Credit Manual: United Bank Limited

Credit Manual
United Bank Limited

2013
III
Table of Contents
INTRODUCTION ................................................................................................1
TARGET MARKET AND PRODUCTS ...............................................................2
1.1 Target Market ............................................................................................. 2
1.1.1 Target Market Corporate and Commercial Bank ................................. 3
1.1.2 Target Market RB ................................................................................ 5
1.1.3 Guidelines ............................................................................................ 5
1.1.4 Responsibilities .................................................................................... 5
1.2 Products ..................................................................................................... 6
1.2.1 Short Term Credit Facilities ................................................................. 6
1.2.2 Term Credit Facilities ........................................................................... 8
1.2.3 Project Finance .................................................................................. 15
1.2.4 Guarantees (Bonds) .......................................................................... 16
1.2.5 Documentary Sight and Usance Letters of Credit .............................. 21
1.2.6 Financing against Shares (FAS) ........................................................ 23
1.2.7 Risk Participation ............................................................................... 24
1.2.8 Islamic Banking Products .................................................................. 27
1.3 Facilities to be taken Over/Swapped from Other Banks/FIs ..................... 27
1.4 Financing against Standby Letter of Credit (SBLC) issued by foreign
banks.............................................................................................................. 28
CREDIT INITIATION ........................................................................................ 29
2.1 Credit Application Package ...................................................................... 29
2.1.1 Standard Credit Application Package (Credits above Rs. 100 M) ...... 29
2.1.2 Simplified Credit Application Package (Credits upto Rs. 100 M) ....... 30
2.2 Responsibility ........................................................................................... 32
2.3 Lines and Special Transactions (One Offs) .............................................. 33
2.3.1 Sub-Allocation/Re-Allocation of Approved Credit Facilities ................ 33
2.4 Risk Rating Systems ................................................................................ 35
2.4.1 Obligor Risk Ratings (ORRs) ............................................................. 35
2.5 Security Classes....................................................................................... 38
2.6 Facility Risk Rating (FRR) Model ............................................................. 40
CREDIT APPROVAL ....................................................................................... 41
3.1 Expected Attributes of Risk Analyst/Senior Risk Analyst .......................... 41
3.2 Expected Attributes of Risk Manager/Senior Risk Manager ..................... 42
3.3 Appointment of Global Relationship Manager .......................................... 43
3.3.1 Responsibility of Global Relationship Manager.................................. 43
3.4 Credit Approval Structure ......................................................................... 44
3.5 Markup parameters .................................................................................. 44
3.6 Credit Approval Process........................................................................... 44
3.7 Supervisory Role ...................................................................................... 45
3.8 Expired Credits ......................................................................................... 45
3.9 Unusual Risks .......................................................................................... 46
3.10 Politically Exposed Entities ..................................................................... 46
3.11 Revaluation ............................................................................................ 46
3.12 Overdue ................................................................................................. 47
DOCUMENTATION AND DISBURSEMENT.................................................... 48
4.1 Documentation Responsibilities ............................................................... 48
4.2 Documentation ......................................................................................... 49
4.2.1 General .............................................................................................. 49
4.2.2 Lodgment ........................................................................................... 51
4.2.3 Temporary Release ........................................................................... 51
4.2.4 Permanent Release ........................................................................... 52
4.2.5 Expired Documentation ..................................................................... 52
4.2.6 Copies in Credit Files ......................................................................... 52
4.2.7 Witness .............................................................................................. 52
4.2.8 Minimum Prescribed Documents for Fund based Facilities ............... 53
4.2.9 Assigned Contract Proceeds – Acknowledgement ............................ 53
4.2.10 Letter of Guarantee (Company) ....................................................... 53
4.2.11 Deferrals of Security/Support Documentation .................................. 54
4.2.12 Facility Offer Letter (FOL) ................................................................ 55
4.3 General Rules .......................................................................................... 56
4.4 Facility Utilization...................................................................................... 62
4.5 Execution of Agreement ........................................................................... 62
VENDOR MANAGEMENT ............................................................................... 63
5.1 Purpose .................................................................................................... 63
5.1.1 Valuator ............................................................................................. 63
5.1.2 Muccaddam ....................................................................................... 63
5.1.3 Clearing and Forwarding Agents ....................................................... 64
5.1.4 Business Information Report Provider ............................................... 64
5.2 VMC Definition and Constitution .............................................................. 64
5.3 Enlistment of Vendors .............................................................................. 65
5.3.1 Scrutiny of Vendors Enlistment .......................................................... 65
5.4 Addition of Regions .................................................................................. 67
5.5 Evaluation of Vendors .............................................................................. 67
5.5.1 Performance Evaluation of Vendors .................................................. 67
5.5.2 Suspension ........................................................................................ 69
5.5.3 Delistment .......................................................................................... 70
5.5.4 Vendors Delisted/Re-Instated by PBA/UBL ....................................... 70
5.6 Services of Vendors ................................................................................. 70
5.6.1 Management of Muccaddam Allocation ............................................. 71
5.6.2 Business Information Report Service Provider .................................. 71
5.7 Limit Enhancements ................................................................................. 73
5.7.1 Limit Enhancement - Valuator/Muccaddam ....................................... 73
5.7.2 Limit Enhancement- C&F Agents....................................................... 74
5.8 One-Off Approval - C&F Agents ............................................................... 74
CREDIT MAINTENANCE ................................................................................. 75
6.1 Credit Process .......................................................................................... 75
6.1.1 Administration of Approved Credit Facilities ...................................... 75
6.1.2 Maintenance of Credit Information ..................................................... 87
6.1.3 General Guidelines ............................................................................ 88
6.2 Annual Review and Renewals .................................................................. 89
REMEDIAL MANAGEMENT ............................................................................ 91
7.1 Credit Classifications Responsibility ......................................................... 91
7.1.1 Watchlist ............................................................................................ 91
7.1.2 Adverse Classification ....................................................................... 92
7.2 Classifiable Exposure ............................................................................... 95
7.3 Excluded Credit Exposures ...................................................................... 95
7.4 Initiating or Changing Adverse Classifications ......................................... 95
7.5 Remedial Action/Strategy ......................................................................... 96
7.5.1 Formal Action Plan ............................................................................ 97
7.5.2 Documentation Review ...................................................................... 97
7.5.3 Classified Credit Reviews (CCRs) ..................................................... 97
7.6 Provisions ................................................................................................. 99
7.6.1 Specific Reserves .............................................................................. 99
7.6.2 General Reserves ............................................................................ 102
7.6.3 Frequency ........................................................................................ 102
7.7 Responsibility/Reporting ......................................................................... 102
7.8 Special Assets Management .................................................................. 103
7.8.1 Transfer of Accounts to SAM/SAM RCADs ..................................... 103
7.9 Recovery Process .................................................................................. 105
7.9.1 Traditional Work Out Modes ............................................................ 106
7.9.2 Non Traditional Work Out Modes..................................................... 108
7.9.3 Litigation .......................................................................................... 110
7.10 Write-offs .............................................................................................. 110
7.10.1 Write-off Mechanism ...................................................................... 110
7.11 Condonation and waivers ..................................................................... 111
List of Annexures ......................................................................................... 112
Abbreviations
B/L Bill Of Lading

