The scheme has been designed to assist corporate customers to avail their employees with loans whether they bank with National Bank or not. The facility will be available to creditworthy reputable corporate customers with good profit and net-worthy record among other key positive credit risk indicators.
The loan shall be granted under the following major conditions:
- Facilities to corporates shall be reviewed annually.
- Facilities shall be paid from source over a period up to 36 months.
- Maximum loan amount shall be determined by the employer based on borrower’s financial capacity to meet monthly loan repayments.
- The employer shall support or guarantee the loan by signing appropriate legal documents.
- Minimum interest shall be charged at Base Rate plus 2% or higher per annum in line with pricing of credit facilities enjoyed by the employer but this is subject to review at any time.
- Administration fees shall be charged by the Bank and borne by the customer.
The facility has been designed to assist corporate customers to avail their employees with loans.
The product is designed to offer a quality service at a profit and foster goodwill between the Bank and the corporate customer. It is from this source that many of our existing and future corporate customers will be drawn. It is expected that in having assisted this sector, the Bank will have established a relationship to the long-term mutual benefit of both parties.
The purpose of this facility is to assist corporate customers with loan funds for their employees thus easing pressure on their cash-flows.
Available to creditworthy, reputable corporate customers with good profit and net-worth record among other key positive credit risk indicators.
The loan shall be available to qualifying corporates who will issue a guarantee and a letter of undertaking to deduct salaries to cover their employees liabilities regardless of whether they are our customers or not (Appendix I).
- Facilities to corporates shall be reviewed annually.
- Facilities shall be paid from source over a period of up to 36 months.
TERMS AND CONDITIONS
- A facility letter between the corporate customer and the Bank shall be issued setting out the terms and conditions and be acknowledged by the corporate customer prior to disbursement of loans to employees.
ii. Repayments from source.
iii. Total loan repayments shall not exceed 30% of net of applicant’s take home pay.
MULTIPLE FACILITIES AND CONVERSION
- Top up on employer guaranteed loan is allowed but subject to 50% of the original loan being repaid.
- A replacement sanction letter shall be issued for full amount.
- The Bank shall not allow conversion of these loan facilities into overdrafts.
- Employees can access any other loan offered by the Bank provided they qualify under the applicable terms and conditions.
- Employees can access a second employer guaranteed loan provided income/repayment ratio is within 30% of net salary.
- Facilities shall be secured by:-
- Employer’s letter of undertaking to the effect that repayments will be deducted direct from employee’s earnings.
- Employer’s guarantee on form NBM Sec 15/15A
- Companies securing such facilities shall be granted a limit based on their requirements and the Bank's assessment of the inherent risks in dealing with such a company. Such limits shall be subject to review annually and a relative facility letter spelling out terms and conditions shall be issued to the company, as is normal banking practice.
- Letter of undertaking or guarantee shall be taken on the Bank's format and shall be accepted from creditworthy and reputable corporates irrespective of whether they are our customers or not.
Processing fees shall be collected from individual loan beneficiaries prior to draw-down and shall be in line with the Bank's standard tariff.
No appraisal fees shall be collected from the company.
Minimum Interest shall be charged at base rate + 2% per annum but subject to review at any time at the Bank's discretion. Pricing of the Facilities shall however be in line with pricing of other facilities enjoyed by the employer.
Any deviation should be sanctioned through Personal and Business Banking Division.
Any delayed salary remittance will attract a single default fee payable by the employer.
APPLICATION, APPROVAL, AND ACCESSING PROCESS
The employer shall apply to the Bank for the limit by submitting to the Bank an application letter stipulating the amount required and undertaking to deduct its employees at source together with any other relevant information for consideration.
Where these facilities are in addition to existing traditional ones as well as prior employer supported loans limits (if increase is being sought), all limits, funded or non-funded should also be incorporated in the new application to show full exposure of the corporate customer and the employer should be subject to normal credit risk assessment. The employer should therefore be requested to submit supporting documents including financial statements to enable the Bank make an informed decision on the request.
All applications under this scheme shall be processed at various service centres through lending units and authorization/approval will be given by Credit Management Division.
On approval, service centre/ lending unit shall issue an offer letter to Employer (Appendix II),
- The employee shall apply to the employer for a loan.
- The employer shall submit to the Bank:
- Employee’s application letter submitted to the company and Company's letter authorizing the Bank to grant loan to the member of staff.
- The letters from employer shall be signed by authorizing officers of the said employer-stating amount and repayment period of loan. Such letters shall be verified with the employer by phone.
