Risk Management

Project(Meezan Bank Ltd)

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Credit MonitoringA Technique For Risk

Management

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Credit Monitoring

Credit: Finance

Monitoring: To check

Credit Monitoring directly links with loan

Credit monitoring is considered as an important

integral part of a sound credit management system

in banks as it helps in keeping a watch on the health and conduct of borrowed accounts.

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Goals and Objectives of Monitoring

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One of the key objectives of the Bank is to have its footprint strategically placed throughout the country enabling the public to

avail the benefits of Shariah-compliant Banking in their neighborhood.

To detect signals and symptoms of sickness at

the incipient stage for initiating timely corrective

action.

To ensure that the funds released are

utilized for the purpose for which

the are sanctioned.

To see that the terms and

conditions as stipulated at the time of sanction

are complied with.

To keep a watch so that the project is implemented in time

to avoid time and cost over-runs.

To find out if the management is

effective and the staff is kept motivated.

MEEZAN BANKThe Premier Islamic Bank

Incorporated on 27th Feb

1995.

Largest Shariah complaint

assets management

company.

Al-Meezan is registered as a Non Banking

Finance Company.

With over 500 branches in 99 cities

across Pakistan, Meezan Bank

is the largest Islamic Bank and the 8th

largest Bank (in terms of Branch Network) in

Pakistan

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Main Stakeholders

• Shamil Bank Bahrain

• Saudi Kaaf committee

• Noor Financial Investment company Kuwait

Regions

The Bank is currently segmented into three major regions of Pakistan.

• Southern Region - 21 cities

• Central Region - 51 cities

• Northern Region - 27 cities

Branches

• Currently there are 500 branches.

• In B/W 29-30th Dec 12-14 branches were opened

• Recently there are 20 branches dealing in Faisalabad

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Achievements

Till 2013

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Two Stages of

Monitoring

2)Post-Operational

Stage

1)Pre-Operational

Stage

Pre-Operational Stage of Monitoring

•Procedure adopted before sanctioning the finance

•Time over run

•Cost over run

•Bank terms and conditions

•requirements

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Meezan Bank Procedure

Application Form

RequriedDocuments

Address Verificatio

n

Income Estimation

Legal Opinion

Collateral Valuation

Credit Approval

Signing The

Agreement

Transfer of Financing

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Meezan Procedure

• Application Form: Submit a filled & signed application form to Meezan Bank.

Submit the required cheque for Processing Fee & External Agency costs.

• Required Documents

attach all the required documents, as mentioned below, along with your Application Form:

Personal Information

Income Information

• Address Verification

Meezan Bank will verify residential & office addresses and the addresses of references submitted.

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Meezan Procedure

• Income Estimation: For Businessman / Self Employed professionals For Salaried Individuals Corporate and businesses• Legal opinion: legal opinion on the documents provided by applicant.• Collateral Valuation: appointed Valuation Agency evaluate the assets determine its market value

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Meezan Procedure

• Credit Approval & Sanction Letter:

credit requirements,

conditional sanction letter.

5 c’s

• Signing of Finance Agreement

signing of the Islamic Finance Agreement

other legal documents

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Meezan Procedure

• Transfer of finance and Disbursement

Approved and sign by the applicant

Give finance to the borrower.

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Time over-run

Cost over-run

Over-Run

Many new projects get into difficulties during pre-operational stage

because of over-run and this is generally due to

lack of project planning & effective monitoring. The term “over-run” is used in

two ways:

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Time over-run can be defined as delay in implementation of

projects and in starting commercial production within stipulated time schedule by the

borrower.

Cost over-run can be defined as delay in

implementation of projects and in starting commercial production, exceeding cost

estimate given by the borrower.

The highest time & cost over-run have been found to be in case of:

Projects located in Non-backward

areas

New class entrepreneurs

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Some important reasons for over-runs which can

lead any project to difficulties are as follows:

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Faulty projects planning and subsequent change in the initial plans during the implementation stage.

Delays involved in acquiring land and its development.

Post conventional stage

• Monitoring the credit

• Check and Control the risk factor

• Timely check the financial reports

• Timely pack back installment review

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Tools of monitoring

1. Recovery Letter

2. Telephone Call

3. Visits

4. Recovery Agency

5. Legal Action

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Monitoring/ Follow up

a) To watch physical progress of project.

b) To watch utilization of funds.

c) To initiate remedial measures

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List of Documents for Credit

Proposal which meezan requires

Letter of request describing the following particulars:

i. Business profile/ History

ii. Business strategy

iii. Management Structure

iv. Product Mix

v. Distribution & Selling terms

vi. Liabilities with other banks

vii.Prime securities22

List of directors partners along with

signatures

Certified copies of ID cards of

Directors/Owners of properties.

Audited balance sheet for the last three

years & projected balance sheets for next

five years.

Copy of income tax

Copy of import/export registration.

Membership certificate

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List of Machinery

Competitors, Suppliers/Buyers

Affiliated companies & their liabilities

Certified copy of memorandum & article of

association.

Certified copy of certificate of

commencement of business

Resolution of Board of Directors

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Difference b/w PERT & CPM

CPM is activity oriented but PERT is event

oriented.

The Main and basic difference b/w the CPM &

PERT techniques is attaching of a single

duration of completion time to each activity in

the former while in latter, the following three

time durations are allocated to each activity.

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Products of Meezan Bank

• Mudharabah

• Musharakah

• Murabahah

• Ijara

• Wadiah

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Situational cases in post operational stage

• If borrower doesn’t payback loan on time

• If the borrower increase the time period of remaining installments

• If the borrower pays some installments & is not able to pay the remaining installments

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