BOD Board Of Directors
BRMC Board Risk Management Committee
C&F Clearing & Forwarding
CAD Credit Administration Department
CC Credit Committee
CCR Classified Credit Review
CDC Central Depository Company
CHRA Cluster Head Retail Assets
CIB Credit Information Bureau
CLC Chief Legal Council
CM Classification Memorandum
COD Commercial Operations Date
CPU Central Processing Unit
CRM Credit Risk Management
DAC Disbursement Authorization Certificate
DAS Debt Asset Swap
DFI Development Financial Institution
DH Divisional Head
DHCP Domestic Head Credit Policy
DP Drawing Power
DPL Drawing Power Limit
DSC Defense Saving Certificate
ECA Engagement Committee Approval
ERF Export Refinance
FAPC Finance Against Packing Credit
FBP Foreign Bills Purchased
FE Foreign Exchange
FED Federal Excise Duty
FIG Financial Institution Group
FIFO First In First Out
FIM Finance Against Imported Merchandise
FIRMU Financial Institution Risk Management Unit
FINCON Finance Group
FRR Facility Risk Rating
FSV Forced Sale Value
FTR Finance Against Trust Receipt
GE Group Executive
GH Group Head
GRM Global Relationship Manager
HCP Head Credit Policy
HCA Head Commercial Assets
IBG Investment Banking Group
L/C Letter Of Credit
LG Letter Of Guarantee
LIM Loan Against Imported Merchandise
LOS Loan Origination System
LTFF Long Term Finance Facility
MML Money Market Line
MTR Market & Treasury Risk
NAB National Accountability Bureau
NICF Non Interest Cash Finance
NIDF Non Interest Demand Finance
NOC No Objection Certificate
NPL Non-Performing Loan
NSC National Saving Certificate
ORR Obligor Risk Rating
PAD Payment Against Documents
PBA Pakistan Banks Association
PEC Pakistan Engineering Council
PKR Pakistan Rupee
PO Pay Order
POA Power Of Attorney
PPM Product Program Manual
PR Prudential Regulations (SBP)
PTD Permanent Transfer Deed
R&CP Risk & Credit Policy Group
RAC Risk Acceptance Criteria
RCAD Regional Credit Administration Department
RCH Regional Corporate Head
RIC Regular Income Certificate
RM Relationship Manager
SAM Special Asset Management
SBLC Standby Letter Of Credit
SBP State Bank Of Pakistan
SCA Standard Credit Application
SECP Security & Exchange Commission of Pakistan
SSC Special Saving Certificate
TCM Treasury & Capital Markets
TFC Term Finance Certificate
TL Team Leader
TPC Trade Processing Centre
TR Trust Receipt
UBL United Bank Limited
USD USA Dollar
VMU Vendor Management Unit
Business Head: Senior position looking after a region/center and above in their
respective area i.e. Corporate, Commercial, Agri etc.
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INTRODUCTION
At United Bank Limited (UBL), Risk & Credit Policy Group (R&CP) looks after
various risks embedded in the lending activities of the bank. Credit Risk
accounts for major risk associated with the bank. This requires thorough
vigilance, monitoring and control.
Credit Policy and Procedures updated in 2006 has been separated and updated
to form two separate documents; Credit Policy and Credit Manual. Credit Policy
2013 has been recently formulated and approved by Board Risk Management
Committee (BRMC)/Board of Directors (BOD) while this Credit Manual is now
separately formulated. This document defines procedural guidelines for products
and lending cycle from credit initiation to remedial management.
This document has been created keeping in view the current requirement at the
Bank which will aid in seamless accomplishment of implementation of the Credit
Policy rules and guidelines.
Ownership, Maintenance and Approval
R&CP is the owner of this document while the process and procedures laid out
here are owned and followed by all concerned departments handling credits.
Guidelines described in this document are minimum requirements under normal
circumstances. However, R&CP may make amendments or establish additional
controls whenever appropriate.
Credit Policy Division will propose changes or additions in this document, if

