NBE Directives,

Appraisal, Follow up
and NPL
Management
Enat Bank S.C CMD February 17, 2024 1
The objective of this training is to:
 Familiarize credit performers with NBE
directives and circulars;
 Share basic appraisal process;
 Follow-up and NPL Management;

Enat Bank S.C CMD February 17, 2024 2

 NBE Directives and Circulars
 Other Government Directives/Circulars
 Appraisal process
 Follow-up and NPL Management

Enat Bank S.C CMD February 17, 2024 3

 Major NBE directives related with Credit operation
 SBB/69/2018 Asset Classification and Provisioning
 SBB/53/2012
 CRB/01/2012 and SBB/85/2022-Licensing, Credit
Information & Examination Fees issued on October 6, 2022,
credit information collection fee revised.
 Directive No. MFAD/TRB0/001/2022, Establishment and
Operation of Treasury Bonds, Nov. 1 2022

 Movable Collaterals and agriculture sector, NBE Directive no.

MCR/01/2020
Enat Bank S.C CMD February 17, 2024 11
Major NBE Circulars related with Credit operation
Internal Conflict & Drought Affected areas, Circular no.
BSD/21/2022

Registration certificate auditors confirmation letter

ፉኢሱ/ባሱዳ/911/21
Checking legality of customer trade licenses circular no.
ውምክሪአዳ/04.076/22
Investors exempted from stamp duty charge, circular no.
ፉኢሱ/ባሱዳ/1319/2022

Ministry of Revenues Circular no. 3.0/194/14, on Tir

02,2014EC
Enat Bank S.C CMD February 17, 2024 12
 i. SBB 69/2018
Asset classification and Provisioning Directive
 Classification of loans and advances

 Non-Performing loans

 Placement of loans on Non accrual status

 Provision for loan loss account

 Portfolio composition and review of financial

statements of borrowers
 Examiner review

 Rescheduling / Restructure/ Refinancing

 Write-off requirements

Enat Bank S.C CMD February 17, 2024 13

Term loans classification

Status Description

Pass Not due

Special mention Due for > 29 days<=89
Substandard Due for > 89 days<=179
Doubtful Due for > 179<=365 days
Loss Due for > 365 days

Enat Bank S.C CMD February 17, 2024 14

 OD status classification
Description Lowest debit Interest Overdue In active Above the limit
balance/year accrued but but
not collected

Pass 0%/cr/ <=29 <=29 <=29 <=29

Special 1-4% For >29 days For >29 days For >29 days For >29 days
mention and <=89 and <=89 and <=89 and <=89

substandard 5-19% >89<=179 >89<=179 >89<=179 >89<=179

Doubtful 20-49% >179<=365 >179<=365 >179<=365 >179<=365

Loss >=50% per >365 >365 >365 >365
366 days

Enat Bank S.C CMD February 17, 2024 15

 ii. SBB/53/2012
Credit Exposures to single and Related Counterparties
 Credit exposure to single and Related counter parties
 Limitations on loans and advances
 Individual borrower <=25%
 To one related party <=15%
 All related parties <=35%
 Related parties includes
 Having share of >=2%
 Exceptions (Cash and Cash substitutes)
 Threshold for treatment of shareholders as related party

Enat Bank S.C CMD February 17, 2024 16

 iii. CRB/01/2012
Establishment and operation of Credit
Reference Bureau
 Establishment of credit reference bureau
 Obligation to use credit information to make
credit decision
 Complaint Handling (Borrower may complain to the Bank
and CRB regarding reported status)
 Fee for the service
 Penalty and Suspension (up to 100,000 and
suspension from using the system)

Enat Bank S.C CMD February 17, 2024 17

iv.SBB/85/2022-
 Revised NBE and ENAT Bank CIC fee
 Licensing, Credit Information & Examination Fees
on banks
NBE Fee Amount
Loan amount <= 100,000.00 0
>100,000.00 <= 1 mill 1,000.00
>1 mill 2,000.00
Enat Bank Amendment 3/10/22 Fee Amount
Loan amount <= 100,000.00 300.00
>100,000.00 <= 1 mill 1,200.00
>1 mill 2,500.00

