4.1.3 Approval Authority

The authority to sanction/approve loans must be clearly delegated to senior credit executives by the Managing Director/CEO & Board based on the executive’s knowledge and experience. Approval authority should be delegated to individual executives and not to committees to ensure accountability in the approval process. The following guidelines should apply in the approval/sanctioning of loans:

Credit approval authority must be delegated in writing from the MD/CEO & Board (as appropriate), acknowledged by recipients, and records of all delegation retained in CRM.

Delegated approval authorities must be reviewed annually by MD/CEO/Board.

The credit approval function should be separate from the marketing/relationship management (RM) function.

The role of Credit Committee may be restricted to only review of proposals i.e. recommendations or review of bank’s loan portfolios.

Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications.

All credit risks must be authorized by executives within the authority limit delegated to them by the MD/CEO. The “pooling” or combining of authority limits should not be permitted.

Credit approval should be centralised within the CRM function. Regional credit centres may be established, however, all large loans must be approved by the Head of Credit and Risk Management or Managing Director/CEO/Board or delegated Head Office credit executive.

The aggregate exposure to any borrower or borrowing group must be used to determine the approval authority required.

Any credit proposal that does not comply with Lending Guidelines, regardless of amount, should be referred to Head Office for Approval

MD/Head of Credit Risk Management must approve and monitor any cross border exposure risk.

Any breaches of lending authority should be reported to MD/CEO, Head of Internal Control, and Head of CRM.

It is essential that executives charged with approving loans have the relevant training and experience to carry out their responsibilities effectively. As a minimum, approving executives should have:

- At least 5 years experience working in corporate/commercial banking as a relationship manager or account executive.
- Training and experience in financial statement, cash flow and risk analysis.
- A thorough working knowledge of Accounting.
- A good understanding of the local industry/market dynamics.
- Successfully completed an assessment test demonstrating adequate knowledge of the following areas:

o Introduction of accrual accounting.
o Industry / Business Risk Analysis
o Borrowing Causes
o Financial reporting and full disclosure
o Financial Statement Analysis
o The Asset Conversion/Trade Cycle
o Cash Flow Analysis
o Projections
o Loan Structure and Documentation
o Loan Management.

•A monthly summary of all new facilities approved, renewed, enhanced, and a list of proposals declined stating reasons thereof should be reported by CRM to the CEO/MD.

4.1.4 Segregation of Duties

Banks should aim to segregate the following lending functions:

- Credit Approval/Risk Management
- Relationship Management/Marketing
- Credit Administration

The purpose of the segregation is to improve the knowledge levels and expertise in each department, to impose controls over the disbursement of authorized loan facilities and obtain an objective and independent judgment of credit proposals.

4.1.5 Internal Audit

Banks should have a segregated internal audit/control department charged with conducting audits of all departments. Audits should be carried out annually, and should ensure compliance with regulatory guidelines, internal procedures, Lending Guidelines and Bangladesh Bank requirements.