required, and the final approval authority for these changes/additions and
renewal of the document is Group Executive/Group Head (GE/GH-R&CP).
Review Period
This document will be reviewed after three years as a whole. Meanwhile, any
amendments can be made from time to time, if required.
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CHAPTER 1
TARGET MARKET AND PRODUCTS
1.1 Target Market
It is important for the business groups (such as Corporate & Commercial Bank,
Retail Bank, etc.) and risk group to identify and develop target markets and
formulate business strategies.
Different business groups which are writing assets in the bank are operating in
different market conditions and geographies. They are catering to different
industry sectors and various sizes of customers. It is therefore essential to
formulate clear Target Market identification for smooth handling of customers
and managing the credit risk appropriately.
Product Identification – there are certain given products for lending in the
prevailing banking system and these products are being utilized by the
customers in best possible way. However, only through a comprehensive survey
of the market, can a potential business opportunity be identified. New product
development on an ongoing basis is important and the bank will endeavor to do
so.
Industry Concentration – Credit Policy Division looks after portfolio management

of bank loans and formulates various measures including concentration limits
and monitors them from time to time. Industry Concentration limit is important to
have a diversified portfolio and to give direction to business units for future
lending. While developing target markets business groups must also review
industry concentrations in order to establish diversified exposure limits.
Screening – For individual Industry Segment, a workable and appropriate Risk

Acceptance Criteria (RAC) is required to be developed and used to “screen” the
market in a structured manner. The Criteria defines the basic level of
acceptability for a risk asset. Bank will develop RACs for major industry sectors
after having detailed study of these industries. The responsibility for developing
these RACs for all major industries and to update them regularly lies with
Research Department of the Bank working closely with Credit Risk Management
(CRM) and Credit Policy Division.
It is also important to note that the Bank has a large existing Loan portfolio which
was build up over decades without any RAC screening. Once the RACs are
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mapped with the existing clients of an industry sector there would be number of
customers which would be falling below the RAC hurdle. These Customers will
be handled in a normal way and relevant Credit Committee (CC) will have the
authority to decide about the exposure levels of such customers.
For fresh customers being booked in various industry sectors the mapping
against existing RAC hurdle (where available) of that industry will be highlighted
in the Credit Application and relevant CC may evaluate the risk and mitigate it
through better facility and security structure.
For any industry sector where an appropriate RAC has not been developed,
Business Groups and relevant CC will decide how to assume additional risk in
that industry sector.
The current target market definition for various business groups is given as
follows:
1.1.1 Target Market Corporate and Commercial Bank
Corporate Bank
The target market for Corporate Bank will be the corporate clients/commodity
finance in all industry sectors of the country and in the areas where the
Corporate Centers are present. In these areas the attributes of clients will be:
 Sales/Turnover to be more than Rs. 1.5 Billion, or