Enat Bank S.C CMD February 17, 2024 18

v. Establishment and Operation of Treasury
Bonds: Directive No. MFAD/TRB0/001/2022
 Each bank shall calculate its own allotment
based on its monthly loans and advance
disbursement.
 The applications ratios for the allotment shall
be 20% of disbursements.
 Limit on portfolio share
 >= 25% short term , <= 15% revolving

Enat Bank S.C CMD February 17, 2024 19

vi. Movable Collaterals Directive no.
MCR/01/2020
 Movable collaterals defined as per Proclamation no.
1147/2019
 A system designed to register movable
collaterals
 Agricultural tools
 Patent right
 Share certificate
 Vehicles and machineries…
 Banks shall allocate at least 5% of their credit
disbursement of the year to agricultural sectors (Art
19.1 of the directive)
 Loans granted against Movable property are exempted from
stump duty charge

Enat Bank S.C CMD February 17, 2024 20

i. BSD/22/2023 Relaxation of some
regulatory for Tigray region
 Individual / business in Tigray region
 Individual / business outside Tigray but
whose business operation resides in Tigray
 Asset classification on renegotiation – sub
 Serve one time new loan via provisional stt
 One more iteration for prevailing reschedule limit

Enat Bank S.C CMD February 17, 2024 21

ii. Registration certificate auditors
confirmation letter ፉኢሱ/ባሱዳ/1341/22
Previously two licenses (for principal registration
certificate and trade registration certificate) issued for
accounting and audit professional, from Meskerem
01, 2014 EC onwards, it is amended that only one
registration certificate will be used.
Enat Bank also demands confirmation letter from
the auditors whose name mentioned in the audited
financial statement whether they are responsible for
preparation of the audited financial statement or
not.

Enat Bank S.C CMD February 17, 2024 22

iii. Checking legality of customer trade
licenses circular no. ውምክሪአዳ/04.076/22

Institutionscan check whether the customer

trade license is legal through the following
URL: www.etrade.gov.et;

Use also QR Code and TIN of the customer to

cross check the validity of the trade license;
This serve us KYC Identification

Enat Bank S.C CMD February 17, 2024 23

iv. Investors exempted from stamp duty
charge, circular no. ፉኢሱ/ባሱዳ/1319/2022:

Investors/borrowers who are engaged in

export trade and granted working capital loan
are exempted from stamp duty charge;

Effective from Pagume 01,2014EC

Enat Bank S.C CMD February 17, 2024 24

v. Commodity Export period, circular no.
ውምክሪአዳ04/570/22

As hoarding of sesame and white kidney beans

heavily harm the country’s export commodity
exchange,
Banks are instructed to follow up and make sure
that the commodities are exported within a month;

Ginbot 22,2014EC

Enat Bank S.C CMD February 17, 2024 25

vi. Ministry of Revenues Circular no.
3.0/194/14, on Tir 02,2014EC
 Enat Bank demands tax clearance certificate (in
the name of the borrower and collateral provider/s)
 Tax clearance serves only for 6 months
 Tax clearance specifically addressed to Enat Bank
 It should clearly states the authority does not
oppose if the bank avails loan to the applicant
 Even though, the customer presented tax clearance
certificate the Ministry can still claim for any tax
claim
Enat Bank S.C CMD February 17, 2024 26
 Both policy and procedures are revised in
August 2021
◦ Credit Policy
◦ Corporate Credit Procedure
◦ SME Credit Procedure
◦ Credit Information Unit
◦ Psychometric screening model
Description Single request Outstanding facilities
Corporate >15,000,000 >=20,000,000
SME <=15,000,000 < 20,000,000
Enat Bank S.C CMD February 17, 2024 27
 Board of
Directors
Loan review
Committee
President

SMCC
SMNPLMC

Vice President

HOCC
HONPLMC

Credit Management
Department

Credit Information CDCC

Unit

SME loan Credit Portfolio

Corporate Loan and Follow up
Analysis Division Analysis Support Division Workout Division Division
Division