- Such confirmation should be annotated on the letter, dated and signed for by the verifying Bank officer.
Service Centres must ensure that the conditions applicable to the loan have been met prior to draw-down.
DRAW-DOWN OF FACILITY
After draw-down, a letter is to be issued to the employer to confirm the amount granted and the monthly repayment to be deducted at source and sent to the Bank (Appendix VIII). Likewise upon receipt of monthly repayment an updated list outlining outstanding balances should be forwarded to the employer for reconciliation at least monthly.
The Account Relationship Manager is accountable for monitoring the performance of customer's loan and its conduct with the Bank.
HANDLING OF NON PERFORMING DEBTS
In the event of default on two consecutive instalments on due date the outstanding principal amount on the loan plus accrued interest becomes immediately due and repayable. A demand letter must be sent to the employer and the delinquent account should immediately be downgraded as per Bank’s policy on substandard debts.
Please note that during account downgrade to B8 the effect of cancellation/deletion of schedule of repayment is that the interest application settings are also deleted hence no application of interest as a result no auto transfer of interest to interest in suspense accounts is effected.
In this regard, and in order for the interest to be charged and auto transfer to interest in suspense to be effected, service centre/lending units should always submit details of such accounts to Operations Division to enable them amend the interest application settings immediately the accounts are downgraded to B8.
In the event of death, authority should be sought from CMD to make provision on the account and stop the interest forthwith.
OTHER TERMS AND CONDITIONS
A. Repayment Mode
- Since repayments will be deducted at source, a schedule of repayments and cash pool will be created only to cater for repayment transactions.
- Employers shall deduct installments from their employee’s earnings and remit same direct to the Bank on monthly basis. On receipt, the funds will be credited to the Employer’s Settlement Account.
- Repayments inclusive of interest will commence as follows:
- for facilities drawn between 1st and 20th of each month should commence within the same month.
- for facilities drawn between 21st and 31st should commence the following month.
B. Reconciliation and Reporting
Monitoring reports including cognos print outs shall be produced and actioned monthly for credit control purposes.
Accounts shall be accommodated in the T24 system.
The product is an instalment loan with equal repayments every month. Interest revenue is derived throughout the life of the loan based on the loan outstanding balance.
E. Risk Management
Management of risk will cover the following:
- Credit Risk - The lending conforms to credit policies developed by Personal and Business Banking Division and endorsed by Credit Committee. Lending under this product is on secured basis by the employers guarantee.
- Liquidity Risk - Liquidity Risk comes from funding medium term loans with short-term deposits. Maximum maturity of loans is 36 months. These loans are funded by short-term deposits. The whole concept of which liabilities should fund what assets has not been developed by the Bank. However, the risk is minimized by the fact that our deposits are very stable and the ratio of our credit to resources is at acceptable level but emphasizes need to ensure right pricing.
- Operational Risk - Operational Risk is defined as loss resulting from inadequate or failed processes, employees, and systems or from external events.
The operational risk shall be mitigated as follows;
- System failures – proper transactions monitoring, regular documentation and account reconciliation by lending teams.
- Internal processes – properly defined roles in the work chain and strict adherence to agreed turnaround times, close loan monitoring and proper custody of documentation
- Fraudulent documents – lending teams to obtain original documents from the customer and verify authenticity.
- Employees – to be well trained in credit management and strictly abiding by the checklists provided for guidance in processing loans.
- External events – abide by changes in the regulatory and control environment within the financial industry.
- Authorisation - Loan authorization will be given by the Corporate Customer as per Terms and Conditions of agreement.
- Interest - Interest to be applied and paid monthly.
- Set-Off - The Bank may at any time at which there is a default, exercise its right to set off any outstanding sums against any funds held in any other account of the customer to the extent allowable by law.
- Early Repayment - No penalty.
- Credit Scoring - Not applicable.
The facility is subject to review annually.
There will be cases when customers are unable to repay their loans due to a change in circumstances. In such cases, the entire loan balance may be at risk and the Bank will have to take legal action to recover the debt hence the need to get all procedures right.
No specific regulatory approval is required for the product for the time being.
The lending conforms to the Banking Act.
However, there is need to comply with Delinquent/Non performing accounts handling stipulations not just to enhance our own early recovery chances but also to avoid breaching Reserve Bank of Malawi Asset Classification Directives and IAS 39 requirements.
PRODUCT PROFILE REVIEW
This product profile is subject to review every three years or when circumstances demand so.
Approval is by the Credit Committee.