 UBL’s exposure to be Rs. 300 M and above (Funded and Non-Funded) on
per party basis, or
 UBL’s exposure to be Rs. 500 M and above (Funded and Non-Funded) on a
per group basis (if more than one company of the group has borrowing
relationship with UBL).
Clients handled other than the Corporate Centers region, even if their exposure
falls under the Corporate Bank target market, shall be handled by Commercial
Bank mainly through Commercial Centers. However, if special circumstances
arise and customer’s willingness is obtained, the Group Executive–Corporate &
Commercial (GE-Corp & Com) can transfer the relationship handling to
Corporate Bank; to be handled on a remote basis.
All multinationals will fall under Corporate Bank target market (Multinationals are
defined as: Companies with 50% ownership of foreign entity and the foreign
entity operates in multiple countries).
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Additionally, GOP commodity operations (TCP, PASSCO, Govt. of Punjab, Govt.
of Sindh, etc.) will be handled by Corporate Bank.
Any fresh client which is required to be booked by Corporate Bank and falls
under Commercial Bank target market of the concerned city will require No
Objection Certificate (NOC) from Head Commercial Assets.
Exceptions to the above will be decided by GE-Corp & Com on case to case
basis keeping in view other parameters of the customer.
Commercial Bank
Target market for Commercial Bank will include facilities above Rs. 15M for
Commercial, Seasonal, Facilities against Liquid Securities, all Product Program
Manual (PPM) based facilities above Rs. 15M, Medium Enterprise and Trade
related lending as per the Prudential Regulation (PR) and exposure handling
requirement of State Bank of Pakistan (SBP) respectively for each segment.
This will also cover all industry sectors of the country.
Commercial Bank is present across the country in many regions in form of

Commercial Centres and it will handle all the asset requirements of the regions
above Rs. 15M. In regions where both Corporate and Commercial centers are
present, all assets which do not fall under Corporate Bank target market will be
handled by Commercial Centres. However, certain type of industry which are not
sophisticated (complex multiple processes for production/fabrication) and involve
Commercial Bank handling of relationship will be handled by Commercial
Centers even if they fall under the target market of Corporate Bank due to
exposure and sales attributes. Furthermore, all existing relationships being
handled by Commercial Centers (more than Rs. 300 M exposure per company)
will continue to reside in Commercial Bank.
Any fresh client which is required to be booked by Commercial Bank and falls
under Corporate Bank target market will require NOC from Regional Corporate
Head of the concerned region of Corporate Bank.
Exceptions to the above will be approved by GE-Corp & Com on a case to case
basis keeping in view other parameters of the customer.
International target market will be derived by Head of Risk International & GE-
Risk International and concurred by GE/GH-R&CP.
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1.1.2 Target Market RB
Target Market for RB will include Small Enterprise customers - less than and
equal to Rs. 15M (aggregate of all banks), Agri Customers and Consumers.
These customers will be handled by branches residing in various regions.
1.1.3 Guidelines
 Business groups will formulate target markets in accordance with the

parameters described above and in line with Industry Concentration Limits
for all business segments. Target market formulation will be conducted
through study of banking industry of the country and the prevailing
segmentations of the industry sectors; and
 For section of market where there are standardized lending products and
techniques, the PPMs will be prepared to facilitate marketing and quick
approvals for standard products.
1.1.4 Responsibilities
Ownership of given Target Market lies with each Business group and changes
required need to be discussed and finalized with GE/GH-R&CP.
For the standardized products business groups will be responsible to develop

and originate PPMs. After recommendation by respective Business Units and
respective GHs, PPMs will be approved by Domestic Head Credit Policy
(DHCP)/Head Credit Policy (HCP) and GE/GH-R&CP.
For matters relating to the Credit Administration Department (CAD), Operations,