Branch

BCC
BNPLMC

Enat Bank S.C CMD February 17, 2024 28

 Majorly classified as :
◦ Commercial credit products and
◦ Consumer Credit products
◦ Special Credit Products

Enat Bank S.C CMD February 17, 2024 29

 Export Oriented Manufacturing and women
related
 DBE fund loan
 USAID/ SIDA guarantee product
 Ride Credit products
 Agency Loan
 Women loan/Risk Fund Financing and
 Deposit related credit products
 FCY related lending
◦ Diaspora
◦ NGO
◦ Individuals with fcy pyt Enat Bank S.C CMD February 17, 2024 30
 Based on type of facilities
NO Type of facility
1 Term Loan
2 Overdraft Facility
3 Excess Drawing
4 Merchandise Loan Facility
5 Import Letter Of Credit Facility
6 Pre-Shipment Export Credit Facility
7 Revolving Export Credit Facility
8 Letter Of Guarantee Facility

Enat Bank S.C CMD February 17, 2024 31

 Based on Tenure of the loan
◦ Short term <= 1yr 40%
◦ Medium term >1<=5 40%
◦ Long term >5 20%

Enat Bank S.C CMD February 17, 2024 32

 The Bank avails for;
◦ Different economic sectors;
 Export,
 Import
 Consumer etc…
◦ Different needs of customers;-
 Working capital,
 Investment,
 Idea financing,
 Partial financing mortgage etc
 The bank also engages in syndicated lending
Enat Bank S.C CMD February 17, 2024 33
 Lending interest rate revision Effective date
March 1,2023

 Term and Tariff Revision Effective August

2022 revised and amended

Enat Bank S.C CMD February 17, 2024 34

 APPLICATION
ANALYSIS AND
APPRAISAL

REPAYMENT

APPROVAL

FOLLOWUP

DISBURSEMENT

Enat Bank S.C CMD February 17, 2024 35

 It started from branch, HO
 Existing or new customer
 Branches use different screening
method(document screening, interview and
recent model- a psychometric scoring)

Enat Bank S.C CMD February 17, 2024 36

It is a process of determining
 eligible borrowers
 the type and amount of credit to be extended
 the duration/tenure of repayment
 the magnitude/limit of finance

Enat Bank S.C CMD February 17, 2024 37

 Not request CIC (guarantor, major shareholder, and
GM of the company)
 Recommending loans to defaulters
 Failure to Use recent CIC (<=2 months)
 Not obtain recent financial statements,
attachments and breakdowns (latest 6 months)
 Not collecting Audited fin stt (>=5ml req’ts)
 Present Business plan that justify the loan

Enat Bank S.C CMD February 17, 2024 38

 Collect up-to-date Management profile
 Martial status and tax clearance
 Collect/authenticate Power of attorney
document
 Collect estimation fee
 Holding third party duty free property
 Fill Loan standard delivery form
 Lack of proper information in the LAF

Enat Bank S.C CMD February 17, 2024 39

Failure to
 Communicate decision to the client in
writing
 Comply with the decision (term and
condition) of the approval committee
 Properly prepare contracts and register
 Insure collaterals or insuring collaterals less
than the loan amount
 Issue guarantee without fulfilling the
mandatory requirement

