of an existing business—all of which must be justified by a project
feasibility study and/or a business plan, with periodic installments. The project loans
as a package may embody working capital finance.
1. The applicant for a Medium- long Term project Loan must be able to submit a
detailed study of the capital investment project or
2. The applicant must contribute at least 30% of the project cost but not from debt
financing.
3. The project should be socially acceptable and environmentally friendly,
4. Present all the documents/information demanded by the Bank,
Equity Capital Sourcing Options:

Wegagen Bank S.C
a. Equity contribution for project should not be considered if raised from any type
of borrowing or bank debt. This should be assessed using promoters account
performance, financial statement and credit information.
b. Equity for any project financing the borrower shall first commit his/her/its
total equity contribution to the project and it shall be verified before the first
disbursement made by the Bank.
c. Otherwise, in order to consider the interest as equity contribution, the borrower

shall deposit it in a blocked account before disbursement of the loan. So that
the interest repayment shall be effected from the blocked account.
d. The interest accrued during the implementation and grace period shall be part
of Bank financing, but the loan amount to be disbursed by the Bank shall be
net of interest accrued during the implementation period.
e. In any project financing phase-by-phase disbursement, the Customer

Relationship Manager together with the Director Credit customer relationship is
empowered to disburse as per the terms and conditions of the credit decision
maintaining maker checker principle.
f. However, if there is a variation from the credit decision, the disbursement

request of the customer shall be referred to and deliberated by the Credit
Approving Team.
g. The repayment of any additional or rescheduled loan and advanced to project

term loan borrowers must also fall within the maximum life-span of the loan
which is specified as 15 years;
Project Appraisal
Among other project appraisal request should focus on the detailed assessment and
evaluation of technical, market, financial, organizational and managerial viabilities
and socio-economic benefits of projects. To this end, Credit Analysts should use the
annexed project appraisal guidelines to properly determine the techno-economic

Wegagen Bank S.C
feasibility, financial profitability and soundness, economic benefits and social

desirability of projects;
4.1.4.8 Project Financing Term Loans
Among other the following peculiar characteristics term loan which demand detailed
procedure are presented by purpose of financing with respective specific eligibility
criteria to avoid ambiguity.
1. Building Construction Term Loans (BLC):
It is a medium or long term loan extended to financing of new and under construction
building for commercial, residential, schools, hospitals, factories, hotel etc.
As a matter of threshold, a minimum of 30% equity contribution is required for

building construction project financing. Nonetheless, the percentage for equity
contribution of the borrower can be relaxed by Loan Approving Committee depending
on the perceived risk exposure and has the potential of giving ancillary business to the
Bank
1. The borrower should submit bill of quantities for the remaining construction
work of the building;
2. Borrower should give a written undertaking that he/she/it will execute the
project in accordance with the bills of quantities and engineer’s specification
and that no additional loan will be requested from the Bank for the same
purpose.
3. If source of repayment is from salary income, not more than one-third of the
monthly basic salary of the borrower should be considered for a loan repayment;

Wegagen Bank S.C
4. If the borrower is employed, the loan amortization period should be less than
the retirement period of the borrower by two year;
5. The security offered shall be the building under construction. However, if the
estimated percentage completion of under construction building less than 50%
of the building project cost, the customer shall submit additional acceptable
collateral for the variation.
6. Ownership certificates or title deeds, approved plans, construction permits, bill

of quantities, etc., shall be presented to the CRM along with the credit request.
7. Feasibility study/ business plan that shows the viability of the project should
be presented to the Bank.
8. Loan disbursements shall be made only after the owner’s equity contribution is
fully invested in the project. However, the Bank can exceptionally make
arrangements to disburse the approved loan side by side with the borrower’s
equity contribution.
9. The project promoter shall present genuine pro forma invoices showing
manufacturing date, type, and country of origin and capacity of the machinery
or equipment to be financed in relation to building under construction.
2. Syndicate Financing
A Syndicate Loan is a kind of term loan availed by Wegagen bank and other financers
pulling their financial resource together in pre specified proportion for medium or
long-term investment ventures that demand a large amount of funding under identical
terms and conditions as evidenced by a single syndicated loan agreement to be signed
between the lead bank and the borrower. The term of the loan is often medium to long
in nature.
The whole purpose of Syndicate Loans is co-financing investment ventures that

demand a large amount of funding to diversify risk and reduce liquidity problems. The

Wegagen Bank S.C
funding may be used to acquire fixed assets and may also incorporate a working
capital for the project under consideration.
a. Because of their size and complexity, the bank shall engage in syndicate
financing on selective basis.
b. In cases where the Bank’s share of financing is big amount and endorsed under
Credit approving committee ‘1’, the decision shall be communicated/informed
to the Board of Directors.
c. Co-financing Agreement is an agreement signed by the banks (organizations)

that are engaged in the joint financing of a venture. A loan contract is signed
between the lead bank(s), on behalf of itself (themselves), and the participant
bank(s) and the borrower.
d. Wegagen bank shall take in to account the under listed issues cautiously while
making lead bank’s invitation for syndication
I. The nature of the project;
II. The liquidity position of Wegagen bank and the lead bank;
III. The amount of the loan;
IV. The experience and expertise of the lead bank
V. The risks involved;
VI. The share of the finance;
4.1.4.9 Fundamental Aspect of Syndicate Financing

a. Lead Bank
A Lead Bank is a bank that handles assessment of the credit request and invites other
banks or financing entities to be involved in the financing of a venture, after assuring
the viability of the proposed project.
Duties and responsibilities of Lead Bank

Wegagen Bank S.C
I. Receives loan requests and assesses the risks associated with the loan;
II. Makes sure that the information presented by the borrower is accurate and
reliable;
III. Invites participant bank(s) to the joint -financing venture;
IV. Negotiates with the borrower(s) and the participant bank(s) the terms and
conditions of the loan contract;
V. Determines its share in the underwriting commitment; as a lead bank, it is

normally expected to take a large share;
VI. Invites the participant bank(s) and evaluates them in terms of their industrial
exposure, past customer relationship, the degree of their sophistication in
syndicate lending, its own relation with them and other pertinent factors to the
deal;
VII. Prepares the syndication proposal that specifies the pricing, terms, fees and
other pertinent aspects of the loan;
VIII. Prepares and signs the co-financing agreement with the participant banks;
IX. Prepares and signs the loan contract with the borrower;
X. Get registered the collateral with the appropriate body;
XI. Disburses the loan to the beneficiary;
XII. Maintains proper documentation;
XIII. Administers the entire loan;
XIV. Provides participant bank(s) with a quarterly loan administration, project

follow-up and visit reports;
XV. Ensures a regular collection of the loan;

Wegagen Bank S.C
XVI. Negotiates a loan workout strategy in the case of an unsatisfactory loan

repayment;
XVII. Appoints an agent bank.
b. Agent Bank
An Agent Bank is a bank appointed by the syndicate participant banks whose major
tasks are described below.
Duties and responsibilities of Agent Bank
I. Making sure that the terms of the loan agreement comply with the terms of the
loan disbursement, repayment and grace period;
II. Collecting funds from participant(s) as per their agreement and disbursing them
to the borrower;
III. Computing interest and principal due, collecting same from the borrower and
distributing it to the lender(s);
IV. Monitoring collateral valuation, guarantees and insurance;
V. Evaluating and ensuring compliance to the covenants in the loan contract and
informing participants, when necessary; and
VI. Collecting periodic reports and other information from the borrower and
distributing them to the participant bank(s).

Wegagen Bank S.C
c. The Participant Bank
Participant Bank(s) is (are) the Bank(s) that is (are) invited by the lead bank(s) to
jointly finance an investment.
Duties and responsibilities of Participant Bank
I. Makes an independent loan assessment on the risks associated with the loan
and gives its decision thereon and notifies the lead bank(s) on the terms and
conditions of the loan approval;
II. Assesses the lead bank’s strength in terms of its leadership ability, expertise,
experience and diligence;
III. Responds to the invitation of the lead bank;
IV. Requires amendments to the co-financing agreement, if deemed necessary;
V. Makes its share of funds available on time for disbursement by the lead bank;
VI. May charge interest for the share of the loan that is released to the lead bank(s),
if it is not disbursed within the date set in the co-financing agreement;
VII. Periodically inspects the loan account and loan administration process; and
VIII. Pays a loan administration fee to the lead bank as per the agreement.
d. Joint Leading Banks
Joint Leading Banks are a group of banks that share the main responsibility / task of
a lead bank. The joint leading banks will jointly and severally act as a single lead
bank.

Wegagen Bank S.C
3. Equipment/Machinery Lease Financing
The Bank may avail the Equipment/Machinery Lease financing for the lessor. The
capital goods include earthmoving machines, construction vehicles, combined
harvesters, and tractors etc that are considered as essential to conduct business in
any sector of the economy.
“Lessor” means a person/asset supplier who, under a lease agreement, provides to a

lessee the right to use the capital goods in return for rent for an agreed period of time.
Equipment lease financing for the lessor is a term loan provided for a maximum often
(5) years to leasing companies/individuals for the purchase of capital goods
(machinery and equipment) for the purpose of leasing/renting business.
a. The bank may enter into tripartite agreement with the lessor and its customer if
deemed appropriate for ease of channeling loan repayments.
b. If the capital goods are to be purchased locally and there are different suppliers
of the machinery, an applicant must submit three pro forma invoices. In this
case, the bank shall pay directly to the supplier per the written authorization of
the lessor.
c. If the capital goods are to be purchased from abroad, Letter of Credit to import
capital goods shall be opened only through Wegagen Bank.
d. The Bank’s Attorney may design loan contract based on the lease agreement.
1. The maturity period of the loan shall not be greater than the life of the
equipment /machinery.
2. The minimum equity contribution of the applicant shall be 40%.
3. The capital goods to be purchased shall be brand new.

Wegagen Bank S.C
4.1.4.10Loan Buyout
a. Loan Buyout is a type of arrangement wherein the bank buys loans from other
banks. The Bank involves in this activity if it believes that buying of the loan
is beneficial.
The main objectives of Loan Buyout can be to:
i. Regain ex-customers of the Bank,
ii. Attract new customers from other banks,
iii. Increase quality of loan whereby Wegagen bank held the collateral as a second
degree.
iv. The loan to be taken over may be restructured (to a reduced loan amount,
conversion to other forms of credit type, etc.) based on negotiation and business
cash flow.
vi. The customer shall lodge written request.
1. The request shall be entertained in accordance with to the general eligibility and
specific loan type Requirement of the Bank.
2. For ease of implementation the following activities are undertaken while buying
the loan:
3. Wegagen bank checks whether the collateral is pledged as a second degree or

not and the existence of any injunction order.
4. The Customer Relationship Manager shall collect all necessary documents and
obtain legal advice as deemed.

Wegagen Bank S.C
5. Wegagen bank and the proposed customer shall conclude loan and
mortgage/pledge (if any) contracts.
6.The loan-selling bank shall provide undertaking letter to the wegagen bank that it
would release original title deed certificate/ libree and other documents held
along with the letter of loan settlement.
7. Wegagen bank issues Cashier’s Payment Order (CPO) for settlement of the
outstanding loan and the accumulated interest.
8. The selling bank shall deliver original title deed certificate/libree and
confirmation letter of full settlement of the debt addressing to the registering
organ.
9. The collateral shall be registered at first degree right to Wegagen bank by the
appropriate registering organ.
4.2 New Product Development and Approval
Customer Relationship Management Directorate develops new credit product

proposals. The Board, upon the recommendation of the CEO/top management, shall
decide on the new credit products. After approval, the Portfolio Management Division
develops appropriate policy and procedures for the newly developed and approved
products.
Chapter Five
5. Credit Processing
5.1Lending process initiation
Lending process starts with recruitment of potential credit customer through
direct marketing approach by the credit relationship sub-process or through the
bank’s branch outlet. The responsible organs for credit marketing include,
Director- Customer Relationship Manager, Customer Relationship Manager,
District Manager, Branch Manager and loan administration officer.
Wegagen Bank S.C
Where it is convenient:-
1. An existing customer or legal agent can present credit application to the

Branch or to Customer Relationship Manager (CRM).
2. Whereas new credit applicants or legal agent can present their request to the
Director Credit customer Relationship Management or the District Manager
as appropriate.
3. Exceptionally, the corporate customer credit request should be collected by

the CRM from the customer business center.
4. In case of all options the credit request can be forwarded either through
formally written application in person or through electronic media pending
submission of the original application for a later date.
For branches located within the radius of 40 km from the CPP, the Loan
Administration Officer or the Branch Manager is responsible to collect and
immediately send customer’s application along with relevant documents to the
Director Customer Relationship management/ District Manager for new customer or
to the Customer Relationship Manager (CRM) for existing customer.
Up on delivery of new credit applicant request the Director Customer relationship

management or District manager shall scrutinize the request based on the available
information and if accepted classify the borrower ( as corporate or commercial
customers ) and assign the case for a CRM .
In relation to item 5.1.4, the Customer Relationship Manager (CRM) is responsible for
conducting the due-diligence assessment on the customer and collecting the
remaining required document.
5. For credit request initiated from outlying branches located 40 km away from
the CPP or District Office, When the request is beyond the sanctioning limit of
the district
i. The Customer Relationship Manager (CRM) shall collect all relevant documents
and conduct due diligence in collaboration with the concerned district office or

Wegagen Bank S.C
branch. In sense that, the Branch Manager or the loan administration officer
shall carry out the due diligence and send it to CPP together with all pertinent
document and information gathered in line with the credit checklist.
ii. The CRM, in some cases, however, might consider business visit to distant area
if the applicant business complexity, request type, loan amount requested, and
significance of the remaining information or documents demand doing so.
iii. In both cases, the CRM is required to revisit the completeness of the
information and document at hand and produce or reproduce his/her own due
diligence
6. The Customer Relationship Manager should provide acknowledgment letter

after completion of all the necessary documents by the customer.
7. The Customer Relationship Manager (CRM) should collect the payment

immediately after he/she provided the customer with acknowledgment letter
per the terms and tariff.
8. Meanwhile, subsequent to the credit case assignment, the CRM is expected to

execute parallel duties like requesting legal opinion from attorney and
estimation of collateral property from valuation maker who works as part of the
customer relationship sub process. The attorney is responsible for provision of
appropriate legal opinion regarding the legality of the business and related
issues in a written form to the requests forwarded by credit performers.
9. Being mind full of the principal credit process objective like credit worthiness,
preserving bank’s loan quality and processing loans with standard time in a
cost effective manner, the CRM should conduct due diligence and fulfill all
required documents and forward it to the credit appraisal sub process.
10. The CRM is also required to recommend on the loan request after going through
the credit appraisal report and based on his/her own due diligence report.

Wegagen Bank S.C
V.2 Preliminary Interview
Initially, up on the acceptance of customer application, the Customer Relationship

Manager (CRM) undertakes face to face interview with the customer to obtain
adequate and complete information in relation to the business and perform due
diligence on the application. The detailed interview should focus on the following
qualifying issues and credit assessment issues.
i. The nature and experience of the borrower’s business;
ii. Business conditions, such as production, sales ( level and outlets , etc.;
iii. The customer character and socioeconomic status
iv. Type of product producing and/ or service provided as well as

accessibility of substitutes, etc., as appropriate.
v. The purpose of credit request (working capital, acquisition of fixed

assets, project finance,;
vi. Prevalence of any liabilities with creditors and other banks
vii. Presence of any deposit or other banking relationship in its name or its
affiliate ( if there is any)
viii. Applicant business main Source of income for loan repayment and
availability of any side business
ix. The principal customers and suppliers of the business and /or presence
of alternative market (market condition)
x. The condition of the sector and industry the borrower engaged in
xi. The competency (qualification and relevant experience) of the

management;
xii. Type & value of security to be pledged/mortgaged

Wegagen Bank S.C
xiii. The compliance with environmental and other regulatory practices
xiv. And any other pertinent information considered necessary to evaluate

the credit worthiness and related risk of the borrower proposal.
2. Following the interview and reviewing other submitted documents, the CRM shall
decide either to accept or reject the application.
3. If the customer is eligible, the CRM shall first complete the collection of all
required document and issue acknowledgment letter.
4. If the customer is not eligible, the CRM may reject the request in consultation
with his/her immediate supervisor and report to the Manager Credit Portfolio
Management Division stating the reasons for rejecting the request.
V.3 Required document collected from credit applicant
1. The Customer Relationship Manager (CRM) should ascertain collection of all

processing relevant documents including those indicated on the annexed credit
document checklist format of the bank;
2. All credit documents to be presented for credit decisions should be either

originals or copies that have been checked against the originals. If the original
cannot be retained by the Customer Relationship Manager, he/she must write
“Checked against Original” and put his/her signature and the date on each
copy.
3. Documents that are not legible or bear deletions without initials or where the
seals are difficult to identify should not be accepted.
4. The financial statements should include balance sheet, income statement and
forecasted cash-flow statement. In addition to the audited/provisional financial
statements, the latest interim financial statements should be presented for the
period under review. However, the financial statements may be actual and/or
projected depending on the nature and age of business.

Wegagen Bank S.C
5. All credit applicants should be encouraged to present Audited Financial

Statements. However, any business established as PLC, Sole proprietorship and
partnership who stay in business for one or more year and whose credit
exposure is Birr 5 million and above must submit audited financial statements
of the latest fiscal year within one year from the closing date of the preceding
fiscal year. Besides, provisional and latest interim financial statement should be
submitted for the period under review.
6. For a credit exposure in short of Birr 5 million but in excess of Birr 1 million,
sole-proprietor and partnership business shall present Audited or provisional
statements as appropriate for the latest three consecutive years in line with
GAAP and IFRS.
7. Moreover, CRMs may accept Commercial Credit Report (CCR) for sole-proprietor
and partnership business with credit exposure less than Birr one million.
8. All businesses established as share companies should be encouraged to submit

audited financial statements regardless of the credit exposure, requested loan
type and amount.
9. The audited financial statements presented by the applicant should be prepared

and audited by persons/companies who have certificates of professional
competence duly authorized by the relevant institutions/authorities and those
organs established at Federal or Regional level to organize and register
Cooperative Societies in line with Proclamation No. 147/98.
10. Newly established businesses must present projected financial statements and
cash-flow projections for at least the loan repayment periods.
11. The Customer Relationship Manager/ Branch manager/ loan administration

officer will be responsible, to the extent possible, for crosschecking the
information contained in the financial statements.

Wegagen Bank S.C
12. Having ascertained that the supporting documents are complete, the Customer
Relationship Manager (CRM) must use a thick mark to indicate same on the
checklist that is to be attached to the LAF.
5.4 Customer Business Visit
1. The purpose of the visit is to make physical examination verification and identify
the variation through direct observation and objective assessment of the reality at
the business premises of the customer against the document and information at
hand.
2. As a matter of principle, the CRM should exercise both scheduled and discrete
business visit to mitigate risk of manipulation by some dishonest customers.
3. For new credit applicant, the CRM should conduct a business visit immediately
after receiving the application and supporting documents.
4. For existing customers business visit is one of the regular activities of the
Customer Relationship Manager.
5. For branches located beyond 40Kms from the Credit Processing Pool (CPP) shall
be done as the case demanded depending on the amount of loan and relevance of
the remaining information. Otherwise, the Loan Administration Officer/Branch
Manager should provide all the required information.
6. The Customer Relationship Manager (CRM) should provide the findings of

the business visit to the Credit Analyst through Due Diligence Report.
5.5 Credit Information
1. Managing the credit information data base of the Bank is the responsibility of
Credit Information Section under the Credit Portfolio Management Division.