Finance, Treasury, etc. relative Division Heads and/or GHs will also be
consulted and sign off will be obtained.
Development of PPMs is an ongoing process, made all the more necessary as

more innovative products come on line. A list of currently approved PPMs is
shown in Annexure No. I.
Credit Proposals need to be in line with target market screens. RAC screen
scoring and respective hurdle scores become effective for those industries
where industry studies have been completed and RAC are in place. This will
mainly be for Corporate and Commercial Bank.
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1.2 Products
Bank offers wide variety of products including short term credit facilities, trade
products, term credit facilities and Islamic banking products. While Credit Policy
defines products offered by the bank in detail such as NICF, FAFB, FAPC, ERF,
LTFF etc., procedural matters where further explanations are required are
detailed as under:
1.2.1 Short Term Credit Facilities
1.2.1.1 Foreign Bills Purchased – against letter of credit (FBP) and FBP
(Disc)
Bank may extend financial accommodation through negotiation and/or

discounting of a foreign documentary bill accompanied by relevant documents of
title to goods at the prevailing exchange rate. For financing of export bills drawn
under a letter of credit (L/C) it should be ensured that:
 The document has been drawn strictly as per the terms of the L/C;
 All direct bank expenses i.e. foreign correspondent’s charges, claimed by the
opening/reimbursing bank, if any, shall be recoverable from the exporters
unless it is expressed in the L/C that charges are on the opener’s account;
 Due care and necessary precautions are exercised before
negotiating/discounting of documents by Regional Credit Administration
Department (RCAD) and Trade Processing Centre (TPC);
 Reimbursement instructions in letters of credit are carefully studied before
negotiating/discounting of documents;
 If the bill of exchange is accepted by a Bank approved by the Financial
Institution Risk Management Unit (FIRMU), the associated risk for
discounting will be considered Bank Risk;
 A letter of indemnity is obtained from the customer by TPC;
 Receipt of authenticated acceptance from LC issuing Bank / Development
Financial Institution (DFI); and
 The facility is backed by tangible security. Deviation shall require approval of
Senior Risk Manager / Head CRM.
If documents are complete but not in compliance with the terms of LC,
documents will be purchased with full recourse on exporter and exposure will be
booked on “Customer” against discrepant lines (FBP Disc).
1.2.1.2 Payment against Documents – under sight L/C (PADs)
Import documents received under sight L/C are lodged in PAD, and are retired
upon payment including markup (on PAD) from the customer. Import documents
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shall be checked strictly in terms of the L/C to ensure that there is no
discrepancy. In case of a discrepancy in the documents, the negotiating bank
must be immediately advised by SWIFT regarding such discrepancy and dealt
with accordingly. In case of import documents received free of discrepancies,
the amount of the bill plus charges, if any, claimed by the negotiating bank,
would be converted into Pak Rupees (PKR)/local currency at the exchange rate
prevailing on the date of lodgment, or at the booked rate where exchange was
booked at the time of opening of the L/C as quoted by the Treasury Division.
1.2.1.3 Finance/Loan against Imported Merchandise (FIM/LIM)
Facility for financing goods imported under sight letters of credit established by
the Bank may be extended at customer’s request. Following procedure shall be
followed for FIM transactions:
1. Relationship Managers (RMs) are required to inform their customers in

advance to arrange funds for custom duty and other charges.
2. Clearing and Forwarding (C&F) agent and Muccaddam to be appointed
simultaneously for clearance from the port.
3. Title documents must be released to the approved C&F Agent by Central
Processing Unit (CPU) Trade on the basis of written letter from RCAD
addressed to approved Muccaddam adding the name of concerned C&F
agent from whom the possession of pledged goods is to be taken right at the
port.
4. TPC is required to confirm that funds for custom duty and other charges have
been arranged prior to release of documents.
5. TPC is required to inform RM and RCAD that documents are released to
C&F agents.
Exceptions to be reported to Country Head CAD and DHCP /HCP.
1.2.1.4 Booking – FIM Liability
PAD will remain outstanding and FIM will not be booked until the goods are
physically handed over to the Bank’s Muccaddam and placed under pledge.
However, in case, LC is being retired through FE-25 (import) loan, goods cannot
be taken under pledge at the time of booking of liability. In this case FE-25 Trust
receipt (TR) facility will be allowed, subsequently, FE- 25 (TR) will be transferred
to FE- 25 Pledge within a maximum period of 20 days.
If partial shipments are allowed under LC, FIM will also be booked in tranches.
The Muccaddam shall submit a stock report in order to calculate the drawing
power limit (DPL) and simultaneously the FIM limit should be input into the
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system by the RCAD to enable Operations to transfer the outstanding from PAD
to FIM.
In cases where marine insurance does not cover transit insurance, separate
transit insurance in addition to port to port insurance should be obtained.
Customers will be required to maintain sufficient funds in their accounts with the
bank for issuance of a pay order (PO)/cashier’s cheque or otherwise provide a
PO/cashier’s cheque for payment of custom duty and other charges, so that
C&F Agent can clear goods and hand over the consignment to Bank’s
Muccaddam. RCAD will nominate and coordinate with muccaddam in
consultation with Head RCAD North/South (alternatively in consultation with
Country Head CAD) for pledge of stock.
In cases where FIM is booked under sight LC and it has to be retired by bank’s
own approved facilities (FE-25 or PKR) for the client, RCAD will appoint
muccaddam simultaneously with the C&F agent with clear instructions to
muccaddam to take control of goods from the port once handed over by C&F
agent. RCAD will provide details of such goods taken up by muccaddam:
 From port; and