Enat Bank S.C CMD February 17, 2024 40

 Regular Credit Follow up
 Problem Loans Management
 Portfolio Management
1. Why regular follow-up
 Past records of satisfactory performance and
integrity are no guarantee for future,
 Failure to meet obligations as per prior
agreement or expectation
 Adverse Lending
 Morale Hazard
2. What to check-out
 Compliance with terms and conditions,
 Utilization of the fund for intended purpose
 Continuity of the viability of the business
 Healthiness of the loan
3. How to check-out
 Act proactively (Constantly update your data)
 Identify Early Warning Signals (Indicators)
 Review Internal Data (Reports, Statement…)
 Review External Data (NBE – CIC)
4. Triggering Factors
 Deterioration of financial indicators (review
financial statement)
 Management commitment and turnover
 Stability of the industry
 Any an illegitimate act
 Sluggish to meet its obligation (delay in loan
repayment, settlement of LC…)
5. What to do
 Contact borrowers (call, in person, visit…)
 Advice to meet its obligation and improve
facility utilization
 Arrange a meeting with the borrower at
branch level and discuss on possible
resolution.
 Written notice
 Arrange meeting with the borrower in
collaboration with CMD or Executive Mgt
depending on the borrower type and case
nature
 Consult the CMD on the next proposed action
 Prepare LAF and present your proposal for
approval (reschedule, renegotiation,
refinancing, legal action…)
A.Physical Follow-Up
B.Financial Follow-Up, and
C.Legal Follow-Up
A. Physical Follow-Up
 To ensure existence and operation of
the business, collateral,
 Conformity of financial data with other
records (VAT, register books…),
 Availability of raw materials, labour
situation, marketing difficulties
observed,
 Change in management set up and
Turnover.
B. Financial Follow-Up
 To check Presence of Diversion of the loan
 Check large or unusual withdrawals (Refer the
terms and conditions of the disbursement)
 Arrange payment modality if in doubt on end
use of the fund (directly pay to the
suppliers…)
 Check the swing and turnover of the OD
C. Legal Follow-Up
 Keep legal documents alive at all times
 Properly execute contracts by appropriate
persons
 Ensure documents are complete in all aspects
 Renewal letter for registration of security
contracts
 Renew insurance on time
 Update loan or mortgage contracts timely;
 Loans and advances that have
not paid as per the
agreements made between the
customer and the Bank and
 Loans classified in non-
performing loans (NPLs).
A. A loan is assumed in problem
when:-
 There is a potentially adverse condition
on the business/loan;
 A loan or advance is classified as NPL;
 A borrower rating is deteriorated to
Grade-6 or above;
 The restructured loan fails to perform
as per the conditions set during
approval.
B. What to do on problem loans:-
 Inform or report to the CMD
 Stop all debit transactions for OD
accounts
 Check presence of any amount to be
paid on behalf of the customer
(insurance premium, and any other
charges or fees)
 Prepared an action plan and negotiate
with the borrower
C. Means of resolution for loan
recovery:-
 Restructuring, rescheduling, refinancing,
reducing facility limit…
 Strengthening collateral position (additional
collateral, change or cross collateralization)
 Sale out, buyout, or transfer the loan …
 Partially liquidating the collateral for loan
payment
 Replacement or capacitating the management
D. Recovery negotiation points
:-
 Asking the defaulter to come with his own
debt settlement proposal;
 Examine source and capacity of repayment
(down payment and periodic repayments)
 Putting additional Covenants and settlement
conditions
 The Terms and conditions of the loan
 The pledged property or security coverage
E. Loan Recovery follow up :-
 Undertake close follow-up and ensure
continuity of loan repayment
 Apply all mechanisms applied in regular loan
follow up
 Apply loan recovery follow up systems
(Physical, Financial and Legal Follow up)
A. Why managing the portfolio
 To protect the bank from the unforeseen or
sudden loan loss, banks do not lend all of
their money to one specific area;
 Because lending is inherently risky and
default is inevitable at some point; It is wise
to diversify the Bank’s loans and advances
considering different factors;
 The more diversified the Bank’s loans are the
less will be the financial distress
B. Approaches in Portfolio
management
 Identify portfolio categories
 Categorize credit risks in different portfolio
categories;
 Get relevant and timely information on each
portfolio categories;
 Identify adverse exposures and take informed
decision making, including early remedial
measures;
 Revisit the strategy or policies of the Bank
C. Managing the Portfolio could be
through categorizing loans by:
 Economic Sector – Agriculture, Construction..
 Tenor / term structure –Long, Medium, Short..
 Product type - loan type
 Geographic distribution - branch, region..
 Borrower type – Single, Group of Related Parties
 Loan status – Pass, NPL…Active, dormant
 Class of Collateral – Cash, clean, Building…