Wegagen Bank S.C
2. The credit information section access the NBE data base online, gather the
information and provide the response to the respective inquiring credit organs
through convenient communication medium within the pre specified standard
time.
3. Under normal circumstance Customer Relationship Managers or Loans workout

officers should originate credit information and forward the request via credit
information section. But, in some cases the credit analyst or credit approving
committee or portfolio management could initiate credit information request.
4. Credit information as an important input of credit assessment should include

guarantors, mortgagors, shareholders, General Managers and spouses.
5. As additional input for verification not as legitimate source, credit performers

might also access credit information through formal letter from other banks.
But this shall not be taken as replacement for seeking credit information
through NBE online credit information sharing system.
6. The maximum service period of any credit information shall not exceed three
month or 90 days.
5.6 Loan Approval Form (LAF)
1. Loan Approval Form (LAF) is the principal credit decision document on which
relevant information on the loan request, recommendations and the credit
decision of the credit-approving committee/individuals are to be recorded.
2. Any credit approval should, therefore, be made on LAF.
3. The LAF is to be originated by the Customer Relationship Manager (CRM) when

any of the following situations arise:

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i. A fresh credit request;
ii. Renewal of any credit facility;
iii. Restructuring decisions;
iv. Legal actions;
v. Events that necessitate changes in the decisions of credit approving

committee/individual, alterations of loan amounts, collateral, interest
rate, maturity period, grace period, insurance, or initiation and
suspension of legal action etc ;
vi. Appeals on a credit decision; and
vii. Other credit-related issues.
4. The Customer Relationship Manager (CRM) shall properly prepare LAF in two
copies and send to Credit Analysis/Appraisal sub process for
analysis/appraisal accompanying all required loan processing documents
including other qualitative information
5. Following credit committee approval one original copy of the LAF should be
retained by customer relationship management and the remaining copy shall be
maintained at the Credit Analysis and Appraisal Directorate.
5.7 Credit Service Delivery Time (CSDT)
1. At all times the credit application process and delivery time should center
customer satisfaction as much as possible for the credit delayed is credit
denied.
2. The CRM should request the credit applicant to submit all essential documents
in time at one go with an enclosed comprehensive list of required information so
as to expedite the credit processing.

Wegagen Bank S.C
3. For existing renewable credit facilities, the CRM shall request in writing
submission of all relevant documents/information at least a month before
expiry date.
4. The detailed processing time by each performers based on major activities

should be respected and properly filled in the standard Credit Service Delivery
Time format.
5. Any deviation in excess of three days from total standard Credit Service Delivery
Time shall be supported by adequate justification. However, the justification
should be given by the credit performer who fails to comply the standard time.
6. The standard Credit Service Delivery Time should be monitored by respective

sub process owners;
7. The Credit portfolio management should monitor compliance of CSDT by

gathering and compiling monthly and quarterly report with justification for
deviations from each sub process.
5.8 Credit Analysis/Appraisal
1. Credit Analysis/Appraisal refers to a critical assessment of a business entity to

see whether it is strong enough to warrant lending of money to it, and related
risks. It is generally done to assess the creditworthiness of a borrower and
involves examining the ability of a borrower to repay debt of some kind. Credit
Analysis should screen out both the positive and the negative aspects of each
credit request.
2. Credit Analysis/Appraisal is performed based on the information obtained from

the following sources:
i. Customer’s application;
ii. Qualitative information from the Customer Relationship Manager;
iii. Interview or discussion from the Customer Relationship Manager;

Wegagen Bank S.C
iv. Credit Application Form (CAF);
v. Financial statements;
vi. Credit database of the Bank and/or Market data to be collected by Credit
Portfolio Management Division such as industry-wide profitability,
liquidity and leverage ratios, portfolio concentration (by sector,
ownership, product and geographic area), macro- and micro-economic
data, market situation, market share, where applicable, intensity of
competition, industry characteristics, business cycle, etc.;
vii. Supporting documents;
viii. Range of accounts/overdraft utilization/account performance;
ix. Credit information report;
x. Legal opinion; and
xi. Other pertinent sources.
3. The Credit Analyst should carry out a comprehensive analysis in order to

determine the strength of the business; and do so with the highest ethical and
professional standards of conduct.
4. Content of credit analysis/appraisal shall follow the credit analysis format.

Using this format the lending officers ensures that all significant and relevant
issues related to a specific case are covered and the final
recommendation/sanction is based on a proper analysis of the borrower’s
circumstances both from financial and non-financial aspects
5. Depth of Credit Analysis/Appraisal:
i. Intensity of analysis/appraisal may vary based on nature of credit request; type of

the business the customer is engaged in; and level of associated credit risk.
The report shall address the content and key issues that are relevant to the
request.

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ii. In case of existing borrower(s)/customer(s), the Analysis Report shall concentrate

on new developments of the business and summarized on a few pages as far
as possible.
6. To properly analyze/appraise the credit request the lending officer shall gather
adequate information about the customer from different sources on historical
financial statements, projections, business strategy, skills and experience in
management and personal character.
7. The Customer Relationship Manager (CRM) is responsible to gather the required

documents/information in the required manner from customer when a request
arises from Credit Analysis or Credit Approving organ
8. In exceptional cases where the credit request is beyond the appraisal capacity of
the bank’s credit performers/experts, the Bank might consider appointing
external consultants (individual or organizations) as appropriate.
9. After preparing the request for proposal (RFP), the bank may recruit external
consultant either on the bases of head count recommendation or the bank
may select and recruit from pool of competent consultant
10. External consultant project appraisal could be partial or full depending on the
internal expertise level. But, as an input for sanctioning on the credit request, it
shall always be used together with internal credit analysts’ assessment.
5.9 Credit Negotiation
1. The purpose of negotiation particularly, in case of project finance, is to ensure

the customer capacity and willingness to realize his /her business plan given
the challenges ahead. . Besides, the CRM must be aware of the applicant
dedication to use the loan exclusively for the purpose specified in the
application;
2. The Customer Relationship Manager (CRM) should negotiate with the customer
on items like loan tenure including grace period, disbursement arrangements,

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equity contribution, repayment amount, collateral issues and disbursement

terms and conditions.
3. The Customer Relationship Manager should properly put in writing
4. The negotiation point and result to be used as a feedback for credit approving
committee.
5.10 Credit processing procedures for selected credit product
5.10.1 Projectloan appraisal process
5.10.1.1 Task of Customer Relationship Management
1. The project financing request shall be reviewed by the Director Customer

Relationship and if accepted the case will be classified per the procedure and
forwarded to the concerned CRM
2. The CRM after credit initiation process collect all documents by himself or from
branches so as to make sure that all documents necessary for appraisal are fulfilled
as per the checklist;
3. The CRM shall check and compile the following before transferring the documents
to the Credit Appraisal Sub Process with the project study:
I. Check due diligence assessment to ensure that all the necessary KYC
information are obtained;
II. Check or evaluate that the background information and documents
received from the branches are the required data for project appraisal
purposes; and
III. Compile relevant research data or collect the required data elsewhere
for appraisal of projects;
IV. Civil engineers review the project plan, bill of quantity and other
construction documents, undertake estimation and prepare reports
and endorse the reports with signature;

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V. Mechanical or electrical engineers review specification of machinery

and equipment’s, undertake valuation and prepare reports and
endorse the reports with signature;
5.10.1.2 Task of Credit Appraisal Sub Process
1. Up on receipt of the case, the Director Credit Appraisal shall assign competent
analyst for timely processing.
2. The analyst undertakes project viability check and prepares detail appraisal report
of the project in accordance with the appraisal guideline and format of the Bank;
3. In cases involving project expansion, in addition to common project viability check,

the appraisal, among others, shall:
I. Analyze values of the existing investments, the source of finance, and

check the utilization of loan and equity; as deemed necessary;
II. Evaluate the existing market and marketing arrangement of the
project so as to examine how the project has been selling its product
and propose other alternatives, if necessary, for the future;
III. Evaluate the existing organization, management set up and human
resource placements of the project to propose what is to be done in the
future;
IV. Indicate key success and risk factors of projects;
V. Indicate risk mitigation measures to be taken to ensure smooth
operation and ascertain the repayment of the loan;
VI. Evaluate production processes and capacity utilization of projects to
ascertain the appropriateness of the technology and production
process;
VII. Evaluate actual production and operational performance of projects to
check the products, sales and capacity utilization of the project and
forward recommendations for future action;
VIII. Analyze and evaluate past financial performance of projects from
audited financial statements;

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IX. Revise investment costs, source of finance ; and

X. Check financial viabilities of projects to show changes in investment
and financial projections.
4. Finally the analyst send completed appraisal reports with recommendation to CRM
and Loan Approving Committee
5. The CRM Upon receiving the appraisal report he or she shall go through the
appraisal and put his/her own recommendation on the LAF and present the case
together with the analyst at the appropriate approving committee for decisions;
Chapter Six
6 Credit Risk Rating
6.1 Credit Risk Grading
Credit risk grading is a system that enables the bank to distinguish its borrowers
according to their level of risk exposure. Wegagen Bank has further refined and
developed its credit risk grading system to achieve a sound credit risk management at
an individual/ transaction level.
6.2 Objectives
The core objectives of individual borrowers’ credit risk grading include:
i. To standardize implementation of credit risk grading /standard;
ii. Enable proactive identification and management of early warning signals
iii. To assist decision making at all levels in the Bank;
iv. To enhance monitoring and controlling of the qualities of individual credits

as well as the total loan portfolio;
v. To set in variable loan pricing for loans and advances based on perceived
level of risks posed by borrowers.

Wegagen Bank S.C
6.3 Scope of application

The credit rating system is employed on all borrowers with established credit
relationship for more than one year. However, those borrowers who are new both in
terms of establishment and credit relationship shall be automatically classified as
grade C rather than being treated using the risk parameters. These borrowers include
newly established business entities and project finance loans (excluding expansion
project). However, expansion project finance loans in similar line of business shall be
rated based on the rating system stated in this procedure.
6.4 Authority and Responsibility
1. The Credit Appraisal Directorate is responsible for conducting and approving

credit risk grading on performing loans with a maker and checker principle.
2. The credit risk rating on case by case basis carried out by the Credit Analyst
and approved by Director – Credit Appraisal.
3. Bulk Review and re-grading of all performing borrowers shall be conducted on

annual basis by Credit Portfolio Management
4. For non-performing loans, the credit risk rating/grading shall be made by the
Loan Workout Officer and approved by the Manager – Loan Workout or Manger
– Credit Appraisal (for District).
5. The bulk review of credit risk grading of NPL borrowers shall also be conducted
by Loans Workout by the parties stated under item 6.4.4 above on quarterly
basis.
6. The CRM and Loans workout officers are responsible for Preparing action plan
on each borrowers risk grade below ‘B’ so as to follow up and correct identified
weaknesses
7. Documenting the individual grading report of each customer in the loan file for
review by concerned organs including Risk and Compliance Management and
Control Directorates;

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6.5 Risk rating of affiliated borrowers/Linked Lending

[
Shareholders in the applicant company having 50% or more stake in a related/sister
company or having shareholders of first degree consanguinity as major shareholders,
shall take the credit risk rating of the company being graded/rated (the applicant)
and shall also indicate risk grade of parent company, or the related/sister company.
6.6 Borrowers’ Credit Risk Grading: Attribute, Process and

Implication
In the context of this procedure, a borrower’s credit risk grade is determined based on
the following five fundamental attributes
Credit Risk Grading Attributes and corresponding weights
No
Attributes/parameter Allotted Score
.
1 Loan Account Performance 35%
2 Financial Management /Position 25%
3 Business management 15%
4 Customer Character and Relationship with the Bank 15%
5 Business and Industry Risk 10%
100%
As a general rule of application,
i. if specific parameters under each attribute are not applicable for a particular
borrower, only the available factors shall be considered.
ii. The score assigned to each attribute is determined based on prior experience
and expertise judgment in that those given a relatively lower score are believed
to spell more on borrowers’ actual and potential risk of failure in meeting

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contractual obligations than the other attributes that are given a relatively
lower score;
iii. If one or more of the parameters for a new borrower and for some type of
borrowers are missing, give scores for the available attributes.
iv. Based on the final score achieved, proper credit risk grade of borrowers shall be
determined in line with the following decision rule;
Sr.
no.
Scores Achieved (X) Risk Grade
Credit Risk
Implication
X≥ 85 or Loans and advances fully

1 secured by cash and cash substitute Grade ‘A’
collateral Bankable
2 70≤X<85 Grade ‘B’ Bankable
3 55≤X<70 Grade ‘C’ Bankable
4 40≤X<55 Grade ‘D’ Exceptionally bankable
5 25≤X<40 Grade ‘E’ Un bankable
6 X<25 Grade ‘F’ Un bankable
v. Regardless of the scores achieved, however; new customers shall not receive
credit risk grade better than Grade ‘C’ until such time that all attributes are
known for the grading purpose;
VI.6.1. Loan Account Performance /Total Average Score: 35%/
Loan Account Performance is an attribute to partly measure credit risk of a borrower

based on track record in utilization of existing as well as previously settled credit
facilities at Wegagen Bank. In this regard, the borrower’s loan repayment track records
and/or utilization of other credit facilities should be thoroughly analyzed and
measured using commonly known loan account utilization measurement parameters.

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The applicable standards and corresponding scoring distributions out of allotted score
35% are presented as follows:
6.6.1.1 Overdraft Facility (Allotted Scores: 35Pt)
If the borrower is enjoying Overdrawal facility, computation of Turn Over and Swings
shall exclude equivalent of the Overdrawal limit as well as the corresponding Debit
and Credit transactions; Use the tabulated standards to evaluate borrowers’ utilization
of Overdraft facilities;
Highest Debit
(X) Turn Over
Lowest Debit/ Credit
10 12 (Recent three
balance(Y) (Recent one 13 Pts
(Recent three Pts Pts years average)
year)
A
years average)
At least a credit balance within

X≥90% 10 12 A≥2 13
three months
At least a credit balance within

55%≤X<90% 7 9 1≤A<2 10
six months
At least 4% of the debit

balance within a year
<55% 4 6 1≤A<2 7
A< 1 0
6.6.1.2. Term Loans and One-time Merchandise Loans: (Scores

Allotted: 35 Pts)
Borrowers’ performance vis-à-vis Term Loans is assessed in terms of repayment

timeliness and manner of settlements for existing as well as previously settled
facilities;
Outstanding loan repayment 20 15

Settled loans
performance/status Pts Pts
No arrears (regular repayment) 20 Settled with a regular repayment thereof 15

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0<X≤30 days 15 Settled timely but with an element of irregularity 10
30<X≤60 days 10 Settled between thirty to ninety days after due date 7
Settled after falling to NPL category thru amicable or

X> 60 days 0 0
legal means
Note: Factors beyond reasonable control of borrowers may include: repayment installments that do not match cash
flow cycles; absence of otherwise grace period; changes in government regulation...etc. and such justifications
should be documented for reference.
6.6.1.3. Revolving Credit Facilities
Utilization of revolving credit facilities such as Merchandise Loans, Pre-shipment

Export Credit, Advance Against Export Bills, and Revolving Letter of Credit are
measured in terms of the Turn Over and average Settlement performance for the
preceding one year from the date of grading and taking recent three years average;
6.6.1.3.1. Revolving Merchandise Loans: (Scores Allotted: 35Pts)
Turn Over against Limit 15 Average Settlement performance 20

Sr. No.
(Recent three years average) Pts of merchandise Advances Pts
1 X ≥2 times 15 Settled within 90 days of advice 20
2 1.25≤X<2 times 10 Settled within 120 days 15
3 0.5≤X<1.25 times 7 Settled within 145 days 10
4 X< 0.5 times 0 Settled after 145 days 0
6.6.1.3.2 Revolving Merchandise Loans (coffee)
Turn Over against Limit 15 Average Settlement performance 20

Sr. No.
(Recent three years average) Pts of merchandise Advances Pts
1 X ≥2 times 15 Settled within 180 days 20
2 1.25≤X<2 times 10 Settled within 200 days 10
3 0.5≤X<1.25 times 7 Settled after 200 days 0
4 X< 0.5 times 0

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6.6.1.3.3. Pre-shipment Export Credit (Scores Allotted: 35Pts)
Sr
35
. Turn Over against the Limit (Recent Six Months):
Pts
No
1 X ≥3 times 35
2 2≤X<3 times 30
3 0.75≤X<2times 20
4 X< 0.75 times 0
6.6.1.3.4 Advance against Export Bills: (Scores Allotted: 35 Pts)
Turn Over against Limit 15 20

Sr. No. Average Settlement of Advances
(Recent three years average) Pts Pts
1 X ≥3 times 15 Settled documents within two weeks 20
2 2≤X<3 times 10 Settled documents within three weeks 15
3 1≤X<2 times 7 Settled documents within a month 10
4 X<1 times 0
6.6.1.3.5 Revolving Letter of Credit facility: (Total Scores Allotted:

35Pts)
Turn Over against Limit
15 Average Settlement record of Import 20
Sr. No. (Recent three years
Pts L/C Pts
average)
1 X ≥3 times 15 Settled documents within 10 days of advice 20
Settled documents within three weeks of

2 2≤X<3 times
10 15
advice
3 1≤X<2 times 7 Settled documents within a month of advice 10

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4 X< 1 times 6 Settled documents after a month of advice 0
6.6.1.4. Advance Payment and Performance Bond Guarantees: (Total

Scores Allotted: 35 Pts)
Customers’ performance on Advance Payment and Performance Bond Guarantees can

be measured in terms of claims lodged by employers to the Bank and the number of
extension requests by the client;
Sr.
Guarantees settlement (35 Pts) score
No.
Settled or expired without claim including those Claims Lodged to the

35
bank but guarantee period extended
Claims settled by the bank 0
Note: The extension requests must be due to reasons that are not beyond control of the client.
factors that force extension requests could be: Delay in expected payments due to employers
reasons, general rise in price of inputs, justifiable bureaucratic factors from employers…etc.
6.6.2. Financial Management System (allotted score 25 points)
The purpose of analyzing financial position, among others; is to recognize the extent to
which counterparty is able to repay debt from income generated by the business. The
underlining rational behind measuring financial position and management is to gauge
financial soundness of the borrower business;
The defined parameters to indicate risks arising from this attribute are: Quality of
financial statement or proper financial record keeping and maintenance of up-to-date
information, Liquidity, Leverage/Gearing Profitability, and Debt service Coverage Ratio
and quality of financial statement of the business.
Parameter / Sector
Measurement


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Agricultur Constructio Transpor DTS &

e Mfg Import n Export t Others Score
Liquidity (6) >3 >2 >2 > 1.5 > 1.5 > 1.5 >2 6
Current Ratio= 1.5 -

CA/CL 2.25 - 3 1.99 1.5 – 1.99 1 – 1.49 1 – 1.49 1 – 1.49 1.5 - 1.99 5
1.25 -
2.24 1 – 1.49 1 – 1.49 0.5 - 0.99 0.5 - 0.99 0.5 - 0.99 1 – 1.49 3
0.75 - 0.5 – 0.25 –

1.24 0.99 0.5 – 0.99 0.25 – 0.49 0.25 – 0.49 0.49 0.5 – 0.99 2
<0.75 <0.5 <0.5 <0.25 <0.25 <0.25 <0.5 0

Leverage <1 <0.43 <0.43 <0.67 <0.67 <0.43 <0.43 6
a. Debt to Equity 0.429- 0.429- 0.429- 0.429-

Ratio (5) 1-1.25 0.233 0.233 0.669-0.4 0.669-.4 0.233 0.233 3
0.234- 0.3990-
=TL/TNW 1.26-2 0.4 0.234-0.4 0.399-0.567 0.567 0.234-0.4 0.234-0.4 2
>2 >.4 >.4 >0.567 >0.567 >.4 >.4 0