 Once it reaches the customer’s site.
1.2.2 Term Credit Facilities
Following procedure shall be followed while extending long term loan/financing

facilities;
1.2.2.1 Commercial and Industrial Loans:
Financial Forecasts
1. All Credit proposals for long term loans or financial guarantees, Standby
Letter Of Credit (SBLC) and/or usance letters of credit/deferred payment with
tenor for more than one year must be accompanied by financial projections
including balance sheets, profit and loss, and cash generation statements
with assumptions covering the tenor of the facility. In addition to financial
forecasts, term loan proposals will also require project feasibility; and
2. Financial Projections are not required for contingent exposures covering bid,
performance, and advance payment bonds with tenors of three years.
However, if the tenor exceeds three years, projections must be obtained.
Exceptions (for 1 and 2) if any, shall be approved by the GE/GH-R&CP.
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Default Clause
The loan agreement shall contain the following default clauses in addition to
general default clauses and breach of any of these clauses would cause prompt
remedial action or loan may be recalled;
1. Borrower’s failure to service two consecutive monthly installments or one

quarterly/half yearly installments of principal or mark-up on due dates as per
the terms of the credit approval;
2. If any information statement, certificate, or representation given by the
borrower proves incorrect or untrue;
3. If the borrower becomes insolvent or bankrupt or consents to appoint
liquidator or receiver;
4. If any bankruptcy, liquidation, or recovery proceedings are initiated against
the borrower by any bank; and
5. If the borrower fails to fulfill any covenant, term, or condition of the Loan
Agreement.
Exceptions, if any, (for 1 and 5 only) shall require approval of relevant CC.
Standard Covenants
All funded term credit facilities must be documented through an appropriate loan
agreement drawn up and reviewed by the Bank’s legal counsel on panel. Such
loan agreements must include the following provisions:
 Borrowers will furnish the Bank with audited financials within maximum 180
days after close of financial year;
 A material adverse change clause among the conditions precedent;
 A definite date for the termination of the availability period;
 Unless waived by the concerned GE/GH, commitment fee should be included
as a part of the compensation;
 Borrower will maintain leverage ratio as prescribed by SBP and current ratio
as per bank’s policy;
 Bank will arrange valuation of assets by a UBL enlisted valuator, nominated
by RCAD (in case of syndicated loan, valuation to be carried out by the PBA
approved valuators nominated by the lead bank);
 Borrower will maintain its project assets adequately insured against all
standard risks;
 Borrower will promptly pay all obligations to Bank and other agencies, such
as government taxes, dues etc.;
 Borrower will not create lien, mortgage, or encumbrance over its assets
without written consent of Bank;
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 Borrower will not enter into any merger or amalgamation or sell/lease its
assets other than in the ordinary course of business without the written
consent of Bank;
 Borrower will not change its legal status, majority ownership, or management
structure without written consent of Bank;
 Borrower will not guarantee, endorse, or otherwise become surety for others,
except the usual negotiable instruments in the normal course of its business;
 Borrower will not make any loan to or invest in subsidiaries except in the
normal course of its business; and
 Borrower will not declare any dividend if financial covenants are not met
without written consent of the bank. Exceptions may be provided for
syndicated loans.
RCAD shall ensure that these terms and conditions are mentioned in the Loan /
Finance Agreements.
In case of syndicated loans, exceptions, if any, shall require approval of relevant

CC including Head CRM/GE/GH-R&CP.
Documentation Review
RCAD to ensure documents required under the provisions of term loan

agreement, such as Board Resolutions, Powers of Attorney, Memorandum and
Articles of Association etc., are reviewed by legal counsel on panel that is
engaged for the preparation of term loan agreement with a view to determining
their validity and protective value.
General Conditions
Bank’s commitment must contain a specific maximum monetary liability.

