5.1. Credit Origination

Effective from 2013-02-01 - Jun 29 2013
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Banks should establish sound and well-defined credit-granting criteria, which is essential to approving credit in a safe and sound manner. These criteria should include a clear indication of the bank’s target market and a thorough understanding of the borrower or counterparty, as well as the purpose and structure of the credit, and its source of repayment.
Banks should also have clearly established processes and procedures to assess the risk profile of the customer as well as the risks associated with the proposed credit transaction before granting any credit facility. These processes and procedures should be applicable for approving new credits as well as the amendment, renewal and re-financing of existing credits. The factors to be considered for origination of credit may include, inter alia, the following:
	a.	Credit assessment of the borrower’s industry, and macro economic factors;
	b.	The purpose of credit and source of repayment;
	c.	Assessing the track record / repayment history of the borrower. In case of new borrowers, assessing their integrity and repute as well as their legal capacity to assume the liability;
	d.	Assessment/evaluation of the repayment capacity of the borrower;
	e.	Determination of the terms and conditions and covenants of credit;
	f.	Assessment of the adequacy and enforceability of collaterals;
	g.	Assessment of adherence to exposure limits and determination of appropriate authority for credit approval;
All extensions of credit must be made on an arm’s-length basis. In particular, credits to related borrowers must be authorized on an exception basis, monitored with particular care and other appropriate steps taken to control or mitigate the risks of non-arm’s length lending.
In case of consortium/syndication loans, it is important that other consortium members should not over rely on the lead bank and should have their own systems and procedures to perform independent analysis and review of syndication terms.

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