Profitability
a. Operating profit
>5 >4 >6 >9 >4 >6 >6
margin (5) 5
4-4.99 2.5-4 5.00-5.99 7.5-9 2.5-4 5-5.99 5-5.99 4
1.75-
3-3.99 2.49 4-4.99 6-7.49 1-2.49 4-4.99 4-4.99 3
2-2.99 1-1.74 3-3.99 5-5.99 0.5-0.99 3-3.99 3-3.99 2
<2 <1 <3 <5 < 0.5 <3 <3 1
Debt Service
> 2.5 > 2.5 > 2.5 >2 >3 >2.75 > 2.5
Coverage ratio (4) 4
1.5 -2.49 2-2.49 2-2.49 1.5-1.99 2-2.99 2-2.49 2-2.49 3
1-1.49 1.5-1.99 1.5-1.99 1-1.49 1-1.99 1.5-1.99 1.5-1.99 2
0.5- 1-
0.5-0.99 1-1.49 1-1.49 0.5-0.99 0.99 1.49 1-1.49 1
< 0.5 <1 <1 < 0.5 < 0.5 <1 <1 0
Quality of financial statement (6)
a. Above Birr 1 Presented up-to-date Audited Statement, Business Plan and/or Cash flow Statement 4

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million Exposure
Presented up-to-date Audited with one year provisional statement 3
Presented up-to-date Audited with two year provisional Financial statement 2
Presented up-to-date all Provisional Financial Statement 1
Statements are only in CCR 0
b. Below Birr 1

million Exposure Presented up-to-date Audited and Provisional Statement 4
All Provisional Statement 3
Commercial Credit Report 1
Qualification Adverse / major/ and qualified opinion/ Material impact discrepancy more than 15% of
(deduction) Total Asset -3
Minor qualified but not major (amount of discrepancy not more than 15% of total Asset) -1
6.6.3. Business Management (Total Scores Allotted: 15 Pts)

In this regard, parameters such as relevance of managers’ experience, adequacy of
managers’ qualification and Succession plan are used to measure business
management related risk. Out of 100, this parameter is allotted a score of 15% points
to be rated as follows:
Sr.
Parameters 15 Pts
No.
1 Relevance of Managers’ Experience: 8 8
If 51% and above of each of the members of the top-level Management

8
have a more than five-year work experience

7
have a more than four-year work experience

6
has a more than three-year work experience
If 51% and above of each of the top-level Management has a less than
2
three-year work experience
2 Adequacy of Managers’ Qualification: 5 5
If 51% and above of each of the top-level Management is a degree

5
holder or above

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4
are diploma, degree holders or above

2
are high school graduates, diploma, degree holders or above

0
is not a high-school graduate
3 Succession plan : 2 2
Ready succession 2
Succession in question 0
6.6.4. Business/Industry Risk (Allotted Score: 10%)

This risk-measurement criterion tries to measure the general outlook of the business,
as well as its growth and status in the industry
Measurement Parameter Score
1. Business/industry outlook (cyclicality) Favorable 6

and growth (6)
Stable 5
Unstable 2
2. Market competition/market share (4) Dominant player 4
Average player 2
Weak player 0
6.6.5. Customer Character and Relationship Risk (Allotted

Score: 15%)
Relationship with Wegagen Bank (15%) Parameter Score
> 10 years 6
5 – 10 years 5

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2.1 Length of the borrowing relationship 2 – 5 years 4

(6)
1- 2 years 2
Less than 1 year 0
2.2 integrity, Honesty and Cooperation High 6

with the bank (6)
Medium 4
Low 0
2.3 current credit relationship with other No 3

banks (3)
Yes 0
Remark on Computation of Rating Parameter Measurement
1) For customers who are engaged in more than one sector , the major line of
business shall be considered for rating
2) If the recent financial statement presented is CCR, only 75% of the total finance
score shall be considered
3) The negative amount represent qualified or discrepant issues on financial

statement that should be deducted from the computed score
4) If the borrower has one outstanding/ current term loan and no settled term loan or
vice versa, the score shall be converted to 25
5) The account performance is obtained by adding the scores of the existing facilities,
loans and advances, and then dividing it by the number of the facilities that the
customer enjoys.
6) Deductions (negative scores) shall be deducted from the computed score of

respective loans, advances and facilities not from the total score of the account
performance.
7) In cases where the current customer business is PLC and the major shareholder
who own more than 50% of the shares had credit relationship with the bank; the
preceding year’s relationship shall be taken in to account.

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8) Unlike fully secured loans and advances, those loans partially secured by cash and
cash substitute shall be graded per the captioned risk rating procedure.
6.7 Interpretation of credit risk grades
Risk
Risk Level Risk Explanation
Grade
 Loans and advances fully protected by the current financial

Exceptionally
A and paying capacity of the borrower, excellent track records
Low Risk
of the customer, etc, and are not subject to criticism.
 These borrowers are not as strong as Grade ‘A’ in terms of

credit risk parameters, but the business still demonstrates
consistent good track record,
 The borrower has adequate liquidity, leverage ,cash flow and

earnings,
B Low Risk
 Borrower has acceptable share in the market,
 The business has acceptable management capability,
 The loan is performing in accordance with contractual terms

and conditions.
 These borrowers are not as strong as Grade B in terms of

credit risk parameters,
 The loans and advances show sign of irregularities, or have

arrears (the credit facilities have been inactive),
 The borrower needs attention due to conditions affecting the

C Moderate Risk
business, the industry, or the economic environment,
 The borrower has above average risk due to strained

liquidity, higher than normal leverage, thin cash flow and/
or inconsistent earnings, and
 The borrower may incur loss.
D Potential Risk  These borrowers are lower than Grade ‘C’ in terms of credit
risk parameters

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 The borrower has potential weaknesses that deserve

Wegagen Bank’s close attention. If left uncorrected, these
weaknesses may result in a deterioration of the repayment
prospects of the borrower,
 The loans and advances show extended irregularities, or

have arrears (the credit facilities have been inactive),
 Severe management problem exists, and
 Credit facilities should be downgraded to this grade if

sustained deterioration in financial condition is noted
(consecutive losses, negative net worth, and excessive
leverage).
 Financial condition is weak
 Full repayment of principal and interest is unlikely and the

Very High possibility of loss is extremely high, and
E
Risk
 However due to especially identifiable pending factors, such
as litigation, liquidation procedures or capital injection, the
asset is not yet classified as loss.
 The loan has been long outstanding with no progress in

obtaining repayment or on the verge of windup/liquidation,
 Prospect of recovery is poor and legal options has been

pursued or initiated,
F Default Risk
 Proceeds expected from the liquidation may be awaited, and
 Wegagen bank’s criteria for legal resolution or timely write-

off shall be adhered to apply.
6.8 Other Provision and Exception
i. The grading procedure is applicable to all facilities of existing and new

lending with six month relationships, including temporary facilities, except
One time L/C, Bid Bond and Customs Bond Guarantees;

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ii. For borrowers with loans that could not fit in to the aforementioned
parameters such as Project Financing, One-time Contract Financing or
Discounting…etc, their risk grade shall automatically fall under Grade ’C’;
iii. All Emergency Staff Loans, Consumer and Personal Loans shall be classified
under credit risk Grade ‘C’ during their approval time as they have minimal
risk;
6.9 Period of Rating/Grading
1. All customers shall be graded/ rated up on each credit request.
2. New borrowers with no pre-established relationship with the Bank shall be

subject to review after six months of credit history with the Bank;
3. Bulk review of the credit risk rating/grading shall be made annually. However,
those customers rated/graded less than six months from the rating/grading
period may be excluded.
4. The customer’s rating/grading shall be revised at any time particularly at times

the CRM observe early warning signals. He /she shall prepare a report and
forward to the Credit Appraisal Directorate to conduct proper rating/grading
adjustment.
6.10 Preparation of individual risk grading Action Plan follows up
I. The Customer Relationship Manager /workout Loans Officer as appropriate

must prepare follow up action plan on all borrowers rated from C to F based
on the credit analyst rating.
II. Action plan for grade ‘A’ and ‘B’ customer shall be Optional for it depends on
the issues to be addressed.

Wegagen Bank S.C
CHAPTER SEVEN
7. Collateral/Securities
Collateral for loans is meant an asset hold by the bank as a fallback in case of default
or to mitigate the presumed credit risk. Collateral should never be a first way out or a
substitute for creditworthiness. The bank should primarily assess and ascertain the
existence of adequate cash flow to repay the loan and/or the level of risk exposure or
magnitude to decide on collateral requirement.
7.1Guiding Principle
1. The Bank in principle follows cash flow-based lending as a prime
guarantee for full settlement of loans and advances. However, in order to
minimize default risk or to safeguard the loan, the Bank requires first-
degree collateral security for all loans.
2. Collateral requirement should be considered based on the expected overall

business risk from a particular borrower after a sound appraisal of credit
application. However, holding dependable collateral coverage should not
result contentment and negligence on credit performers in assessment of
business strength.
3. Projects operating on rented premises are required to present additional

collateral outside of the project amounting to 100% of the loan.
4. The Bank may extend loans and advances which are secured or unsecured
(partially or fully) as appropriate. Partially unsecured loans and advances
are those loans backed by collateral coverage below collateral risk apatite
of the bank.
5. The bank’s minimum collateral coverage ratio as a risk appetite or

threshold shall be 100%. But, the coverage ratio shall flexibly vary

Wegagen Bank S.C
depending on the level of risk determined through credit appraisal

assessment.
6. The collateral valuator maker – checker shall conduct the estimation of

offered property in line with the collateral estimation procedure respecting
the checker maker principle of the bank.
7. In order to safe guard both the borrower and bank interest; all acceptable
properties for collateral should be insured 100% with a recognized
insurance company before any disbursement. For project financing loan,
however, the insurance can be entered in parallel with disbursement of
each phase.
7.2 Acceptable Collateral

1. The bank accept both Movable or immovable assets for collateral. However,
the proposed collateral marketability, location or accessibility, stability of
price, insurance cover, transferability of title and multipurpose
functionality should be evaluated critically.
2. Likewise, the bank accepts assets such as Real estate properties, motor
vehicles, various machineries, Government Bonds and corporeal elements
of business entities as long as it can be registered by the concerned legal
notary or registrar bureau.
3. Acceptable collateral, which may not be registered by registrar office,

includes merchandise, bank guarantee, deposits in banks, negotiable
instruments (treasury bills and government bonds), personal guarantee,
and valid import and export documents.
4. Items imported with duty free privilege should not be held for loans other
than the original purpose and beyond its geographic location.
5. The bank may accept second degree collateral only if it is for the purpose
loan recovery and if the business is profitable for the bank loan buy out.

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7.3 Collateral Types and valuation

The conventional types of collateral or securities backing loans and advances
acceptable to the Bank include the following;
7.3.1 Collateral Types
a. Deposit Accounts with Wegagen Bank

These include saving deposits, demand deposits and time deposits in any branch of
Wegagen Bank. A letter of consent from the customer that authorizes Wegagen bank
to have all rights on the account must be filled and presented as per the standard
format of the Bank. Such deposits shall be blocked until the loan is fully settled.
b. Cash Surrender Value of Life Insurance

Surrender value of life insurance is considered as good as cash collateral. The cash
value (collateral) should at least be 100% of the loan amount plus interest based on
the applicable loan interest rate. Such insurance is to be accepted as collateral under
the following guiding principle;
i. The validity of the insurance certificate presented by the applicant should

be verified;
ii. A written statement of the amount of cash surrender value of the life
insurance policy must be obtained from the insurance company;
iii. The insurance company unconditionally commits itself to pay the Bank on
demand and without contestation, the surrender value of the insurance
policy in the event of default;
iv. The insurance company gives priority right to the Bank for settlement of
the outstanding debt and accrued interest from the death or at maturity
when claims are to be paid to the beneficiary or policy holder.
v. It should be ascertained that there is no outstanding loan drawn against
the policy at the time the life insurance policy is offered for collateral;
c. Government Bonds and Treasury Bills
i. Treasury bills

Wegagen Bank S.C
Treasury bills represent short-term financial papers/instruments commonly issued at

defined denominations by Government Treasuries. These financial instruments are
normally issued at discount and redeemed at par value.
ii. Government Bonds

Government Bonds represent interest bearing certificates issued (sold) by government.
Government Bonds shall be accepted as collateral provided the loan period is less or
equal to the maturity period of the Bond.
d. Share Certificates
This class of collaterals represents share certificates of local banks and insurance
companies; The Bank shall not accept its own shares as collateral as it may result in
conflict of interest.
e. Bank Guarantees
A bank guarantee refers to a written undertaking issued by a bank as a guarantor of
the borrower, stating its legally binding commitment to pay on demand and without
any contestation a sum equal to the value of the guarantee to the bank in the event of
default by the borrower. While accepting the bank guarantee, legal advice or opinion
should be obtained from Attorney of the Bank.
The guarantee shall be obtained via Wegagen Bank’s standard format. Guarantees
obtained other than the bank’s format should not be accepted unless authenticated by
the attorney of Wegagen Bank.
h. Local Bank Guarantees:

A local bank guarantee refers to a written undertaking issued by local banks as a
guarantor of a borrower, stating its legally binding commitment to pay on demand and
without any contestation a sum equal to the value of the guarantee to the bank in the
event of default by the borrower.
1. A local bank guarantee for a credit applicant who is a shareholder of the

guaranteeing bank should not be accepted as it entails conflict of interest;

Wegagen Bank S.C
2. The guarantee shall be issued via Wegagen Bank’s standard format.

Guarantees obtained other than the bank’s format should not be accepted
unless authenticated by the attorney of Wegagen Bank;
3. The latest financial statements of the guaranteeing bank should be
obtained;
4. Assessment of the financial strength of the guaranteeing bank should be
made based on the financial statement;
5. Information of other guarantee commitments of the guaranteeing bank
should be secured;
6. The maturity value of the loan, inclusive of interest and other costs must
not exceed the value of the guarantee;
7. Settlement and renewal notice should be served 30 days before the elapse
of the maturity period with a copy to the guaranteeing bank. If no reply is
received, the borrower should be informed and a claim lodged to the
guaranteeing bank by all available means after expiry of the credit facility.
ii. Foreign Bank Guarantees:
A foreign bank guarantee refers to a written undertaking issued by a foreign bank as a

guarantor of the borrower, stating its legally binding commitment to pay on demand
and without any contestation a sum equal to the value of the guarantee to Wegagen
bank in the event of default by the borrower. While accepting the bank guarantee,
legal advice or opinion should be obtained from Attorney of the Bank. Such guarantee
is to be accepted as collateral under the following guiding principle:
1. The value of the guarantee shall be expressed in Birr or in any other

convertible foreign currency and should be sufficient to fully cover the
principal amount plus interest and other charges. This amount shall be at
least the principal plus applicable interest for the guarantee period. :
2. The letter of guarantee shall be unconditional, irrevocable, and payable to

the Bank on demand without contestation in the event of default,

Wegagen Bank S.C
3. The foreign bank may send the guarantee direct to International Banking
Directorate where correspondent signature is maintained for authorization,
International Banking Directorate, upon receipt of the letter of guarantee or

SWIFT message, shall authenticate the guarantee to ascertain the
originality, genuineness, acceptability and rating of the issuing Bank .and
forward to the Customer Relationship Manager,
4. Both International Banking Directorate and the Customer Relationship

Manager shall maintain a specimen of the signatories of the authorized
officials of the foreign bank,
5. Any incoming foreign bank guarantee should be issued by first class bank
or by another bank subject to confirmation by the first class bank. More
specifically, the foreign bank that issues the guarantee shall have a risk
grade of A, AA, or AAA as per Standard and Poor’s (S & P’s) rating, Moody’s
or Fitch Rating or the equivalent acceptable international rating company
as indicated by the latest Banker’s Almanac.
6. The validity period of the guarantee should be at least 30 days beyond the
expiry date of the facility in order to give enough mailing time to lodge and
process claims with the guarantor,
7. To ensure appropriate follow-up, International Banking Directorate and the

Customer Relationship Manager should maintain and prepare a schedule of
the maturity dates of the credit facilities and corresponding guarantees,
8. Reminder letter should be served to the borrower with a copy to the

guaranteeing bank one month ahead of the expiry date requesting the
customer to settle the loan. If reply is not received within the said one
month, the Branch shall inform the borrower and lodge claim with the
guaranteeing bank by authenticated SWIFT or by any fastest available
means after expiry of the credit facility and in advance of the expiry date of
the guarantee.

Wegagen Bank S.C
f. Personal Guarantees
It is the financial standing, the character, the prominence in the community of the
guarantor that is taken into account. It is not a physical estimation that the Bank
carries when considering loans against personal guarantees.
1. The Customer Relationship Managers should make assessment and

evaluation of the financial standing of the guarantor in the same manner
as is done to the borrower.
2. Status of the guarantor must be reviewed using all credit appraisal
techniques. Financial statements should be obtained or CCR drawn and
analyzed.
3. Credit information should also be gathered and appropriate trade licenses,
collected.
4. Care should be taken to avoid cross guarantee, chain of guarantees and
personal guarantee arrangements within members of a family.
5. The guarantor should be made to sign “Joint and Several Guarantee
Contract” to make an outright payment of the debt in the event of default;
6. The Bank’s Attorney shall give his/her legal advice/opinion clearly.
g. Corporate Guarantee
It refers to a legally binding written commitment issued by a corporate entity stating
that the guarantor shall cover any outstanding loan balance in case of default by the
borrower. The Bank shall thoroughly scrutinize capacity of the guarantor.
The company’s article of association shall authorize the general manager to issue
corporate guarantee in the name of the company and this shall be presented to the
Bank. The Bank’s Attorney shall give his/her legal advice.
h. Valid Import/Export documents

It refers to valid documents involved in Import and Export Letter of Credit.
i. Export Credit Guarantee

Wegagen Bank S.C
Export Credit guarantee scheme is a guarantee issued by the Development Bank of

Ethiopia (DBE) for the purpose of covering a portion of loan losses incurred by the
bank in case the borrower fails to pay back.
j. Residential or Commercial Buildings

This category of collateral includes premises, buildings and houses. The ownership
can be either the borrower’s or a third party property (i.e. private or cooperative
association) purchased, leased, constructed by the owners, and legally inherited. It
may include Buildings/ house development under construction if at least 50% of the
total cost is completed.
In case of buildings financed by the Bank, the buildings are considered as collateral
regardless of the building’s construction level of completion;
Residential condominium houses shall be considered for collateral purpose only after
five years of ownership entitlement;
k. Leased Land and rented premises

The bank shall accept the land lease right of the credit applicant as collateral. The
lease right and/or the land holding certificate shall be registered by the appropriate
registry organ. For leased land and for the rented premises on which projects are
planned to be established, the lease period shall be extended for the full term of the
loan repayment period plus a margin of safety of at least five years in addition to the
repayment period
L. Motor Vehicles
Motor vehicles include trucks (dry and fuel cargo) with or without trailers, buses,
automobiles, four wheel drive and others.
m. Construction Machinery
It refers to machinery used for construction purposes. These are dozers, graders,
loaders, excavators, scrapers, rollers, asphalt pavers, crushers, concrete batching
plants, concrete pavers, cranes, drilling rigs, wagon drills and chip spreaders.
n. Agricultural Machinery

Wegagen Bank S.C
This category of collaterals includes machinery used for agricultural purposes. These
include: coffee-washing and pulping mill, combine harvester, water pump and
generator, tractor, and drilling rig.
o. Mortgage over Plants & Machinery (Business Mortgage)

Business mortgage is a security arrangement whereby loans and advances are
approved against security of the corporeal and incorporeal element of business entity.
The corporeal elements of a business mortgage are those that are tangible and may
consist of building, motor vehicles, equipment, machinery, goods and other movable
items. The incorporeal elements of a business mortgage include goodwill, trade name,
and trademark, the right to lease the premises in which the trade is carried on,
patents, copyrights, and other special rights attached to the business itself. For
collateral purpose, only corporal elements of a business mortgage will be valued.
Registration of buildings and motor vehicles are performed by Municipality and Road
Transport Authority, respectively. On the other hand, incorporeal and corporeal
elements of a business, other than buildings and motor vehicles are effected by
Ministry/Bureau of Trade and Industry.
p. Merchandise
Merchandise shall be held as collateral only when credits are to be extended in the
form of merchandise loans. In order to be acceptable as security, merchandise must
meet the following conditions:
i. Its value must be determinable;
ii. It must be easily marketable/fast moving;

iii. The price must be relatively stable;
iv. The product should not be perishable; and
v. The product must be insurable.
The physical possession of the pledged merchandise can be effected by the Bank
through either a sole or a dual control or a stock list arrangement. In the absence of
physical possession of the merchandise, the Bank can accept Railway Receipts, Airway
Bills and Warehouse Receipts as documentary evidences so as to hold as collateral
7.3.2 Collateral Appraisal Process

Wegagen Bank S.C
1. The customer Relationship Manager or the Loan Workout Officer as

appropriate, shall collect all the required documents for valuation, conduct
due diligence on documents and properties and forward to the respective
director/District Manager. The respective managers shall assign collateral
valuator (Maker).
2. The collateral valuator shall make valuation of acceptable collateral based
on the relevant collateral valuation manual of the bank.
3. The appropriateness of any collateral valuation undertaken by the
Collateral Valuator (Maker) shall be evaluated/verified by Collateral
Valuator (Checker).
4. Before conducting valuation, the Customer Relationship Manager, or the
Loan Workout Officer, as appropriate, shall ascertain the location and its
existence of the asset to be estimated.
5. During valuation, the Bank may take photo or video graph of the property
and it is kept as part of the supporting document in the collateral property
file of the customer.
6. After finalizing the valuation, the collateral valuator (Maker) will forward
the valuation result with the required valuation documents to the Director-
Credit Appraisal or senior credit analyst and Loan Workout Management
(For District)
7. The Director or Manager shall assign the case to the collateral valuator
(Checker).
8. In case of valuation discrepancies, the collateral valuator (Checker) shall
discuss with the collateral valuator (Maker) and reach on consensus before
forwarding the estimation to the concerned Credit Performer of the Bank.
9. The customer Relationship Manager or the Loan Workout Officer, as

appropriate, shall make a scheduled or surprise visit to the place where
the collateral is located so as to check the physical condition, modification,
and physical existence of it.