Bank’s commitment must contain a specific, legally defensible expiry date.
Other Rules Governing Term Loans/Facilities
Under these rules, any change in the terms and conditions or covenants of a
term credit as originally approved must be referred to the original level of
approval. Any unused commitments, except as provided for under the rules for
sub-allocation of credit facilities, can only be utilized for the purpose originally
approved, and cannot be intended to accommodate other needs. Unused
commitments no longer necessary for the purpose originally approved must be
cancelled.
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1.2.2.2 Engagement Committee Approval (Name Clearance for fresh
customers or non IBG related ST/LT Loans)
All fresh Corporate Bank customers (For name clearance) or Long term Loans to
existing Corporate customers (where IBG is not involved) shall be initiated by
Corporate Bank through an Engagement Committee Approval (“ECA”) for a
given client.
The stakeholders/signatories of an ECA shall comprise the following:
 Corporate Bank: as transaction initiator- Regional Corporate Head and GE-

Corporate & Commercial shall be required to sign off;
 Risk: shall provide preliminary view of the transaction and initial assessment
while listing down key concerns (as applicable) for Corporate Bank to
consider and address at the SCA stage. Senior Risk Manager Corporate and
GE/GH-R&CP shall be the required signatories;
 Treasury: shall provide its feedback on tenor, pricing in view of the prevailing
liquidity position and cost of funds (if required). GE-Treasury and Capital
Markets shall be the required signatory; and
 President: if required as per the Credit Approval Authority Structure.
The ECA shall typically cover the following important aspects:
 Purpose of financing: a brief on the rationale of financing and expected

benefits;
 Borrower/Sponsor background: explain who the borrower/sponsor are
(group profile, management profile), their existing and historical relationship
with UBL (as applicable), relative standing in their peer group, credit view
within the financial institutions.
 Transaction parameters: list the broad commercial parameters being
offered under the proposed transaction such as facility description, facility
amount, type of facility (funded/unfunded), pricing, tenor, availability period,
grace period, security, repayment terms etc.
 Risk identification and Mitigation: list key identified risks at this stage and
their possible mitigants.
 Pricing: define pricing strategy to be followed.
 Financial information: this section shall typically highlight summarized
financial performance during the past 3 years audited and/or management
accounts (as applicable). For long term loans, projections/revenue drivers, as
available to be provided.
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1.2.2.3 Engagement Committee Approval (Syndications)
All large transactions involving syndications, Greenfield limited recourse project

finance, structured finance shall be initiated through an ECA which is a
document prepared jointly by IBG and an Asset Writer (Corporate and
Commercial Banking Group/FIG/Corporate Banking International/Treasury &
Capital Markets/UBL Ameen). In connection with a given client and a specific
transaction the broad purpose of the ECA is to:
 Inform all relevant internal stakeholders of a potential debt-based transaction

with the aim of obtaining name-clearance for the said client/transaction as
well as a preliminary assessment of the proposed structure and terms;
 Propose UBL’s own participation in the transaction; and
 Enable IBG to submit an indicative offer seeking an arrangement mandate.
ECA shall not be:
 Meant to replace the firm approval process/SCA; or

 Raised for an advisory transaction (whether it relates to Equity and Advisory,
DCM and Syndications or Project Finance).
Ownership of the ECA (Syndication) lies with IBG which acts as the custodian of
the ECA document and the process and is responsible for following up on its
progress. IBG is also primarily responsible for addressing any queries that may
be raised by relevant signatories to this document and in this process may enlist
the assistance of asset writer as considered necessary.
The stakeholders/signatories of an ECA comprise the following:
 IBG: as joint transaction initiator. GH-IBG is the required signatory;

 Asset Writer: as joint transaction initiator. The relevant GE/GH is the
required signatory;
 Risk: provides its preliminary view of the transaction and initial assessment
while listing down key concerns (as applicable) for IBG/Asset Writer to
consider and address at the mandate or SCA stage. GE/GH-R&CP is the
required signatory;
 Treasury: provides its feedback on tenor, pricing and UBL’s appetite for
participation in view of the prevailing liquidity position and cost of funds. GE
Treasury and Capital Markets is the required signatory; and
 President: is the required signatory irrespective of UBL’s proposed exposure
as IBG transactions typically have high franchise implications.
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Required signatories may include additional signatories from their respective
area as they deem fit whilst keeping in view turnaround times.
The ECA shall typically cover the following important aspects of a transaction:
 Purpose of financing: a brief on the rationale of financing and the benefit(s)

