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Banking Technology and Operations Week 7

Diploma in FI
04 hours
Year 2
Revision

Team Members
1 2
3 4
5 6

Objectives

 Revision for BTO Common Test

Question 1

Adapted from the Straits Times, 1 March 2016

Underwriting practices of banks ‘could be better’: MAS

By Yasmine Yahya
Some banks in Singapore could do more to strengthen their underwriting
practices when lending to businesses, the Monetary Authority of Singapore
(MAS) said yesterday.
Without naming any of the institutions, the banking regulator yesterday said a
review of lending practices has found that some lenders had been lax in areas
such as assessing borrowers' credit and monitoring the situation when clients are
given loans that deviate from standard policy.
The central bank said it had also found "isolated cases of undesirable lending
practices". Overall, however, the review found that banks generally had sound
underwriting policies and procedures in place to assess the creditworthiness and
repayment capability of borrowers.
MAS conducted the review to see whether banks had relaxed their loan
structures and covenants, or under-priced risks in their corporate lending, given
the low interest rates of the past several years.
The publication of the report comes in the wake of reports in the past two weeks
by local banks that they are seeing more stress in their loan books as rising
numbers of corporate borrowers from the oil and gas sector are being hit by low
crude prices.

BTO Year 2
Last update: 24-5-2018
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The review found that most banks had clear corporate lending strategies and
credit assessment frameworks, MAS said. However, not all banks performed
robust analyses of the credit risks presented by their target markets.
Banks also generally had appropriate frameworks for the approval of loans and
limits for the granting of new credit facilities. But there were instances when
banks granted excessive powers to business units to approve credit exceptions
such as temporary limit increases, limit excesses and waivers of credit conditions
and loan covenants. In general, there is room for banks to improve the
robustness and documentation of their credit assessments, MAS said.
"We also noted instances where banks did not adequately assess or document
their analyses of the financial information of borrowers and guarantors, the
experience and integrity of borrowers' key management staff, and the borrowers'
business and industry outlook," the regulator said.
Also, the review found that there were increasing instances of banks granting
general purpose working capital or short-term loan facilities to companies,
instead of trade finance facilities for borrowers' specific trading requirements,
MAS said.
Trade finance facilities allow banks to better control the cash flows of the
transactions they are financing to reduce repayment risks. In contrast, working
capital loans are often granted on a clean basis with minimal covenants. Banks
have no visibility of borrowers' use of the funds and have limited or no control
over the cash flows.
All the three local banks said they continue to maintain conservative approaches
to lending despite the current challenging conditions. DBS said it has have
multiple layers of credit assessment, while OCBC said it takes a prudent
approach to credit assessment. UOB said it continues to maintain stringent credit
evaluation.

MAS has found that some banks need to be stricter in areas such as credit
assessment and monitoring of loans. Describe THREE (2) ways to improve each
of the following processes
a) Credit Assessment
b) Monitoring of loans

Question 2

During a deposit account opening process at the bank branch, a wrong signature
was captured into the customer’s account.
(a) Discuss THREE likely future impacts on the customer.

(b) Discuss THREE likely future impacts on the bank.

BTO Year 2
Last update: 24-5-2018
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Question 3

As part of Singapore Smart Nation initiative, the Association of Banks in

Singapore is rolling out a Central Addressing Scheme (CAS). The CAS will allow
payments to be made through Fast And Secure Transfers (FAST) using only a
recipient’s mobile number, or NRIC number, or Unique Entity Number, which is
mapped to the recipient’s bank account.

(a) Discuss ONE advantage of CAS for bank customers.

(b) Discuss how CAS can help Singapore to become a Smart Nation.

(c) Describe how CAS can be integrated to banks’ existing mobile payment
applications and FAST. Examples of banks’ mobile payment applications
are DBS Paylah, UOB Mighty and OCBC Payone.

Question 4

NPGuru Bank has received a mortgage loan application of S$1,200,000 from Mr

Tan Ah Kow to purchase a condominium. As part of the approval process, the
bank requested for his credit report from DP Credit Bureau. Appendix 1 shows an
extract of the Credit Bureau report.

(a) Using Mr Tan’s credit report, discuss TWO likely areas of concern for
NPGuru Bank when assessing Mr Tan Ah Kow’s credit health. Support
your answers with details from the credit report.

BTO Year 2
Last update: 24-5-2018
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Appendix A

BTO Year 2
Last update: 24-5-2018