Wegagen Bank S.C
7.3.3 Collateral Assessment
1. Deposit Accounts with Wegagen Bank

No estimation is needed for cash or deposit collateral. The amount of the loan plus
prevailing interest rate additional cover is required for interest costs.
2. Cash Surrender Value of Life Insurance

The cash value (collateral) should at least be 100% of the loan amount plus interest
based on the applicable interest rate
3. Government Bonds and Treasury Bills

For loans against government bonds the face/par value of the instrument should be
100% of the loan amount plus the prevailing applicable interest rate
4. Share Certificates
Shares are taken for face or market value whichever is lower less the prevailing
interest rate to hedge against fluctuation. It is imperative to evaluate the performance
and financial standing of the business entity to which the share belongs. Current
financial statements have to be reviewed and the results compared with the industry
average
5. Bank Guarantees
When other banks’ guarantees (local or foreign) are offered as security for loan and
accepted, their counter value should be adequate to cover the loan, interest and other
costs.
6. Personal Guarantees
It is not a physical estimation that the Bank carries when considering loans against
personal guarantees. It is the financial standing, the character, the prominence in the
community of the guarantor that is taken into account.
7. Corporate Guarantee

Wegagen Bank S.C
The bank shall thoroughly scrutinize the capacity of the guarantor using different
credit appraisal techniques.
8. Residential or Commercial Buildings

The valuation of the premises, buildings and houses shall be made as per the
estimation manual of the Bank. Wegagen Bank considers location value while
estimating buildings.
9. Leased Land and rented premises

The value of the leased land shall be the amount actually paid by the leasee per the
lease agreement.
10. Motor Vehicles

The Collateral Valuator (Maker) shall value vehicles based on the “Vehicle Valuation
Manual” of the Bank.
1. The value to be considered shall be 100% of the value estimated by the

Collateral Valuator and as discounted/adjusted by the Credit Analyst
thereafter 10% for each additional year.
2. Invoice value shall be considered as value for brand new motor vehicles
supplied by authorized venders in Ethiopia.
3. For imported motor vehicles final invoice value by considering cost,
insurance and freight (CIF) value, customs clearance cost, inland
transportation cost shall be considered as collateral.
4. For used vehicles the collateral valuator (Maker) shall value vehicles based
on the Vehicle Valuation Manual of the Bank.
5. Vehicles whose date of manufacture is unknown, or exceeded 10 years,
shall not be accepted as collateral,
6. Wegagen Bank may accept a vehicle whose manufacturing date is not
exceeds 15 years as additional collateral for guarantee purposes,

Wegagen Bank S.C
7.3.3.1 Construction Machinery

Valuation of this machinery shall be determined as follows:
i. By considering cost, insurance and freight (CIF) value, customs clearance costs,
inland transportation costs, if the machinery is brand new. The Customer
Relationship Manager, or Loan Recovery Officer, as appropriate, shall obtain
and consider the invoice price.
ii. For used machinery, the collateral value shall be determined by bank’s
engineer as per the bank’s estimation manual.
iii. For already pledged machinery the collateral value shall be the value as
discounted/adjusted by the Credit Analyst based on the initial estimate
made by the Collateral Valuator.
7.3.3.2 Agricultural Machinery
The collateral value of machinery pledged to a loan shall be determined as follows:
1. If the machinery is brand new, cost, insurance and freight (CIF) value,
customs clearance costs, inland transportation costs shall be considered.
The Customer Relationship Manager, or Loan Recovery Officer, as
appropriate, shall obtain and consider the invoice price.
2. If the machinery is used, the collateral value shall be determined by
Bank’s mechanical engineer as per the Bank’s estimation guideline.
3. For already pledged machinery the collateral value shall be the value as
discounted/adjusted by the Credit Analyst based on the initial estimate
made by the Collateral Valuator.
7.3.3.3 Mortgage over Plants & Machinery (Business Mortgage)

Wegagen Bank S.C
Valuation of business mortgage shall be determined as follows:
1. The Customer Relationship Manager or Loan Recovery Officer, as

appropriate, shall obtain customs declaration from the customer, the
detailed technical specification, invoices, parts and assembly drawings, if
any, manufacturers address and date of production of the items held as
security as part of a business mortgage and provide to Collateral Valuator
(Maker) for valuation.
2. Collateral Valuator (Checker) evaluates/checks the collateral valuation
result.
3. In case of locally manufactured items, the Collateral Valuator (Maker)
shall determine the estimated cost and market value of the items. The
collateral value of items shall be the lower of cost or market value.
4. In case of imported items, the amount listed in the customs declaration
shall be the basis for determining the total value for items.
5. The cost of used machinery, equipment, furniture and other corporal
elements shall be evaluated by the Collateral Valuator (Maker).
6. For brand new machinery, equipment, furniture and other corporal
elements; the Bank may accept Cost, Insurance and Freight (CIF),
customs clearance costs, inland transportation costs, and packing costs
(if any).
7.3.3.4 Merchandise
Valuation of merchandise shall be determined as follow:
1. Imported Merchandise
a. The value of imported merchandise shall be the sum value of Cost,

insurance and freight (CIF), customs clearance cost, inland transportation
costs, and packaging costs (if any). The Customer Relationship
Manager/Loan Workout Officers are responsible to determine the valuation
of the merchandise.
b. The Customer Relationship Manager/Loan Workout Officer, as
appropriate, shall obtain customs declaration from the customer.

Wegagen Bank S.C
2. Merchandises Manufactured Locally
The Customer Relationship Manager/Loan Workout Officer, as appropriate, shall

determine the value of the merchandise based on the supplier’s invoice or evidence of
the cost of production compared to the market value.
3. Agriculture Product
The Credit Portfolio Management Division of the Bank shall compile the market value
of agricultural commodities which are traded at ECX floor and provide to credit
performers to be used as the basis for valuation of same.
S. No. Type of Pledge Limit of Loans
Export standard cleaned/graded coffee or 80% of the value of pledged coffee

1
other cleaned/graded export commodities or other commodities
Uncleaned/ungraded coffee or other

70% of the value of pledged coffee
2 Uncleaned/ungradedcommodities
or other commodities
(export/non-export)
7.4 Clean loan criterion
1. In order to extend unsecured loans and advances (i.e. below the Bank’s
minimum collateral coverage requirement), the customer should fulfill the
following conditions:
The Customer’s credit risk level is Grade A or B.
2. The financial data of the customer confirm that there is adequate repayment
capacity to service all commitments.
3. The Manager/Owner of the businesses has the capability, honesty, integrity

and willingness to repay as well as a good track record with the Bank.

Wegagen Bank S.C
4. The major shareholder (s), whose sum total of shareholding constitutes at

least 70%, must give personal guarantee. To compute the sum of shares,
shareholders shall be ranked in a descending order of the share value.
5. While extending unsecured loans and advances, the recommending and/or

approving organ shall be comfortable with viability of the customer’s business
(first way-out). Otherwise the second way-out (collateral) should be strong
enough to mitigate the expected risks.
7.5 Revaluation of Collateral
Revaluation of Collateral is undertaken under the Following Conditions:
1. When the Bank deems it necessary in keeping with its policy which
requires reassessment of the collateral at specified time intervals;
2. When a sudden decline in price of the property held as collateral is

ascertained or suspected;
3. When reports are received that the property held as collateral has
sustained damages;
4. When a noticeable additional construction is made and that the applicant

requested for re-estimation of the property;
5. The revaluation of collateral can be initiated by the customer, Customer

Relationship Manager, Loan Administration Officer, or Loan Workout
Officials appropriate, based on the above stated conditions.
6. It is preferable not to conduct re-estimation of collateral by the same

assessor or engineer.
Type of Re-estimation Remark

Wegagen Bank S.C
collateral frequency
Re-estimation of building shall not
Buildings Every three years be conducted during tenure of loan
except overdraft.
Re-estimation of vehicle shall not be

Motor vehicles Every year
conducted during tenure of loan.
7. The collateral Valuator (Maker and Checker) shall be responsible for

revaluating the collateral as per the Bank’s valuation manual.
8. The revaluation costs, when initiated by the customer, shall be borne by

the borrower.
7.6 Release or Replacement of Collateral

When a customer presents a request to release or replace collateral, after analyzing
the risk and formal approval by the appropriate credit committee the lending organ
may replace or release collateral.
7.7 Legal Defects
If properties offered as collateral adjudged to have legal defects, it shall be

disclosed to loan approving and other concerned credit process performers so as
to proactively and retroactively mitigate associated risk. The risks of the legal
defects and mitigating factors shall be clearly stated.

Wegagen Bank S.C

Wegagen Bank S.C
CHAPTER EIGHT
8. CREDIT APPROVAL SYSTEM
8.1Credit Decision Scheme and Process
VIII.1.1 Pervasive Guiding Principle
1. All credit proposals inclusive of workout loan and write-off cases shall be
deliberated and approved by a credit committee composed of three members
Consumer loan cases (mainly loans requested by Wegagen bank staff) decided
at the branch and credit processing pool level.
2. Each credit approving committee member is appointed by the CEO and /or
his/her delegate based on the competence on credit, proven judgment,
experience, etc. so as to achieve effectiveness.
3. The CEO shall Sets, reviews, suspends or changes or reinstates the credit
committee as a whole or individual member(s) and other credit sanctioning
officials with some justifiable factors.
4. Among others, the main factors considered by the CEO while taking any of the
action under No. 3 includes Finding of control Directorate or inspectors/audit
team , quality of the loans and advance approved and more specifically amount
and ratio of deteriorated loans, dedication and competency, changes observed
in the industry and overall economy , difficulty level , number and amount of
credit proposals considered and unethical behavior, lack of repeated
attendance, assignment and other misbehavior.
5. Each party approving or recommending a credit proposal carries full

accountability for that decision—severally as well as collectively—and must
exercise independent, informed credit judgment. While account should be taken
of the recommendations of colleagues, these do not diminish the requirement
for independent evaluation.

Wegagen Bank S.C
8.2 Lending Decision-Making Organs
Guiding rationales and requirements:
1. Credit approval shall be made as per the Credit Policy and Procedure of the
Bank.
2. The Chairperson of each credit approving committee is responsible for

scheduling meetings in such a way that the arrangement enables the Bank to
meet the desired goal of efficient loan delivery service.
3. In the event that a quorum is not fulfilled, the Chairperson will adjourn the
meeting.
4. All credit decisions by the various credit approving committee /individuals will
preferably be made by a consensus. In the absence of a consensus, decisions
will be made by a majority vote.
5. Credit proposal should not be deliberated by more than one approving

committee except in case of appeal.
6. Credit decision on appeal cases shall be decided by the next Credit Approving
committee /Individual and this decision will be final.
7. All credit approving committee /individual member(s)/delegate(s) present in the

meeting should sign on the Loan Approval Form (LAF) at the time of the
meeting.
8. The Credit Approving committee /Individual shall clearly indicate adequate and
relevant reasons for its decision.
9. Credit approving committee /individual shall independently deliberate and

decide on the credit request/proposal.
10. Each credit approving committee /individual could deliberate on the unsecured
credit and advances.
11. Each of the approving committee /individual members is accountable to the

CEO.

Wegagen Bank S.C
12. Competence of each performer should be appropriate in dealing with

customers, analyzing business propositions, identifying credit risks and setting
mitigating factors, advising customers and determining the various non-
financial factors that lead to a business’s success or failure.
Bearing the above in mind, the compositions of the credit decision-making bodies of
the Bank shall be as follows:
a. Head Quarter Credit Processing pool
Approving Committee’s Composition Status
1. The President /CEO Chair Person
1. Approving Committee -1 2. Vice President – Resource Member
3. Vice President – Corporate Services Member
4. Vice President – Operations Member
1. Vice President – Operations Chair person
2. Approving Committee -2 2. Director –Customer Relationship Mgt. Member
3. Director– Credit Appraisal & Portfolio Mgt. Member
1. Director – Branch Operation Chair person
3. Approving Committee -3 2. Director –International Banking Member
3. Director- Accounts & Reconciliation Member
4. Workout Loans 1. The President /CEO Chair person

Approving Committee I &
II 2. Director- Legal Service Member
3. Manager –Workout Loans Member
1. Director- Legal Service Chair person
2. Manager –Workout Loans Member

Wegagen Bank S.C
3. Manager – Portfolio Management Member
a. Outlying Area Credit Processing Pool
1. Manager – North District

1. District Credit
Approving Committee 2. Manager – Credit Appraisal
3. Manager – Tier 1 Branch in Mekelle
1. Manager – Credit Appraisal

2. District Workout Loans
Approving Committee 2. Workout Loans Officer
3. Attorney at the district

Wegagen Bank S.C
8.2.1 Discretionary Lending Limit Authority
1. Discretionary lending limits of each credit approving committee shall be set by

the CEO based on amount of loan exposure (i.e. existing exposure plus new
request).
2. In case of affiliated companies, discretionary lending limit shall be set based on

the individual and group’s total exposure limit.
3. The loan approval limit for single borrower and related party shall not exceed
25% of bank’s capital and 35% of bank’s reserve, respectively
4. Exceptionally, the President shall have a power to decide on credit request for
borrowers whose aggregate exposure is beyond 25% of the bank’s capital and
reserve subject to NBE’s endorsement.
5. The CEO may also revise the discretionary lending limits thereof periodically.
6. The CEO shall communicate the DLL to the appropriate credit approving
committee in writing.
Discretionary Lending Limit of each Approving Team/Individual is presented as

follows:
b. Head Quarter Credit Processing Pool
Amount of Loan
Approving Committee’s Name Credit Product
(Total Exposure in Birr)
1. Approving Committee -1 >40,000,000
All Types of Loans and Advances
2. Approving Committee -2
>10,000,000

Wegagen Bank S.C
<40,000,000
All Types of Loans and Advances
3. Approving Committee -3 < 10,000,000
cases deliberated by
All Types of Loans and Advances Approving committee-1
4. The Board
and appealed by credit
applicant
5. Loans Workout Approving All NPLs and early warning All but > 1,000,000.00
Committee signal cases NPLs for North District.;
c. Outlying Area Credit Processing Pool
1. District Credit
Approving Committee All Types of Loans and Advances <10,000,000
2. District Credit All NPLs and early warning

signal cases < 1 ,000,000.00
Approving Committee

Wegagen Bank S.C
8.3 Quorum
1. The Credit Approving committee members shall be delegated by the CEO to

carry out their duties in the team.
2. In case the authorized member is on duty for more than a week he/she should
delegate capable credit analyst or CRM with the approval of the President or his
delegate. If, however, the delegation period is longer than a week the CEO
should approve the delegation
3. All members/their delegates must always attend the Credit Approving

committee’s meetings.
4. The Credit Approving committee is considered to have quorum when at least

two third of its permanent members and one delegate are present. When the
quorum is not fulfilled the chair person shall adjourn the meeting.
5. In absence of this, the loan request will be presented and decided by the next
credit approving committee.
8.4 Credit Decision-Making Process

Wegagen Bank S.C
1. The Customer Relationship Manager shall collect/receive the customer’s

application with a complete set of the required documents/information and
forward it to the Credit Appraisal Directorate, and also forward due diligence
report to the credit approving committee members so as to make them aware on
the credit application.


4. The Credit Appraisal Director will assign the customer’s credit application to the
Credit Analyst(s) for credit analysis/appraisal processing.
5. The Credit Analyst(s) may request whatever information needed from the
Customer Relationship Manager and independently conduct detail credit
analysis/appraisal.
6. After finalizing his/her/their analysis/appraisal report, the Credit Analyst(s)

shall forward it to the Customer Relationship Manager.
7. Based on the analysis/appraisal report the Customer Relationship Manager

shall put his/her own recommendation and forward it to the appropriate credit
approving committee for deliberation.
8. Both the Customer Relationship Manager and the Credit Analyst(s) shall
present themselves as resource persons during the credit approving
committee’s meeting.

Wegagen Bank S.C
9. The appropriate credit approving committee will independently review,

deliberate and decide on the credit proposal.
10. All credit recommendations made by the Customer Relationship Manager and
the Credit and Analyst(s) and decisions made by the credit approving committee
must always be accompanied by valid reasons.
11. All credit approving committee members must sign on the LAF. The Customer
Relationship Manager should make sure that all members in a quorum have
signed on the LAF.
12. The credit approving committee will inform its decision to the concerned
Customer Relationship Manager so as to communicate the same to the credit
applicant soon.
13. The credit approving committee may obtain appropriate feedback reports from
the Credit Portfolio Division regarding the status of each credit that it has
approved, the status of loan portfolio and overall exposure limits.

Wegagen Bank S.C
Chapter Nine
9. Contracts, Disbursement and Loan File Administration
9.1 Communicating Credit Decision
The respective Customer Relationship Manager (CRM) should immediately notify any
credit decision in writing stating the terms and conditions of the decision to be fulfilled
(if any) before disbursement. If the credit decision is declined or approved at a reduced
amount, the letter should clearly state the reason.
9.2 Appeal
1. The aim of accepting customer’s appeal is to maintain customer satisfaction.
2. Appeal should be accepted if there are new developments of justifications only.
3. Any customer, except staff loan and those cases deliberated by the BoD,
dissatisfied with the Bank’s decision on a credit application may lodge an
appeal through the Branch or Central Processing Pool within 30 days from the

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date a credit decision is communicated.
4. If appeals presented to the branch, it should be directly forwarded to the

respective Customer Relationship Manager .The CRM should assess and if it
becomes satisfactory, he/she forwards to the Manager of Credit Appraisal to be
assessed by new credit analyst.
5. Otherwise, the Customer Relationship Manager in consultation with his/her

immediate coach can reject the appeal before the process involves additional
cost to the Bank as well as to the customer. Under such circumstances, the
CRM should report his/her justifications to the Manager –Credit Portfolio
Management for recording purpose.
6. Appeal should be decided by the next higher credit approving committee and
such decision is final.
7. For those credit decisions made by the highest approving committee of the Bank, an
appeal, if any, should be referred to the BoD of the Bank.
8. No appeal shall be entertained for cases deliberated by the highest loan

approving organ or BOD as the decision is final.
9.3 Contracts designing, preparation and registration
1. Contract refers to both loan contract and security contracts. Contract

preparation commences immediately after getting the customer’s consent for
acceptance of the terms and conditions of the credit decision.
2. The Bank shall have standard loan and mortgage contract formats. However, if
the credit approval requires additional clauses to the standard format, the
concerned Attorney in collaboration with the CRM prepares and/or designs
tailor made contracts as per the terms and conditions of the credit decision.
3. The contract must stipulate the borrower’s/guarantor’s profile, the amount of

the facility, drawdown deadline, interest rate, purpose of financing availability

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period, final maturity date, agreed repayment schedule, description of

collateral, the rights and liabilities of the parties to the contract, and other
appropriate items
4. Separate contracts shall be prepared for loan and mortgage contracts
5. Contracts shall be prepared in at least three copies
6. The contract prepared should protect the interest of the Bank
7. The contract should be signed between the Bank ,the borrower, and/or his/her
spouse and the guarantor/mortgagor or his/her spouse (if any)
8. The Loan Administration officer/CRM should prepare contracts; and both the
CRM and the Legal attorney should sign on the contracts. In case of NPLs
performed at workout loans Division the Workout Loans Officer together with
attorney should sign on the contracts.
9. For branches that are located over 40kms radius from the Credit Processing
Pool (CPP) the Loan Administration Officer should prepare the contracts and the
Branch Manager should sign on contracts.
10. Witnesses from Bank (staff) should sign in the space provided attesting that
he/she has seen the parties are signed the contracts.
11. If the borrower and/or mortgagor are/is an illiterate person, visually impaired,
his/her hand thumb impression (finger prints) should be obtained in all the
documents in front of the witnesses thereof.
12. Parties to the contract should sign in full throughout all contract documents.
13. After the contracts are correctly prepared and signed, revenue stamps must be
affixed to each original contract. Stamp duty charges have to be also collected.
14. The Loan Administration Officer should handle the registration of security
contracts with the authorized government organs. The legal attorney should

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confirm the registration of the security contracts at the appropriate

governmental office. The Attorney is also responsible for proper follow up of the
expiry of statuary period of contracts .For Branches located more than 30km
from the Credit Processing Pool (CPP), it should be the Branch Manager.
15. Security contracts shall be registered with the following Registrar Offices:
i. Buildings: Copies of mortgage contract(s), including the original, have to be

presented to the Municipality/ Sub-City, or any other offices designated by law
for registration and deposit.
ii. Motor Vehicles: The ownership booklet, along with copies of the pledge
contracts including the original, must be presented to the Federal/Regional
Transport Office for registration and deposit.
iii. Business Mortgage: Copies of the mortgage contract, including the original,
must be presented to the Trade and Industry Bureau for registration and
deposit.
iv. Construction Machinery: Copies of the mortgage contract including the original
must be presented to the Ministry of Trade for registration and deposit.
v. Other registration organs as appropriate
16. For Overdraft facility renewal at an increased limit, fresh contracts have to be
prepared for the additional amount while for renewal at reduced limit, a
supplementary loan contract indicating the new limit shall be signed.
17. The loan contract for Pre-shipment Export Credit facility and Letter of
Guarantee facilities need to be concluded for the facility limit. For Revolving
Export Credit, Merchandise Loan and Letter of Guarantee facility contract need
to be concluded for each advance and guarantee issued amount. However, the
contract should clearly state that, customer written application for each
advance, sales contract/letter of credit, disbursement instruction letter, and
loan debit tickets implicitly are part of the loan contract. Moreover, the stated
documents should be held as security documents and should be kept in safe

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custody.
9.4 Insurance
1. The Bank should secure appropriate insurance policies for all insurable
collateral before disbursement of any loan. The Bank should be explicitly
included as first and co-beneficiary.
2. Insurance renewal premium for properties held as collateral shall not be paid
provided that the value of the property is significantly reduced due to
depreciation (age),mishandling, loss (disappearance),natural calamities, or
originally exaggerated estimation and its current value is not worth insuring.
Nonetheless, cancellation of insurance policy should be effected after obtaining
approval of respective credit committee.
3. Every acceptable properties/documents that are held as collateral by the Bank

and required to be insured should have 100% insurance coverage before
effecting loan disbursement except for project financing in which insurance
coverage requirement may be aligned with the disbursement schedules .
4. Prior to accepting an endorsement of insurance policies the Customer

Relationship Manager should carefully examine the policies to ensure that all
the relevant risks to which the collateral is exposed are covered. For branches
far more than 40kmsfrom CPP, Branch Managers should do.
5. The Loan Administration Officer and the CRM are responsible for follow-up and
renewal of insurance policies. He/she shall prepare insurance follow-up cards
or may use internally developed software applications that prompts the expiry
of statutory period of contracts and insurance policies. The CRM, Branch
Manager -for branches far more than 40kms from CPP, Loan workout officer,
Loan Administration Officer and property administrators as the case may be
shall be responsible for any damage that may arise because of inadequate
insurance coverage or non-renewal of the policy upon expiry.

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6. The designated Attorney should verify the appropriateness of the insurance

policies.
7. If the limit is revoked and the outstanding balance is less than the insurance
premium, the CRM or Branch Manager -for branches far more than 40kmsfrom
CPP should consult the customer for his consent whether to renew the
insurance policy or settle the outstanding loan balance.
8. If the Bank is not interested to renew the insurance policy, the policy shall be
cancelled on time.
9. The Bank requires the borrower to purchase insurance policies as appropriate

based on the collateral type and nature as per the table below
Type of Type of Insurance Policy Cover

Collateral
Extension policy (depending
Compulsory policy
on the existing situation)
Building Fire and related risks All Risks, Earth quake, Flood
and Storm; Mortgage
Redemption; Impact of Aircraft
Motor vehicle for Motor Comprehensive ;Third party

private and Liability; Fire and Theft for non-
commercial operational vehicles; Bandits,
Shifta and Gorilla (BSG);Transit
All related risks
Insurance for seized vehicles for
foreclosure
Merchandise Fire, Theft and Allied Risks; All Risks; Inland Carriers

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Burglary ; Goods-in Transit for Liability, Earthquake, Flood

imports L/C settlement ; and Storm
Plant, Machinery Fire and Allied risks; All Risks; loss of

and Equipment Theft/breakdown profit/deterioration of stock;
Contractor’s insurance
Earthquake; Flood and Storm;
Impact of Aircraft
Business Burglary; Fire and allied risks; All Risks; Business

Mortgage Motor Comprehensive Interruption/ Consequential
Loss, Public liability for
negative environmental and
social impacts, Product
Liability; Earthquake; Flood
and Storm ;Impact of Aircraft
Agricultural Horticultures-plantation All related risks

production insurance; Crop Insurance;
plantations insurance, Weather
indexed crop insurance; Livestock
etc
9.5 Loan Disbursement
1. Disbursement of a loan shall be made only after the credit request is duly
approved; the loan contract prepared and signed; and the registration and
insurance formalities are properly completed.
2. Disbursement shall be strictly in accordance with the disbursement terms and

conditions set in the decision of the credit committee concerned;
3. The CRM should make disbursement instruction while his immediate

coach/supervisor should authorize on it and forward for the Branch Manager to
execute the transaction. For branches far more than 40kms from CPP, the
Customer service Officer and Branch Manager should do the same. Similarly, In
case of workout loans, the workout loan officer should make while his
immediate coach/supervisor should authorize and forward for the Branch
Manager to execute the transaction.
4. Disbursement of Letter of guarantees which are not backed by cash collateral

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shall be prepared by the Attorney and authorized by the CRM in the CRM
Directorate assigned for the specific case. However, the decision should be
notified to the Director CRM with a copy. The transaction and any fee or
charges deducted shall be executed by the Branch Manager up on receipt of
disbursement instruction.
5. If the Bank discovers warning signals/adverse developments subsequent to

approval of a credit request but before disbursement of the loan, the
CRM/Branch Manager -for branches far more than 40kmsfrom CPP should
recommend appropriate remedial action and forward to the concerned
approving organ for reconsideration.
6. Loan/ credit facility should be disbursed within three months from the date of
approval. Otherwise, it will automatically become unapproved. However, in case
of project loans it should be disbursed as per the schedule of the project and
the terms and conditions.
7. Loan Disbursement procedure for loans approved for purchase of fixed asset :
a. Purchase of Vehicle/Machinery/automobile/furniture and equipment from local

supplier
I. The borrower should be advised to bring a contractual agreement signed

between the borrower and the supplier and block the amount of equity
contribution. Upon the need of the supplier, the Bank may effect advance
payment with the written consent of the borrower from the blocked equity
contribution.
II. The CRM/Branch Manager -for branches far more than 40kmsfrom CPP notify
credit approval to the supplier and advise him/her/it to
a) Submit the actual invoice or a letter, confirming the agreed final price
b) Transfer the title of ownership to the buyer
c) Complete the registration process in cooperation the concerned Bank

Staff and relinquish the ownership booklet to the Bank

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III. Insurance policy that names the Bank as the first and co-beneficiary should be
purchased by the borrower.
IV. The loan should be disbursed directly to the account of the supplier against a
written consent of the borrower.
b. Purchase of Vehicle/Machinery/automobile/furniture and equipment from

foreign supplier
I. The borrower should be communicated to submit the final agreed price and
open irrevocable letter of credit by depositing his/her/its equity contribution (if
any) as margin held.
II. The borrower should present undertaking letter to facilitate the transfer and
registration process in cooperation with the concerned Bank staff, and
relinquish the ownership booklet (libre) to the Bank within three months period.
The CRM should strictly follow up the progress.
III. If the body of the vehicle is to be made by local manufacturer, the borrower
should provide an agreement with manufacturer, where the manufacturer is
responsible to complete the body work, the registration process, in cooperation
with the concerned Bank staff, and hand over the ownership booklet to the
Bank.
IV. If the Bank believes that there will be high risk ownership and registration of
property as collateral, it may require the customer to settle the outstanding L/C
by itself and refund the approved amount after completion of registration.
V. Insurance policy that names the Bank as the first and co-beneficiary should be
purchased by the borrower.
VI. The loan should be disbursed to settle the outstanding L/C.
c. For pre-shipment facility .Before disbursement of an advance from the pre-

shipment facility, the following should be fulfilled.
i. Customer should present a bona fide sales contract, authenticated by NBE in

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case of coffee, calling an irrevocable L/C negotiable at the Bank for export L/C
to be opened within a maximum of three months through the bank.
ii. Proposed arrangements made for transportation and warehousing facility for
exportable goods to be purchased should be assessed as to whether dual
control or tripartite agreement is to be signed.
iii. The advance on export sales contract or export L/C should be credited to ECX
member pay-in-account for ECX items or customer’s account for non-ECX
items.
iv. In case of items purchased from ECX by the advance credited is insufficient to
cover full amount of the specified shipment, customer should undertake to
fulfill the deficit from own source.
v. Where the item with which the exporter deals is a non ECX product and when
the approval dictates so, prior to disbursement of the advance, the customers
should procure and stock their share or should have sufficient fund to cover
their share of contribution in their account.
vi. For pre-shipment loan faculties requiring collateral, proper collateral

registration and insurance coverage should be fulfilled.
9.6 Loan Documentation
1. A Loan File is the file that contains all lending-related documents and
correspondence while a Safe Custody File is the file that contains all legal and
collateral-related documents.
2. The Loan Administration Officer at Credit Processing Pool(CPP) and branches

beyond 40 kms as the case may be should maintain loan files
3. Director of Customer Relationship Management with attorney should maintain

safe custody file.
4. Before documents are kept in safe custody, their completeness and legality
shall be confirmed by the respective Attorney.

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5. For branches far more than 40kms from Credit Processing Pool (CPP), Branch
Manager should check the completeness and legality of safe custody files and
should maintain the same.
6. Brief particulars of contractual and security documents should be recorded in

register book /security lodgment book prepared for the purpose.
7. The Loan Administration Officer should ensure that the following recent
documents should be located in the left hand side of the credit file:
 Customers Credit-Risk Rate/Grade Worksheet and Action Plans
 Range of Account/Overdraft Utilization Form;
 Bad Debt Review Form for NPLs; and
 Documentations Checklist
9.7 Loan File Management
1. The Loan Administration Officer should conduct loan file pruning regularly to
access files easily.When a loan file is considered bulky and requires pruning, all
correspondence and reports over the last twelve-month period (the period can
be reduced when the file is still considered to be bulky) should be transferred to
the old credit.
2. The new credit file then replaces the old credit file. The credit files shall be
numbered and stored consecutively. The loan file number, the date of the
pruning and the dates covered should be clearly written on the face of the loan
file being stored and must also be recorded on the inside left cover of the
replacement loan file.
3. The Loan Administration Officer should maintain an index card of all stored
loan files in a numerical order. An index card should contain the storage
number, the customer’s name, and the date of the credit file pruning and the
dates covered.

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4. When the loan account is closed, Credit Administrator or Property

Administrator as the case may be must complete an index card with the
following information:
i. Customer’s name and address
ii. Number of relevant files
iii. Period covered
iv. Date last account closed; and
v. Storage numbers allocated to the closed file
The index card should be stored in an alphabetical sequence and reviewed annually by
the respective immediate coach.
9.8 Loan Files Dispatch Procedure
1. All exchanges of the loan documents between or within teams shall be strictly
made through the Loan Administration Officer so as to keep track of the
movement of the loan files.
2. All credit files of borrowers must contain a list of all the original documents
received and copy of security documents. The list of all the original documents
received by the Loan Administration Officer should be signed by Attorney and
Loan Administration Officer.
3. Loan Administration Officer should number the file and every document within
the file to avoid loss of documents and enhance convenience.
Chapter Ten
10. Regular Loan Follow –Up
10.1 The Need for Regular Loan Follow-Up

Wegagen Bank S.C
Lending decisions are made on sound credit risk analysis/appraisal and assessment
of credit worthiness of borrowers. However, loan granted on the basis of sound
analysis/appraisal might go bad because the borrower may not meet his/her/its
obligations per the terms and conditions of the loan contract. It is for this reason that
proper follow up and monitoring is essential. Therefore, in the follow-up function, the
Bank has to:
i. Ensure compliance with terms and conditions
ii. Ensure end use of funds
iii. Monitor performance to check continued viability of operations
iv.Detect deviations from terms of decision
v. Make periodic assessment of the health of the loans and advances by noting
some of the key indicators of performance like profitability, activity level and
management of the unit and ensure that the assets created are effectively
utilized for productive purposes and are well maintained.
vi.Ultimately ensure recovery of the installments of the principal and interest in

case of term loan as per the scheduled repayment program, and
vii. Identify early warning signals, if any, and initiate remedial measures thereby
averting loss from possible default.
10.2 Early Warning Signals in Regular Loan Follow- UP
Since the “Know Your Customer” principle needs constant updating, proactive
management of credit risk before serious problems arise is the hallmark of credit
monitoring. The Customer Relationship Manager has to use internal data (reports
from the Loan Administration Officer regarding account performance), credit database,
external data, as appropriate. As such the Customer Relationship Manager ought to be
alert to some of the following signals/adverse developments, among others:
i. Deterioration in the key financial indicators of the borrower as observed

from the financial statements

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ii. Decline in credit ratings
iii. Lack of commitment on the part of management
iv. Instability in the specific industry
v. Diversion of end use of loans
vi. Failure of an overdraft facility to show credit balance at least once within
three months depending on the nature of the business
vii. Deviations from terms and conditions of approval
viii. Key management personnel turnover
ix. Labor union conflict/conflict with employees
x. Sluggish periodic loan repayments/delay in meeting term commitments to

the bank and other organs
xi. The company writes off substantial amount of receivables
xii. Frequently bouncing of cheques
xiii. Tax evasions
xiv. Any legal proceedings against the borrower
xv. Suspicion of fraud
xvi. Deterioration in financial performances of associates/subsidiaries
xvii. Delay in settlement of Letter of Credits
xviii. Failure to keep terms and condition of Letter of Guarantees
xix. Critical observations in the external auditor’s report and
xx. Other indicatives

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The above mentioned are some of the triggering factors for closer follow-up and taking
appropriate measures.
10.3 Regular Loan Follow-Up
1. The Customer Relationship Manager is principally responsible for regular loan

follow-up on a case-by-case basis.
2. For branches located within 40 KM from the CPP, all types of follow up shall be
done by the Customer Relationship Managers.
3. For branches located beyond 40 KM from the CPP, regular and frequent follow
up of customer and business visit shall be done by the Loan Administration
Officer or branch Manager. Customer Relationship Managers shall be
responsible for bulk follow up. He/she shall visit customers of the branch as
awhole periodically.
4. However, he/she shall get monthly reports on the status of all loans and take
the necessary measures. For those customers who needs special attentions due
to different reasons the Customer Relationship Manager shall make strict follow
up regardless of the distance?
5. Loan Administration Officers and or Branch Managers, regardless of the
distance from the pool, are responsible to strictly follow up periodic loan
repayment status of each customer and report same to the Customer
Relationship Managers.
6. The Customer Relationship Manager shall strictly follow up loans on case b-by-
case basis regardless of the distance from the pool.
7. The Customer Relationship Manager undertakes close follow up of his/her
respective cases not only to confirm repayment of currently maturing debts but
also he/she has to ensure continuity of the repayment for the loan duration.
8. In this regard, the Customer Relationship Manager should carry out
assessment of the borrower’s business viability by indicating key performance
indicators such as profitability, activity level, management of the business, etc.
9. In doing so the Customer Relationship Manager identifies those borrowings that
need special attention and categorize them as ‘watch list’ for further closer
follow-up and appropriate remedial action.

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10. The Customer Relationship Manager is also expected to present the borrower’s
business performance report at least monthly/ quarterly to the respective
Director or Manager and the later shall forward a compiled report to the
Manager – Credit Portfolio Management for overall bank-wide consolidation.
11. If a term loan falls in arrears or overdue and an overdraft or other credit
facility’s performance shows signals of deterioration in spite of regular follow-
up, the steps described below shall be strictly followed by the Customer
Relationship Manager:
1. The Customer Relationship Manager shall contact borrowers by telephone and

visit them as earlier as possible. The customer shall be advised to settle the
arrears, overdue amounts or improve utilization of the facility within mutually
agreed time.
2. If the borrower does not respond positively within the stated period, the
Customer Relationship Manager shall send a written notice to the borrower
advising that immediate repayment should be made. The Customer
Relationship Manager shall also arrange for a meeting with the borrower to
discuss the matter.
3. Should all efforts made under items (i) and (ii) above fail to produce the desired
result, the Customer Relationship Manager shall closely follow up and
negotiate with the borrower and seek for possible resolution for the problem at
hand. Finally, the Customer Relationship Manager should forward the case
with relevant documents to Credit Analysis Division to devise a course of
action regarding the case. The proposal prepared by the Credit and Risk
Analyst and the Customer Relationship Manager’s recommendation is forward
to the respective approving team for decision.
4. If the decision is legal action, the Customer Relationship Manager transfers the
case along with relevant documents to Loan Recovery Team for execution. If
the decision is restructuring / rehabilitation, the Customer Relationship
Manager amends and updates all documentations (Contract, registration,
insurance, etc).

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5. In case of loans granted in the form of facility such as Overdraft, Letter of

Credit, Pre-shipment export facility, the Customer Relationship Manager
should confirm on a quarterly basis that, the facilities shall continue until the
specified renewal period. Otherwise he/she shall forward to concerned
approving committee for deliberation.
10.4 Types of Regular Loan Follow-Up
The three basic loan follow up systems that the Customer Relationship Manager
should employ are physical follow up, financial follow up and legal follow up .
10.4.1 Physical follow up
Physical follow up assists to ensure existence and operation of the business, status of
collateral properties, correctness of declared financial data, quality of goods,
conformity of financial data with other records (such as VAT/excise taxes, register
books), availability of raw materials, labor situation, marketing difficulties observed,
undue turnover of key operating personnel, change in management set up, etc
If there are early warning signals in customer’s business, the concerned Customer
Relationship Manager /Branch Manager (for branches far more than 40kms from CPP)
should visit and ensure the physical existence and status of collateral properties.
X.4.2 Financial Follow-Up
1. Financial follow up is required to verify whether the assumptions on which

lending decision was taken continues to hold good both in regard to borrower’s
operation and environment, and whether the end use is according to the
purpose for which the loan was given.
2. Proper follow up of end use is ensured by arranging mechanisms for large

withdrawals in such a way that customers who wish to withdraw more than
10% of the approved limit at a time or with three days has to give documents

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that justify the purpose of the withdrawal at a later date to the Bank so that the
Bank can verify proper utilization of the loan. The CRM has to verify through
document where about of any withdrawals exceeding 10% from the O/D
account.
3. The Bank may also pay directly to third parties/designated beneficiaries (such
as suppliers, contractors, etc) as per the terms and conditions of disbursement
reached at time of credit negotiation.
4. There should be no diversion of working capital finance for acquisition of fixed

assets, investments in associate/subsidiary companies, acquisition of shares,
etc.
5. The Customer Relationship Manager has to ensure that withdrawals of

overdraft accounts are strictly for the purpose of which the credit facility has
been granted.
6. The concerned Customer Relationship Manager has to make strict and

continuous follow up on each customer’s overdraft account performance and
reports to the Manager – Credit Portfolio Management Division on bi-annually.
However, the Customer Relationship Manager shall quarterly confirm in writing
to the Manager – Credit Portfolio Management Division indicating that the
account has been performing with a standard acceptable to the Bank
X.4.3 Legal Follow-Up
1. The aim of legal follow up is to ensure that the legal recourse available to the
Bank is kept alive at all times. It consists of obtaining proper documentation
and keeping them alive, registration, and proper follow up of insurances.
2. The Customer Relationship Manager and the Attorney are jointly responsible for
legal follow-up. For branches beyond 40kmsfrom CPP, the Branch Manager and
the Loan Administration Officer are responsible to the same.
3. Some of the major legal follow up issues include:

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i. Whether contracts are properly executed by appropriate persons and

documents are complete in all aspects
ii. Obtaining revival letters in time (revival letter refers to renewal letter for
registration of security contracts that have passed the statutory period as
laid down by the law).
iii. Ensuring loan/mortgage contracts are updated timely.
iv. Examining the regulatory directives, laws, third parties claim, etc.
10.5 Project Loan Follow-Up
1. Follow-Up during Project Implementation
The Main objectives:
i. To ensure that the borrower mobilizes the means of financing for the
project as per schedule and according to the requirements of the
implementation of the project.
ii. To ensure that all funds raised are utilized for the approved purpose
without any part thereof being wasted or diverted for any other purpose.
iii. To ensure that the physical progress of the project is in accordance with
the project implementation schedule facilitating completion of the project
in time without giving rise to overrun.
During the implementation of the project, the Customer Relationship Manager should
obtain progress reports at least quarterly and conduct periodic site inspection.
2. Follow-Up of the Project after Operation kicks off
1. The operation phase follow up of projects focus on the daily operational

performance, the level of activity, management, profitability, etc such that in
the long run, the loans are secured and continue to be standard assets.

Wegagen Bank S.C
2. To this end the Customer Relationship Manager should conduct regular

inspections diligently using monthly operational data, periodic financial
statements, etc.
3. Moreover, the performance of the project should be measured in terms of
predetermined benchmark levels of financial standards, default in payment of
periodic installments and default in payments of installments to other banks.
4. In general, the Customer Relationship Manager, in collaboration with the
Attorney and Credit Administrator, should maintain daily list of due dates of
insurance policies, revival letter to be obtained, submission of financial
statements, renewal limits, payment of installments of term loans, dates of
hearing of suits filed (if any), settlement conditions of Letters of Credit, etc.
Maintaining such daily lists helps to scrutinize and regularly initiating required
action and reminds borrowers wherever necessary at the appropriate time.
10.6 Pre-Shipment Loan Follow-Up
General follow up procedure should be applicable to all exporters who enjoy pre-
shipment facility.
1. After disbursement of the advance; the Customer Relationship

management should insure that the amount debited from the customer’s
account or pay-in account is reconciled with relevant purchase slip/s
and product type procured is in line with the financed sales contracts or
L/Cs.
2. The customer relationship management should remind the exporter in

writing if any financed sales contract is going to be expired within 15
days.
3. The Customer Relationship Manager should seriously follow up opening

of letter of credit for the respective sales contracts discounted by the
bank before its expiry date and shall report to the Director in writing if
the Relationship Manager believes that the discounted sales contracts or
L/C may not be settled by their respective due dates.

Wegagen Bank S.C
4. The Customer Relationship Manager should, in consultation with Trade

Service Process, should check that the letter of credit opened for the
export is in order and as per the Bank’s Trade Service Policy and
Procedure in force.
5. Monthly stock list shall be produced and reported by the exporter to the
Customer Relationship Manager as per the reporting format of the bank.
Same has to be summarized and reported by the Customer Relationship
Manager to Director Customer Relationship.
6. If financed contract is extended more than once, the Customer

Relationship Manager should pay stock visit and communicate with
Director and directions should be given by concerned Credit Committee.
7. Export proceeds should directly be credited for settlement of revolving

pre-shipment loan account.
8. In case of items purchased from ECX, in the event that the exporter fails
to win an auction or is otherwise disqualified from participation in the
auction, the Customer Relationship Manager shall credit the loan
account by the balance in the pay- in -account provided that the
Customer Relationship Manager receives a written blocked account
release authorization letter from the ECX.
10.7 Evaluation of performing Loan Follow-Up Activity
1. The Credit portfolio Management Division is responsible for evaluating

and ensuring the effectiveness of follow up of loans and advances
instituted and quality of loans maintained.
2. The Credit portfolio Management Division is entrusted to look for early
warning signals, , initiate proactive solution and monitor continually the
credit portfolio by tracking changes over time
3. The Credit portfolio Management Division shall compile periodic account
and business performance reports obtained from the respective
Customer Relationship Manager.

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4. The Credit portfolio Management Division shall collect and prepare a

report on exceptionally approved loans and advances on each quarter
5. The Credit portfolio Management Division shall serve as an archive of all
approved soft copy document of credit analysis , LAF, spread sheet of
financial data, and due diligences
10.8 Information expected to be reported by borrowers
The required relevant information from the customers for the follow up process of the
CRM are categorized as follows
1. Borrowers having a total of loan exposure greater or equal to Birr 5

million should submit semi-annually performance report indicating their
plan versus achievement, interim financial statement and projections to
the Bank.
2. Borrowers having total loan exposure below Birr 5 million shall be
encouraged by the Customer Relationship Manager to submit
performance reports at least semiannually.
3. The Customer Relationship Manager should prepare reports
incorporating his/her observations after verify the information submitted
against trend data, tax reports, annual financial reports, etc.
10.9 Loan Collection
1. Loan collection and account maintenance is performed at the branch

where the loan account of the borrower is maintained.
2. Follow up of per schedule loan repayment in general and account
performance and repayment pattern on a case-by-case basis. in
particular is the principal duty and responsibility of the Customer
Relationship Manager;
3. At the branch where the loan account maintained, it is the duty of the
Branch Manager and the Loan administration Officer to facilitate
collection of loan repayments, segregation of principal and interest upon
repayment, reporting of account performance (repayment status of term

Wegagen Bank S.C
loans, utilization of Overdraft and other revolving facilities, etc) for the
consumption of the Customer Relationship Manager periodically.

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CHAPTER ELEVEN
11. NON-PERFORMING LOANS MANAGEMENT
11.1 Overview
In a banking set up, loans and advances account for the largest portion of interest
bearing assets held and as such they can also carry the greatest amount of potential
risk to the Bank’s capital account. That is why it is said that asset quality and loan
quality are two terms with basically the same meaning in banking industry.
It is obvious that whenever the loan portfolio increases the task of recovering all loans
and advances faces challenges which leads to the weakening of the quality of assets of
the bank. High levels of classified assets can have a negative impact on earning
through lower interest income, higher provisions to the loan reserve, increased
administrative costs for managing and collecting these assets and in the extreme case
it can also be a serious obstacle for mobilizing resources by the Bank.
Therefore, strict measures from credit analysis to credit administration are mandatory
to our Bank to minimize risks involved in asset quality. Besides, addressing issues of
problem loans by way of a standard NPLs management procedure with the prime
objective of curbing the growth of NPLs and its subsequent effects becomes imperative.
11.2 Definition
1. Non-Performing Loans (NPLs):-
Non-Performing Loan shall mean Bad debts as defined in the Directives of the National
Bank of Ethiopia. In order to independently manage these loans, the Loan Workout
Division is established primarily entrusted to protect the interest of the Bank.
2. Workout
Workout is a series of steps taken by the bank and a borrower to resolve the crisis of
loan repayments from borrowers whose loans are categorized as NPLs. A workout can
be considered as continuous process that in the first instance identifies problems and
then redefines the relationship between a bank and a borrower through narrowing
diverge interests and goals of the bank and the borrower.

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11.3 Workout Principles
There are a set of principles that have resulted in many successful loan workouts.
Some of those principles are highlighted as follow:
1. The workout strategy to be chosen needs to weigh or consider the time and
costs involved while taking foreclosure, with the cost of choosing other workout
scenarios. But as a rule of thumb there is an increased recognition from the
bank’s side that rescuing with exhaustive use of workout strategies, rather than
liquidating through enforcement on companies with a viable future is to the
benefit of all the stakeholders i.e., as much as possible the strategies to be
sought need to avoid foreclosure.
2. The key to a successful loan workout is to identify the problems accurately and
address them early. The officer in charge of carrying the workout analysis
should examine the case closely. In addition, it is critical that the company's
underlying business and financial problems are resolved and not merely the
symptoms.
3. It should be understood that the quality of a bank's lending decisions might be
influenced by an aggregate outstanding loans demanded from a defaulted
borrower. Considering this, while processing cases to be sent to workout
division, the officer must regard the repayment from the defaulted outstanding
loans as part of the expected return on the new loan. /shall exert an exceeding
effort on workout cases unlike processing of fresh loan/
4. Workout activities can be carried when it has been sensed that some problems
are encountered or found that a certain case become more susceptible for a
default, especially when it is caused by financial distress in the borrower's
business. The officer shall consider a workout activity when a borrower loses
access to financial capabilities and must seek new liquidity easing ways
through outlined strategies to continue servicing the existing outstanding debt.

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11.4 Conditions for Loan Cases Transfer to the Loan Workout
1. Immediately, when a loan or advance is classified as an NPL as per NBE’s

pertinent directive;
2. When a borrower is rated Grade-E as per the Credit Risk Grading parameters;
3. When there is a potentially adverse condition on the business/loan, as
identified by the Customer Relationship Manager; and approved by an
appropriate Credit Sanctioning Committee.
4. Immediately, when the restructured loan fails to perform as per the conditions
set during approval.
5. When an appeal against a foreclosure decision is accepted,
6. Only those Non Performing Loans that are highly probable for normalization
shall be considered for loan workout.

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11.5 Workout Loan Process
1. The Customer Relationship Manager fills the Non-Performing Loan Transfer

Form (annexed herewith) properly and forwards to the Manager – Loan Workout
Division along with the loan file through a covering letter.
2. Once NPL is transferred to the Loan Workout Division, all debit transactions to
an Overdraft accounts should be blocked unless instructed by the Manager –
Loan Workout Division. However, the Customer Relationship Officer/Branch
Manager shall automatically debit the customer’s loan account for any amount
to be paid on behalf of the customer such as insurance premium, estimation
fee, registration fee, and court fee.
3. The Manager – Loan Workout Division receives NPL cases and assigns a Loan
Workout Officer and Attorney.
4. The Manager – Loan Workout Division, the assigned Attorney and Loan
Workout Officer together design negotiation strategies and action plans. The
CustomerRelationship Manager shall provide adequate information on the
history of the loan to the team that is responsible to design the negotiation
strategies.
5. The Loan Workout Officer is principally responsible for non-performing loans

negotiation and follow-up on a case-by-case basis, evaluates and determines
the viability of the customer’s business.
6. Before the Loan Workout Officer commences negotiation with the borrower,
he/she has to examine the loan file thoroughly. Because sound workout
program begins with a thorough understanding of all relevant information
about the borrower. The Loan Workout Officer gets technical support from the
Attorney and others and negotiates with the borrower in line with the
negotiation strategies.

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7. The Loan Workout Officer shall draw up an action plan and a plan for its
detailed implementation, if the underlying problems are deemed correctable. If
the recovery of the loan is feasible, appropriate decisions must be made as to
the particular elements to be included in the recovery package, which may
include any one or a combination of the strategies indicated below:
8. If agreement is reached or negotiation is deemed exhausted, the Loan Workout

Officer identifies and measures risks and prepares resolution proposal and
forwards to a team composed of Manager – Loan Workout Division, Attorney
and Loan Workout Officer who initially involved in designing negotiation
strategies of the case for review.
9. The Loan Workout Officer shall facilitate estimation and registration, if

additional collateral is deemed necessary.
10. After review and recommendation, the Loan Workout Officer forwards the
proposal to respective approving committee.
11. The Loan Workout Officer may present in the workout loan approving
committee’s meeting as a resource person.
12. The appropriate workout loan approving committee shall independently review,
deliberate and decide on the credit proposal as per the discretionary approval
authority indicated in this procedure.
13. All loan workout recommendations made by the Loan Workout Officer and
decisions made by the workout loan approving committee must always be
accompanied by valid reasons.
14. All loan workout approving committee members must sign on the Workout Loan
Approval Form. The Loan Workout Officer should make sure that all members
in a quorum have signed on the Workout Loan Approval Form.
15. The loan workout approving committee shall inform its decision to the
concerned Loan Workout Officer.

Wegagen Bank S.C
16. The Loan Workout Officer communicates the decision to the customer if the
decision is restructuring.
17. The amendment contract which prepared by the Attorney shall be signed by the
Loan Workout Officer and the borrower.
18. The Loan Workout Officer is responsible for strict follow-up of the case until the
customer’s business is proved to generate sustainable cash flow to warrant full
settlement of the debt or full settlement of the debt through legal action or other
remedial action.
19. The Loan Workout Officer in collaboration with the Legal Officer identifies
properties of the borrower to be considered as attachable property in case of
default.
20. All assistance must be given to the Attorney, once a decision is made to pursue
the legal route, as delays often reduce the amount of money eventually
recovered.
21. The concerned Loan Workout Officer should supply the Attorney with all the
information he/she has, if any, and follow up on the implementation of the
decision.
22. The Loan Workout Officer follows-up repayment status.
23. The loan workout proposal shall be prepared as per the format annexed
herewith.
24. Partial collections from the NPLs shall be made as per the pertinent civil code
No. 1752 of the country. Repayments shall firstly be applied to costs, then to
interest, and finally to the principal amount.
25. The number of iterations and minimum cash collection for rescheduling,
restructuring or renegotiating of term loans shall be governed as per the
Directives of the National Bank of Ethiopia.

Wegagen Bank S.C
11.6 Workout Loan Negotiation
11.6.1 Negotiation
 Negotiations are discussion intended to reach an agreement with the defaulter

or the concerned parties on the recovery of NPLs.
 The concerned workout officer after going through the presented documents
and assessing past records of the borrower shall draw negotiation points
together with the attorney and present in written form for the concerned
negotiating person(s) stipulated in this procedure.
 The negotiation shall be made only to show general direction and understand
the borrower, but not to decide on the loan case.
 The negotiation should also encompass offering of personalized advices to the
borrower such as to provide additional collateral, to include additional personal
guaranties or modifications of liabilities to the existing personal guaranties, to
conduct friendly foreclosure, advising for partial sales of existing fixed assets or
liquidating account receivables or stock. Sale of stock/share certificate or any
other financial assets such as government bond, etc., or to pledge the financial
assets as an additional collateral, or to find a friendly new lender who buys the
loan at par or below par, or allowing the bank to find a borrower who assumes
the loan, or getting concession or undertaking letter from the borrower’s debtors
whom he offers goods/services on credit basis.
1. The Organs Responsible for Negotiation

 Manager Loan Workout Division
 Legal Attorney
 The concerned Loan Workout Officer
2. Negotiation Points
The Bank’s negotiators should consider the following points in negotiating with the
defaulter or the concerned parties.
1. Reason for default.

2. The defaulter’s/guarantor’s proposed solution to pay his/her debt.
3. Source and capacity of repayment (down payment and periodic repayment).

Wegagen Bank S.C
4. Settlement conditions.
5. Collateral issues.
6. Inform the borrower the implication of the Bank’s Credit Policy and NBE
directive in the specific loan case and to adjust itself accordingly.
7. Grace period, if any.
8. Tenure/duration of the restructured loan (if rescheduling).
9. Purpose of additional loan and disbursement arrangement (if injection is
deemed necessary).
10. Covenants, etc.
11. All oral promises or commitments made during negotiation should be
documented in writing in the file.
11.7 Loan Workout Strategies:

1. Restructuring/extension of the repayment period with the consent of the
concerned parties (borrower and mortgagor/guarantor);
2. Changing the form of the loan fully or partially (e.g. overdraft to a term loan);
3. Requesting additional collateral or change of collateral;
4. Cross-collateralizing multiple loans;
5. Putting additional covenants;
6. Arranging sellout/buyout of loans and advances to/from other banks;
7. Arranging the sale of the business to a third party with the consent of the
borrower;
8. Arranging transfer of loans from one borrower to other borrowers upon request
by the borrower, based on the mutual agreement of both the borrower and the
would-be buyer of the loan, when an acceptable agreement is submitted to the
Bank and a new buyer of the loan is deemed to be better than the actual
customer;
9. Voluntary liquidation of collateral;
10. Voluntary realization of other assets of the borrower/settlement by the
mortgagor/guarantor;
11. Replacement or improvement of the management of the borrower’s business;
12. Assigning a co-manager or a controlling staff to work with the borrower’s
company on behalf of the Bank;

Wegagen Bank S.C
13. Reduction of overdraft to a lower limit, by collecting some part of the overdraft
(partial collection);
14. Persuading owners, shareholders, and directors/managers of borrowers to enter
into a personal guarantee contract with the Bank;
15. The Bank does not encourage additional finance for the loan recovery cases.
However, if there are appropriate and concrete justifiable reasons, the Bank
may approve the request; and
16. Other appropriate options to recover the NPLs
11.8 Detail Procedures of Loan Workout Strategies
11.8.1 Restructuring/Extension
1. This alternative will be considered when the borrower’s current situation and
future prospect indicate the need for extended time beyond the contractual
term of the loan to settle the debt. However, this alternative shall be
supported by the cash flow of the business and adequate collateral coverage.
2. Utilizations of expired O/D, L/C, merchandise loan, guarantee facilities that
showed unsatisfactory performance due to acceptable reasons will be allowed
for further extension, when the prospect for effective utilization of the facility
is found out promising. Extension given in this particular case will serve as a
probation period to decide upon continuity of the facility based on the result
to be observed during the extension period. Thus, duration of the extension
shall depend on the type of facility under consideration. However, the
duration shall not exceed the limit set in the Credit Policy for specific
product.
3. The operational performance and cash flow statements shall indicate the
capacity of the firm for accommodating additional periodical debt repayment
burden.

Wegagen Bank S.C
11.8.2 Restructuring of NPLs that are not transferred for Legal

Action
1. By taking the cash flow and repayment capacity of the business into account,
NPLs shall be rescheduled or extended for a reasonable period of time by the
approval of the appropriate approving committee as per the discretion limit;
2. The Loan Workout Officer and Manager, Loan Workout Division should
ascertain the repayment capacity of a business from the information
available, or from the additional information provided by the customer
during an interview and site visit;
3. The Loan Workout Officer should reproduce the net cash flow from the
operation of the main business and other income to determine the modality,
tenure and periodic repayments. The customer may reduce his/her/its bad
debt from the sale of assets held or not held as collateral, which would leave
him/her/it with sufficient repayment capacity to service the remainder of
the debt over a specified time span;
11.8.3 Restructuring of NPLs under ALD (After

Foreclosure/Litigation Decision)
1. When a defaulter appeals against a legal action and tries to cooperate with
the Bank by offering repayment and/or additional collateral, the Bank may
be ready to take the opportunity and start negotiations with him/her/it.
2. The customer should submit a letter of application for the suspension of the
decision or for an immediate rescheduling of the loan under ALD—to the
Loan Workout Officer by indicating his/her/its commitment.
3. The Bank has to seek a minimum down payment that is at least equivalent to
the percentage points indicated in the following table to have the foreclosure
decision suspended for three months, provided that the Bank would lose
nothing in the process.
4. The Minimum Down Payment Percentage Points for Suspending a

Foreclosure Decision:

Wegagen Bank S.C
Rate for Rescheduling

Case
Description Loans Secured Loans Secured
Category
Against Trucks Against Building
Accumulated Accumulated interest

Accumulated interest interest should be should be cleared plus
Foreclosure
should be cleared plus cleared plus 10% of
Decision 5% of the outstanding
10% of the arrears or the outstanding
overdue balance balance
balance
Accumulated Accumulated interest
When a customer shows
interest should be should be cleared plus
Expiry of up for negotiation after
cleared plus 15% of 5% of the outstanding
Legal Notice the expiry of the 30-day
the outstanding balance
legal notice
balance
Accumulated
When a customer comes
interest should be
Vehicle to negotiate after
cleared plus 25% of Not applicable
Seizure his/her/its vehicle has
the outstanding
been seized
balance
When the customer Accumulated interest

comes to negotiate after should be cleared plus
Building
the building has been Not applicable 10% of the
Estimate
estimated for auction outstanding balance
purposes
When a customer comes Accumulated Accumulated interest

to negotiate after public interest should be should be cleared plus
Notice of Sale announcement of auction cleared plus 30% of 15% of the
to sell the the outstanding outstanding balance
vehicle/building balance
5. If the loan is secured against both building(s) and vehicles or other types of
collateral with an acceptable coverage, the minimum percentage down
payment requirement could be the average of the percentage points given in
the Table on which the negotiations could be based.
6. If the customer requests for an immediate rescheduling, substantiated by
sufficient repayment capacity, the Loan Workout Officer should demand for a

Wegagen Bank S.C
higher percentage of down payment and additional collateral, using the given
ratio in the Table as a minimum requirement. For rescheduling the loan, the
Loan Workout Officer should consider all the repayments the customer might
have made after the foreclosure decision has been made as a good gesture
toward the Bank.
11.8.4 Restructuring with Injection of Additional Loan
1. Injection of additional loan for NPLs should take place in exceptional cases
where;
2. The financial statement analysis prepared by the Loan Workout Officer clearly
demonstrates that an injection of an additional loan is essential to resolve the
case and that the collateral coverage is sufficient,
3. Shortage of working capital is clearly observed and the borrower can bring the
work orders or sale contracts,
4. The purpose of the additional loan is clearly stated,

5. The repayment capacity can be clearly established.
11.8.5 Restructuring with Additional Collateral
1. The bank shall consider holding propriety as second degree collateral, only
for strengthening the collateral bases for the existing outstanding credit
facilities, i.e. 2nd degree collateral can’t be treated as newly pledged property
while considering restructuring as way-out strategies.
2. For the third party collateral the owner must give prior consent.
3. The number of iteration and minimum cash collection for rescheduling
restructuring or renegotiation of term loans shall be governed as per the
directives of NBE.
11.8.6 Changing the Form of the Loan Fully, or Partially
1. This arrangement is strictly applied in circumstances where conversion of an

O/D, merchandise, advance on import and export bills and guarantee

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facilities to a term loan or other form of loan is found the best choice to
recover the debt. In addition to this amalgamation of facilities for ease of
managing the facilities can be used depending on the circumstance and
complexity of the case.
2. When the overdraft account utilization of a borrower is not in conformity with
NBE directive No. SBB/43/2008, (if applicable).
3. The applicant who does not have the capacity to fully settle the outstanding
balance immediately on demand.
4. The borrower shall fill all the requirements of existing and any new related
directives of NBE.
11.8.7 Settlement in Cash
It may be possible that a customer proposes a full settlement through payment of

cash. A negotiated settlement of a loan through cash collection or disposal of
properties may be possible under the following circumstances;
1. The customer has failed to repay the loan as per the contract, and the Bank
is likely to foreclose the properties held as collateral;
2. The properties held as collateral are already foreclosed, but not yet
auctioned;
3. The borrower comes for negotiations to settle the loan, after the first auction
has failed;
4. The properties held as collateral are already auctioned and sold, but there
remains an outstanding balance, and the Bank is ready to litigate for other
attachable properties; and
5. If the customer is willing to fully settle the loan by selling properties not held
as collateral in order to save the property held as collateral, the foreclosure
decision should be suspended for only three months, until the loan is fully
settled.
11.8.8 Partial Settlement of a Loan through Voluntary

Liquidation of Collaterals

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If a customer decides to reduce the total outstanding balance by selling some of the
properties held as collateral in order to reduce the regular periodic repayment, etc, the
Loan Workout Officer will consider the following:
1. For vehicles, the Loan Workout Officer may consider the Bank’s current
expert valuation report, or the customer’s offer price through negotiation with
third parties, or current market price of similar item, as obtained from
internal information or external expert valuation, whichever is the highest.
2. In case the Loan Workout Officer finds that the voluntary liquidation
proposed is to the best advantage of the Bank, he/she has to ensure that the
security coverage is still better than, or at least equal to, the former, but
latest, collateral to loan ratio and should seek an approval for the proposal
from the appropriate approving organ, based on the discretionary lending
limit.
3. When a voluntary liquidation toward the partial settlement of a loan involves

collateral in the form of buildings, the building should be estimated as per
the Bank’s collateral valuation procedure. The Workout Loan Approving
Committee shall compare the valuation result against the borrower’s price
quotation and consider whichever is higher for decision.
4. A negotiated settlement should be sealed with a written commitment by the

borrower to the terms of the agreement which should have a commencement
as well as a final date. The final date should not exceed three months for
trucks, and six months for building, starting from the commencement date.
11.8.9 Rearrangement of the Loan Repayment Structure
This is a situation whereby the loan repayment program will be rearranged in different
forms, depending on particular condition which includes the permission of;
1. Arrangement of repayments on quarterly or semiannual basis,

2. Attaching repayments to the time of revenue collection,

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3. Review of the grace period required to begin repayment,

4. Any other workable option relevant to the circumstance.
11.8.10 Waiver of Repayments
1. This alternative will be considered when it is found that the problem

encountered by the customer is of temporary nature, that persists for
specified duration and it is reasonably assured that the borrower will have
the capacity to clear the backlog immediately after the financial stress is
over.
2. Waiver of repayment is the mechanism by which the branch intentionally
skips one or more of installment repayment for the purpose of easing the
borrower’s liquidity problem for a short run. It can be applied in case where
installment repayment is a huge one and is believed to influence the working
capital level of the business.
3. The borrower shall request a waiver accompanied with justification for the
case through the branch and/or the workout officer. Waiver of repayment for
NPLs is a discretionary mandate of the workout loans approving committee
only.
4. The Directorate after analyzing with the pertinent procedural and directive
context permits waiver of repayment for a maximum of two installments in
case of monthly repayment and one installment in case of Quarterly
repayment. Waiver of repayment shall not be entertained immediate to the
end of a grace period and for a loan rescheduled for the second iteration.
11.8.11 Injection of Additional Fund
This is a choice to be taken under extremely compelling situation i.e., when it is

believed that injection of additional fund is the only best alternative to protect the
interest of the bank. However, its selection shall be based on in depth analysis and is
to be applied together with institution of effective control and monitoring mechanisms.

Wegagen Bank S.C
While processing additional fund for selected cases the following points must be
considered
1. He/she/it shall settle all the arrears amount and the status of the loan
should be re-instated to a level where it’s possible to entertain additional
fund request
2. When the case being treated under this strategy is PLC, the paid-up capital
shall be fully raised and not more than half of it is lost by any means.
3. For the company who lost more than one half of its paid-up capital the
shareholders must raise additional equity capital.
4. Business management personnel shall be well experienced and qualified in
related areas, having good reputation and personal integrity.
5. The general manager shall be empowered to borrow money on behalf of the
company with or without pledging the company’s property. And the legal
acceptance of the authority shall be checked by the workout attorney of the
Bank.
6. Besides the pertinent NBE directive, the borrower business financial status
need to be a short run problem, and the liquidity gap expected be recovered,
if an additional finance is opted as a strategy for rehabilitating the business.
(Especially for facility that needs change of mode of finance)
11.8.12 Partial Liquidation of the Property
When the borrower has additional property which do not directly affect the main
business operation it looks sound to dispose the property and apply the proceeds for
partial settlement of the loan and use the remaining balance to boost the working
capital position of the business.
11.9 Re-Transfer of Regularized Loans
Cases shall be transferred back to the Customer Relationship Manager where the
customer’s business is believed to generate sustainable cash flow to warrant full
settlement of the debt and fulfills the relevant NBE directive. In such cases, the Loan
Workout Officer prepares proposal substantiating with facts obtained from the

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performance of the business and forwards to the Loan Workout Approval committee
for approval. In this situation the Customer Relationship Manager shall participate
in the approval process. Then the case will be transferred back to the Customer
Relationship Manager together with up-to-date loan file for further follow-up. In all
other cases, management of the account will remain with the Loan Workout Officer
until it is either settled or the debt is written off.
11.10 Application of Penalty Rate on NPLs

The Bank charges an additional penalty rate of 3% as soon as a loan account turns
non-performing, as per NBE’s pertinent directive. The 3% penalty rate shall be waived
for a restructured/rescheduled non-performing loan.
11.11 Legal (Foreclosure and Litigation) Process

If negotiations are not found to be the ultimate solution, or if the cost of correction is
not justifiable, the strategy shall be to exit and it will be up to the Credit Workout
Division to recommend an exit plan to this end in terms of Foreclosure and Litigation
1. Transfer of Cases to Legal Process
Legal process can be executed under any of the following mechanisms:
I. When a loan case under Loan Workout Division is decided not recoverable
through amicable means.
II. When the relevant approving team decides on the transfer of cases to legal
process upon the proposal of the concerned Customer Relationship Manager.
The Customer Relationship Manager should deliver all relevant documents for
the legal execution along with the case.
III. When the concerned approving team decides on transfer of Personal Loans and
Special Staff Loans to legal process after exhausting other settlement
alternatives. The concerned Customer Relationship Manager should deliver all
relevant documents for the legal execution along with the case.

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2. Foreclosure Process
1. Once the Attorney in the Loan Workout received all required documents,
he/she should serve thirty days legal notice to the defaulter and
mortgagor/guarantor. The Attorney serves the legal notice pursuant to the
relevant laws of the country.
2. The Loan Workout Officer shall give technical assistance to the Attorney and
follow up the case until completion of the legal proceedings/auction process.
3. The direct foreclosure process cost incurs by the Bank and has a documentary
evidence like court fee, media advertisement cost shall be added up on the
defaulter loan account. However, the costs like perdiem expense shall be bear
by the Bank.
3. Seizure of Foreclosed Vehicles/Machinery
1. When the defaulter fails to settle the loan within 30 days’ notice and the
mortgager is not willing to surrender foreclosed property, the assigned attorney
shall write a letter requesting the registrar to order seizure of the pledged
vehicles.
2. The Legal Aid should exert maximum effort to trace the whereabouts of
foreclosed properties.
3. During taking custody of vehicles, in Addis Ababa, the following individuals
should be in attendance:
i. Legal Aid
ii. Bank’s Mechanic
iii. Witnesses.

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4. During taking custody of vehicles, outside Addis Ababa, the following should be
in attendance:
i. Legal Aid of the District
ii. Any Wegagen Bank’s staff
iii. Witnesses.
5. Outlying Districts should have their own custody for the seized vehicles.
6. The Bank’s Mechanic should check:
i. Plate number, Motor and Chassis number of vehicle against ownership

certificate (Libre); and
ii. Other conditions of the vehicle and fills it in the Foreclosed Vehicle’s
Receiving format.
7. If seized vehicle fits the description stated in the ownership certificate, the
Mechanic or any person who seizes the vehicle signs on the Foreclosed Vehicles
Receiving format and handover to the Loan Administration Officer for custody.
The Legal Aid is responsible for custody of seized vehicles in outlying districts.
8. While filling the vehicle receiving format the Mechanic shall record any
discrepancy and explain reason for non-presence of owner or his agent on time
and place of reception.
4. Clearance Process
a. Building
The Attorney shall request clearance from registrar within 10 days from the date of
receipt of foreclosure decision as to whether mortgaged building is free from court
injunction and other debts or encumbrances.
If there is court injunction order, the assigned Attorney shall present affidavit
application to the court to set aside the order immediately from date of awareness of
the injunction.

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b. Vehicle
The Attorney shall process clearance of vehicles.
5. Possession of Building
1. The Attorney shall request the registrar to order eviction of the

defaulter/mortgagor from the building after expiry of the 30 days’ notice within
a month. While taking possession of the building, representatives from police or
kebele should be in attendance and the Attorney shall register description of the
building.
2. When the Bank takes custody of the building, the Manager – Workout or
Manager-Credit Appraisal and Loan Workout shall assign guards to watch or
safeguard the premises.
6. Valuation of Property under Foreclosure Processes
1. After screening list of foreclosed properties that are free from any debts and
claims, the Manager-Loan Workout or Loan Workout Officer shall request the
estimation of collaterals. Estimation of foreclosed properties shall be done by
Collateral Valuators at the Customer Relationship Management Team
(Corporate or Commercial as the case may be), with proper check and balance .
2. The Loan Workout Officer shall also request registrar in writing to order police
and Kebele to send their representatives to attend the estimation process. Copy
of the letter to the mortgagor shall be delivered before the revaluation date .
3. If the defaulter/mortgagor cannot be found, the letter shall be affixed in
conspicuous place of property.
4. Valuation shall be conducted as per the property valuation procedure of the
Bank.

Wegagen Bank S.C
7. Preparation of Auction
1. The Loan Workout Division shall decide based on the attorney’s proposal to be
auctioned based on their stay under the Bank’s custody for vehicles or issue
date of the legal notice for buildings, their marketability and estimated price
2. The public announcement shall be prepared within three days of prioritization.
3. The public announcement shall include:
a. Name of the defaulter

b. Description of the property and its estimated value
c. Auction place, date and time
d. Amount and form of bid bond to be deposited
e. The number of days given to winners to settle the remaining purchase price
before he/she collects the property
f. Any other information deemed essential for the consumption of prospective
bidders/buyers
4. As it is practiced in the court of law, foreclosed properties shall be sold by open

auction.
5. Invitations to auction shall be announced through mass media having wider
circulation/audience, i.e., the auction can be advertised through any local or
foreign media and the Bank’s website.
6. The auction shall be conducted after the expiry of 30 and 15 days of auction
publication for building and vehicle, respectively.
7. Invitation letter to pledgor/mortgagor and registrar order to Kebele and Police to
attend the auction shall be delivered at least a week before the auction date.
8. The Auction Process
1. The minimum number of bidders to an auction is set to be two.

2. Normally the Bank cannot participate in foreclosure auction.
3. The auction shall stay for at least two hours.
4. Auction of foreclosed property shall be closed on the time publicized on
newspaper. However, no liability shall be incurred on the Bank if the auction
competition forced not to observe the time limit.

Wegagen Bank S.C
5. Attorney or branch manager (outlying branches) shall register bidders on the

format prepared for this purpose after ensuring that they have deposited the bid
bond. Registration shall be conducted simultaneously with the auction.
However, the auctioneer shall stop registration 5 minutes prior to the auction
ending time.
6. Normally representatives of police and/or kebele shall be present at the auction
if situation does not dictate otherwise.
7. Each offer of the bidders in the competition shall be declared and finally the
auction shall be closed by counting numbers from one to three.
8. The winner shall be declared on the spot by the auctioneer.
9. Representatives of the Bank, kebele, police and property owner or his/her agent
(if volunteer) shall sign on minutes prepared by the Attorney or branch
Manager..
10. The bid bond amount shall be returned for those who fail to win the auction,
and the winner’s bid bond amount shall be deposited by the Legal Aid in an
account opened for this purpose.
11. The Manager – Loan Workout or Branch Manager, shall give the declared
winner a letter stating that he/she is the winner and advising to pay the
remaining balance within 15 days
12. If the property is not sold at first auction, second auction shall be conducted in
consideration of the proper timing of sale and the marketability of the property.
9. Suspension/Cancellation of Auction Process
An auction can be suspended prior to the declaration of the winner when the Loan
Workout Division receives written instruction under the following conditions:
1. The loan balance has been fully settled and the Branch Manager
communicates same through letter or coded telephone message.
2. The appropriate organ of the Bank decides to suspend the auction as per this
Procedure and the same is communicated in writing to the organs conducting
the auction.
3. When Court gives attachment order.

Wegagen Bank S.C
4. When the Attorney or Manager – Loan Workout Division or The Senior Credit
Analyst or Branch Manager (for outlying branches far from Credit Processing
Pool) believe that there is coalition/act of gang up during the auction.
10. Transfer of Ownership to the Bid Winner
1. The bid winner shall settle the remaining amount of the offered price within 15
days of being announced as a winner. However, if partial financing is under
process, the full payment can be delayed until the credit process is finalized.
Where the winner fails to settle the remaining payment within 15 days of the
auction date or approval of partial financing, the 25% bid bond shall be
forfeited to the Bank.
2. Upon getting confirmation from the Customer Relationship Manager/Branch
Manager of full payment of the sales proceeds, the Manager – Loan Workout
shall release ownership certificates to the buyer and write a letter to the
registrar to waive Bank attachment and transfer ownership right to the buyer
within a day of full payment.
3. The Loan Workout Officer, upon collection of the whole purchase price, shall
facilitate delivery and transfer of ownership of the property and other
formalities.
4. If the buyer fails to take physical possession of the property within 10 days
from full payment of the offered price, the Loan Workout should charge the
buyer any cost (custodial, storage, etc) incurred. The Bank shall calculate the
charges on daily basis.
11.12 Litigation Process
1. Instituting Suit
a) The assigned Attorney shall verify the fulfillment of all necessary information
and relevant documents.

Wegagen Bank S.C
b) Once the Attorney received all the necessary documents from the concerned
organ, he/she should institute the case before the court when there is legal
ground for suit.
c) If the assigned Attorney believes that there is no legal ground to sue, he/she
should present his/her legal opinion to the Loan Recovery Approving
Team/Individual in writing within a week. If the team/individual supports the
stand of the Attorney, the process shall be terminated, otherwise the suit
process shall continue.
d) An affidavit application for court injunction shall be prepared on attachable
properties with the suit.
e) The Attorney shall always attend the court adjournment and get summons
and/or injunction orders on attachable properties. The Loan Workout Officer
shall give the necessary assistance to this effect. The Attorney should report
each court adjournment activity specifying the reasons for adjournments
and/or decisions against the Bank at least the next day to the Manager – Loan
Workout Division. The Attorney should also prepare detail status report of the
case at least on monthly basis.
f) Summons/injunction orders shall be withdrawn within a week and be served to
the defendant by the Legal Aid 10 days before the date of adjournment.
g) When the summons can’t be served to the defendant, the Attorney shall apply
to the court that the summons shall be publicized in the newspaper or the
defendant can be called by any appropriate mechanism. (For example serving
summons through kebele, affixing on the door of defendant, etc).
h) When the Court gives verdict, the Attorney shall request copy of the judgment
within two days. The decision shall be examined by the Loan Workout
Approving Committee together with the Attorney within a week of its arrival
whether the decision is in favor of/against the Bank or it has error (clerical or
arithmetical).
i) If the decision has error, correction shall be sought within a week from the
court deciding the case.
j) When the committee finds that there is legal ground for appeal, the Attorney
shall apply to the appropriate appellate court as per the procedure appeal and
cassation stated below.

Wegagen Bank S.C
2. Execution Proceeding
1. When the decision is in favor of the Bank, the Attorney shall request the
present balance of the debt from the Customer Relationship Officer/Branch
Manager.
2. The execution proceeding shall commence within a week of the final decision.
The application for execution should state list of properties to be sold for the
execution of decree.
3. The Attorney shall follow-up the execution proceedings until completion.
He/she should produce execution proceedings status report on each
adjournment to the Concerned Loan Workout Officer.
4. When the court decides on the auction sale of the property, the Attorney shall
follow-up the auction process in collaboration with the Legal Aid.
5. If the property is not sold during first auction, the Attorney shall request the
court second auction as well as the participation of the Bank in the second
auction.
6. If permission for participation in the second auction is obtained, the Attorney
shall report the permission to the lending Branch.
7. The Loan Workout manager and senior attorney in consultation with the
attorney handling the case shall decide whether to participate in the second
auction or not and the amount up to which to offer. In case of District the
District Manager , the Credit Appraisal Manager and Loan Workout attorney
shall jointly decide whether to participate in the second auction or not and the
amount up to which the Branch shall participate in the auction.
8. If the property is not sold during second auction, the Loan Workout Approving
Committee may seek court order to acquire the property by the estimation
value or the debt amount whichever is the lower.
9. Court order for acquiring and transferring of ownership of the property to the
Bank shall be withdrawn by Attorney within three working days.
3. Appeal and Cassation

Wegagen Bank S.C
When a Court decision is against the Bank or there is any grievance on the decision,
the Loan Workout Approving Committee and the concerned Attorney shall decide on
whether to appeal or not. If the committee believes that appeal is appropriate, the
Attorney shall prepare and present appeal request to appellate court within two weeks
of the decision.
File opening of appeal and cassation processes as well as court fee payment shall
follow the steps in instituting fresh suit process.
4. Defending Cases and Intervention
1. The Attorney shall defend cases instituted against the Bank and intervene in
the court litigation to safeguard the interest of the Bank
2. When a case is instituted against the Bank, the Attorney shall collect the
necessary information and documents and prepare proper statement of
defense by analyzing legal and factual ground of the case.
3. The Attorney shall intervene court litigation when the Bank interest (for
example, priority right, and ordinary right or to set aside injunction order) so
requires by preparing proper pleading with necessary evidences as soon as
he/she receives or knows such information.
4. File opening, appeal and cassation process as well as court fee payment shall
be conducted as stated in the instituting suit process.
11.13 Acquisition of Property

Where a property fails to be sold at the second auction, the Bank may acquire it and
such property shall be handled by the bank’s material management. After this it shall
be considered as the property of the Bank.
11.14 Exception to Legal Processes

Foreclosure and litigation cases can be exceptionally handled with the approval of the
CEO or his delegate beyond this procedure when the Bank interest so requires.
11. 11.15Write-Off Procedure for Loans and Advances

Wegagen Bank S.C
After having fully exhausting all possible means for the recovery of loans and advances
and after ascertaining that the property found in the name of the borrower/guarantor,
their spouses, or the collateralized property is proved not to cover the loan fully; and
after having ascertained that there is no other attachable property to cover the
remaining balance fully or partially the initiating organ shall compile evidences to
justify that the loan or part of the loan it proposed for write-off is unrecoverable.
1. Initiation of Write-off
Write-off proposals (partial or full write-off) can be initiated by the Loan Workout
Officer and other concerned organs of the Bank.
In addition to the evidentiary documents supporting the write-off decisions, the

originating officer complete the annex attached for deliberation by the appropriate
review and approval committee
2. Conditions Preceding Write-off of Loans and Advances
1. When a borrower is insolvent or fails to settle the debt and the value of the
borrower’s and/or guarantor’s property, if any, is less than the cost of recovery
or when the cost to be incurred exceeds the anticipated returns;
2. When a borrower is declared bankrupt and the value of the assets disposed of is
insufficient to settle the outstanding debt and cost of recovery;
3. When proceeds from sale of foreclosed property are insufficient to off-set the
outstanding debt and there is no other property to warrant continued litigation
to recover the remaining debt, or when the value of the attachable property is
less than the cost of recovering the loan;
4. When the highest appellate court passes verdict against the Bank on the
ground of legal consequences;
5. When the legal statutory period of limitation elapses;
6. When a loan recovery proves impossible due to prior and gross negligence of the
Bank’s staff.

Wegagen Bank S.C
3. Evidentiary Requirements for Write-Off Loans and

Advances
The write-off initiating official shall collect evidences in the following areas to justify
that the particular amount is unrecoverable after all possible means of recovery are
exhausted. Loans and Advances write-off recommendations should be accompanied by
documents justifying the following conditions;
1. Proposals for write-off should be supported by authentic and sufficient evidence

as indicated below;
2. Write-off initiating organs should ensure that supporting documents are
complete and authentic;
3. If initiating organs find it beyond their capacity to present supporting
documents, they should justify it; and
4. Write-off recommendation shall be accompanied by documentary evidences
from appropriate offices as indicated below except for loans and advances up to
principal balance of Birr 20,000 for Addis Ababa city branches and Birr 10,000
for outlying branches
5. Any write-off recommendation shall be accompanied by documentary evidences
from appropriate offices as indicated below.
i. Absence of Property
Kebele or, in the case of rural areas, other local administration office reports, on the basis of
their records, regarding the address or forwarding address of the borrower/guarantor
concerned and information pertaining to the business of the borrower/guarantor;
b. Report by the municipality or competent authority confirming, on the basis of

its records, that the borrower/guarantor does not own property (building/land);
c. Report by the Ministry (Bureau) of Trade and Industry or any authorized organ
confirming, on the basis of its records, that the borrower/guarantor does not
own any other business establishment;
d. Report by the Transport Bureau or any competent authority confirming, on the
basis of its records, that the borrower/guarantor does not have any vehicle;
e. Report by the originating organ that it is not aware of any property owned by
the owner; and

Wegagen Bank S.C
f. In case of partial write-off, current valuation report from the Bank’s property
valuators and/or a court evidencing the value of the collateral or the attachable
property (the amount recoverable) that can be used for the settlement of part of
the loan that will not be written-off. This is to determine the amount to be
partially written-off.
b. Insolvency and Bankruptcy of Borrowers
i. Where the recommending organ believes that the debtor/guarantor is insolvent,

it has to present a call-report, which indicates insolvency of the borrower
supported by the financial statements of the borrower. It must also be clearly
shown that rescheduling the debt will not solve the problem.
ii. Where the borrower/guarantor is declared bankrupt, the recommending body
must produce a copy of the court decision to that effect.
c. Negligibility of the Net Realizable Value of Property
i. The Attorney in collaboration with the Loan Workout Officer shall determine the
legal and other related costs involved to recover the debt. In order to determine
the realizable value of the property, valuation shall be done per the Bank’s
property estimation procedure. If the need arises, external consultants shall
appraise the property.
ii. The originating organ shall compare the cost of recovery against the realizable
value of the property as determined above and recommend for write-off, if
he/she found out that taking the case to Court would not be to the benefit of
the Bank.
4. Defects in Documentation
If the assigned Attorney believes that there is no legal ground to sue, he/she should
present his/her legal opinion to the Workout Loan Approving Committee/individual in

Wegagen Bank S.C
writing within a week. If the Committee/individual supports the stand of the Attorney
the case shall be presented for write-off.
5. Court Judgment against the Bank
When final appellate court passes judgment against the Bank, copy of the court ruling
and a written statement by the Attorney that all legal means have been exhausted
shall be obtained.
6. Elapse of Statutory Period
In this case, no evidentiary documents for absence of properties are required for
approval.
7. Processing of Loans and Advance Write-off Cases
The initiating organ for write-off proposal:
a. Shall identify loans and advances to be written off in accordance with the
requirements laid down in the Credit Policy provision for Write-off;
b. Should complete the format for recommending and approving loans and
advances for write-off;
c. Attach the required evidentiary/supporting documents or gives
justification/s for missing documents and forward to approving teams; and
d. Ensure that provision has been held for the amount to be written-off.
8. Full/Partial Write-off Approval Authority
The CEO of the Bank shall approve write-off proposals of loans and advances up to
principal balance of Birr 100,000. However, the BOD of the Bank shall approve any
write-off proposals of loans and advances in excess of principal balance of Birr
100,000.
9. Maintaining Register Book

Wegagen Bank S.C
1. The Loan Workout Division shall maintain a central registry of all written-off
loans and advances together with the supporting documents.
2. The Credit Portfolio Management of the Bank for periodic review and control
and credit information inquiry shall maintain copy of the list of written-off cases
at any level.
3. The initiating organ shall also maintain records of their own written-off cases.
4. In the case of partial write-off a minimum balance of Birr 1,000 (one thousand)
shall remain in the book of account until full collection or full write-off.
10. Communicating the Write-off Decision
The president or the designate shall communicate in writing the decision of the
Management Committee along with the copy of the pertinent minutes;
1. To Finance and Treasury Directorate to make the necessary adjustment in the

Bank’s financial statement;
2. To initiating organs to enable proper adjustment on the asset and liability items
in the respective statements.
11. Post Write-Off Follow-Up
Writing-off does not imply that a claim thereof would not be lodged. Rather it is a
technical term for removal of the account from the balance sheet. Therefore, when a
debtor becomes solvent or property is found in the name of the defaulter/guarantor,
the concerned organs should immediately take an appropriate action to recover the
outstanding amount. Since the Bank’s legal right to enforce its claim is time bound,
all initiating organs should strive to redeem the Bank’s claims. To this effect, Workout
loans management should coordinate the search for attachable property with all staff
of the Bank, for which case, the Board approved reward system.
a. Responsible Organ for Post Write-Off Follow-Up
The Legal Aid is principally responsible for conducting post write off follow up in
collaboration with the Branch. When the Legal Execution Officer finds property in the

Wegagen Bank S.C
name of defaulter, he/she reports to the respective Managers and the Attorney who is
attending the case. Upon the sale of the attachable property the respective Branch
records the proceeds as an income
12. Reporting
The Loan Workout Division shall submit a detailed report on all written-off cases semi-
annually to the President using the Loan and Advances Written-off Format.
13. Confidentiality
All matters related to write-off shall be kept confidential. It shall not be disclosed to
any external parties and internal organs of the Bank who are not involved directly or
indirectly in the write-off process. It is a serious breach of confidentiality to furnish
borrowers, debtors and/or guarantors information related to write-offs, neither at
the processing stage nor subsequent to approval.
11.16 Loan Workout Follow-up
1. The Loan Workout Officer is principally responsible for recovery loan follow-up
on a case-by-case basis.
2. The Loan Workout Officer undertakes close follow-up of his/her respective

cases not only to confirm repayment of currently maturing debts but also
he/she has to ensure continuity of the repayment for the loan duration.
3. In this regard, the Loan Workout Officer should carry out assessment of the
borrower’s business viability by indicating key performance indicators such as
profitability, activity level, management of the business, etc.
4. In so doing, the Loan Workout Officer identifies those Non Performing Loans
that need special attention for further closer follow-up and appropriate
remedial action.

Wegagen Bank S.C
5. The Loan Workout Officer is also expected to present the borrower’s business
performance report at least semi-annually to the Manager – Loan Workout
Division and forwarded to Manager-Credit Portfolio Management Division for
overall bank-wide consolidation.
6. The Loan Workout Officer shall contact borrowers, visit and advise them to
settle the arrears, overdue amounts, improve utilization of the facility within
mutually agreed time or get better business management and performance.
7. If the borrower does not respond positively within the stated period, the Loan
Workout Officer shall send a written notice to the borrower advising that
immediate repayment should be made. The Loan Workout Officer shall also
arrange for a meeting with the borrower to discuss the matter.
8. Should all efforts made under items (6) and (7) above fail to produce the
desired result, the Loan Workout Officer shall closely follow-up and negotiate
with the borrower and seek for possible resolution for the problem at hand.
Finally, the Loan Workout Officer should produce remedial proposal and
present the case with relevant documents to Loan Workout Approving
committee to deliberate on the case.
9. If the decision is legal action, the Manager – Loan Workout committee

authorizes the Attorney for proper legal action. But the Loan Workout Officer
is responsible to make strict follow-up on the status of the legal proceeding of
the case. If the case is not resolved through remedial actions, the Loan
Workout Officer is also responsible to initiate the write-off proposal to the
Loan Workout Approving Committee and conduct post write-off follow-up for
the written-off cases in collaboration with Legal Aid.
11.16.1 Types of Loan Workout Follow-Up
Basically there are three types of workout loan follow-up systems, which the Loan
Workout Officer is expected to perform. These are:
I. Physical Follow-Up
II. Financial Follow-Up, and

Wegagen Bank S.C
III. Legal Follow-Up
1. Physical Follow-Up
Physical follow-up helps to ensure existence and operation of the business, status of
collateral properties, correctness of declared financial data, quality of goods,
conformity of financial data with other records (such as VAT/excise taxes, register
books), availability of raw materials, labor situation, marketing difficulties observed,
undue turnover of key operating personnel, change in management set up, etc.
2. Financial Follow-Up
a. Financial follow-up is required to verify whether the assumption on which the

restructuring decision was taken continues to hold good both in regard to
borrower’s operation and environment.
b. The concerned Loan Workout Officer has to make strict and continuous follow-
up on each customer’s loan account performance and reports to the Manager –
Loan Workout Division and forwarded to the Manager – Credit Portfolio
Management Division on regular basis for overall bank-wide consolidation.
3. Legal Follow-Up
a. The purpose of legal follow-up is to ensure that the legal recourse available to
the Bank is kept alive at all times. It consists of obtaining proper
documentation and keeping them alive, registration, and proper follow-up of
insurances.
b. The Loan Workout Officer and the Attorney are jointly responsible for legal
follow-up.
c. Some of the major legal follow-up issues include:
i. Whether contracts are properly executed by appropriate persons and
documents are complete in all aspects

Wegagen Bank S.C
ii. Obtaining revival letters in time (revival letter refers to renewal letter for
registration of security contracts that have passed the statutory period as laid
down by the law).
iii. Ensuring loan/mortgage contracts are updated timely.
iv. Examining the regulatory directives, laws, third parties claim, etc.
CHAPTER TWELVE
12. Credit Decision on Exceptions
This Credit Procedure Manual is expected to cover the majority of the lending
provisions presented to the Bank. There may, however, be occasions when the credit
functional organs are led to believe that a credit proposal should be exceptionally
recommended and approved, even though it does not strictly conform to the Bank’s
Procedure, with an intention to exploit extra/premium business opportunities(if any).
12.1 Definitions
12.1.1 Deviations
For the purpose of this procedure, Deviations shall mean approving on loan requests
that are not covered by the credit procedure. Loans and Advances to be approved by
deviation shall be referred to the Board of Directors supporting with justifiable
evidences for appropriate direction or inclusion of policy provision. So that the
concerned credit approving committee or the President consider the request
accordingly.

Wegagen Bank S.C
12.1.2 Exceptions
1. For the purpose of this procedure, Exceptions shall mean passing credit
decisions by deviating from the minimum principles set by the Bank’s Credit
Procedure,
2. Exceptions among other things, are accepting loan proposals which by any
measurement below the minimum requirement laid down by the Bank,
3. Loans and advances to be approved by exception from the Credit Procedures
shall be decided by the next higher Credit Approving Committee.
4. In such cases each approving organ is authorized to approve the requests in an
exceptional manner from the provisions of Credit Procedure. However, such
decisions shall be justified with sound/concrete reasons to promote
responsibility and accountability and must be communicated to the
President/CEO of the Bank immediately after approval, but before effecting
disbursement of the loan,
5. However, the Approving Credit Committee of the Bank may decide on an
exception basis only once for similar issues for one customer,
12.2 Revision of the Credit Procedure
This procedure shall be revised in every three years. However, if a need arise, it may
be amended at any time.
12.3 Repeal
Any directive, manual or procedure of the Bank on the subject contrary to this
procedure is repealed and replaced by this procedure .
12.4 Effective date
This Credit Procedure is approved by the CEO/President of Wegagen Bank and shall
be effective as of …………………………………………………….

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Wegagen Bank S.

Credit Procedure Page 1

Credit Procedure Page 2

Credit Procedure Page i

3.2.3. Responsible organ for Credit Customer classification...............................12

Credit Procedure Page ii

4.1.2.5.Construction Bridge Term Loans (CBR):..................................................43

Credit Procedure Page iii

5.6 Loan Approval Form (LAF)..........................................................................69

Credit Procedure Page iv

6.6.2 Financial Management System.................................................................82

Credit Procedure Page v

8.1 Credit Decision Scheme and Process..........................................................104

Credit Procedure Page vi

10.5 Project Loan Follow-Up.............................................................................128

Credit Procedure Page vii

11.8.11 Injection of Additional Fund...................................................................147

Credit Procedure Page viii

Wegagen Bank has aimed to bring about fundamental institutional level

1.2. Objective of the Credit Procedure

o To enhance credit process contribution towards the realization of the

1.3. Governing Rules

I. Applicable laws, regulations, conventions of the country

Credit Procedure Page 1

IV. Risk Management and internal control guideline

1.4. Credit Process Structure

Credit Procedure Page 2

Wegagen Bank Credit Processing Structure

Director- Credit Director- Customer

 Sr. Credit Analyst  Sr. CRM

Credit Portfolio District Manager

Loans Workout Manager

 Sr. Loans Workout Officer

2.1. The President/CEO

Credit Procedure Page 4

15. Ensuring the implementation of controls that enforce the adherence to

2.2. V/P – Operations

2.3. Director – Customer Relationship Management

Credit Procedure Page 5

1. Effectively coordinates the sub process customer relationship management day

2. Regularly ensure the prevalence of single point of contact for customer;

2.4. Director – Credit Appraisal

1. Guides and coordinates the overall credit analysis and portfolio

Credit Procedure Page 6

7. Decide on loan approvals with other committee members;

2.5. Manager – Credit Portfolio

1. Guides and coordinates the overall credit portfolio management process of

Credit Procedure Page 7

9. Make sure the designated credit information exchange performers support

2.6. Manager – Loans Workout

2.7. Credit Approving Committee

1. Review and decides on loan propositions based on its discretionary limits;

Credit Procedure Page 8

2.8. Chairman of Credit Approving Committee

1. Guides the loan decision making;

2.9 All Credit Officials

Each individual/team involved in credit processing, approval or any other

Credit Procedure Page 9

i. All persons (legal/physical) engaged in lawful trading activities and creditworthy

iv. Applicants/borrowers or guarantors or mortgagors must present a Tax

v. Applicants/borrowers or guarantors or mortgagors must present a Tax

Credit Procedure Page 10

Credit Procedure Page 11