it will provide to the borrower;
 Transaction rationale: describe why the transaction makes sense for UBL
to undertake and why it is that UBL should participate in the transaction.
 Borrower/Sponsor background: explain who the borrower/sponsor is, their
existing and historical relationship with UBL (as applicable), relative standing
in their peer group, credit view within the FIs vis-à-vis its credit worthiness
given past banking track record, group profile, management profile, etc.
 Transaction parameters: list the broad commercial parameters being
offered under the transaction inter-alia facility description, facility amount,
type of facility (funded/unfunded), pricing, tenor, availability period, grace
period, security, repayment terms etc.
 Risk identification and Mitigation: list risks associated with lending to the
customer and its mitigants.
 Pricing: define pricing strategy to be followed.
 Financial information: this section shall typically highlight financial
performance during the last 3 years audited and/or management accounts
along with projections/revenue drivers as applicable.
 Relationship Details: lay out details of existing exposure (funded and non-
funded) of UBL on the client as well as on the business group it belongs to.
 Competitive Landscape: cover the likely competition UBL is expected to
face in the transaction.
 UBL Position: will recommend UBL’s own participation in the deal keeping
in view transaction parameters, relationship details and the competitive
landscape.
1.2.2.4 Syndications
Syndication activities are divided into Primary (i.e. up to financial close) and
Secondary (i.e. post financial close) distribution.
1.2.2.4.1 Primary Distribution
All Syndication transactions shall be routed through the IBG. IBG will be
responsible for:
 ECA (Syndications) ;
 Transaction structuring;
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 Primary distribution;
 Transaction documentation, including liaison with transaction legal counsel;
 Overall internal and external management of the transaction; and
 Monitoring and managing the risk till Commercial operations date (COD).
Relevant asset writer will be responsible for:
 All credit related matters pertaining to a syndication;

 Relationship management and account management;
 Jointly monitoring the risk with IBG till COD; and
 Monitoring and managing risk after COD.
Relevant asset writer will be jointly responsible for term sheet/mandate

negotiation with the client. In case of restructuring of syndicated facilities, IBG
and relevant asset writer will jointly handle the arrangement.
When pitching for a Syndication mandate or considering participation in a

Syndicate, the Bank shall endeavor to maximize non-interest earnings (including
fee income) from the transaction.
Syndications that are led by the Bank shall be jointly handled by IBG and
relevant asset writer. FIs will be involved whenever required. In such cases,
asset writer participates and IBG arranges the remaining amount of syndicate
through additional contribution from other FIs.
Syndications that are led and arranged by other FIs in which UBL participates as
a minor or major participant, shall be jointly handled by IBG and relevant asset
writer.
A complete SCA is required to be prepared and submitted for approval covering

the term loan requirements as mentioned in the Policy. The SCA will be
prepared by relevant asset writer and concurrence of GH-IBG will also be
required where the bank is the syndicate leader/arranger.
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1.2.2.4.2 Secondary Distribution
Where Syndication involves sell-down of all or part of the Bank’s exposure post
financial close, the following procedure shall apply:
1. The terms of a sell-down, including the amount, pricing and timing, shall be
jointly agreed between the relevant asset writer and IBG;
2. Subsequently the relevant asset writer shall formally request IBG to affect a
sell-down after obtaining the prior endorsement of the CC including Head
CRM/GE/GH-R&CP;
3. The sell-down request, once provided to IBG, shall be considered
irrevocable. Exceptions, if any, to be approved by the CC including Head
CRM/GE/GH-R&CP; and
4. IBG shall endeavor to achieve the subject sell-down as per approval
requirements.
1.2.3 Project Finance
Procedure for Approval
All Project Finance transactions shall be routed through IBG.
1. IBG shall be solely responsible for transaction management up to COD this

encompasses all aspects of the deal including structuring, modeling,
documentation, coordination amongst internal and external stakeholders
(including Trade and Treasury), liaison with regulators, and
contact/negotiation with Project personnel. To ensure maximum efficiency of
resources, IBG may selectively request Corporate Bank
relationship/administrative support during this process;
2. IBG shall be solely responsible for:
a) Developing and writing the SCA;

b) Elevating it through the risk management chain; and
c) Obtaining any waivers and/or alterations that may be required to perfect
the credit prior to facility effectiveness.
3. The credit package will be signed off by both IBG and Corporate Bank;
4. Direct Corporate Bank involvement in transaction management would begin

when the project reaches COD. Thereafter, direct IBG involvement would
reduce to only advisory;
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5. Ownership and primary responsibility for account administration and
relationship management shall pass on to Corporate Bank immediately after
COD. This also implies that all decision making in connection with the facility
and the relationship shall also be transferred to the asset writing team.
Corporate Bank will be designated as the primary point of contact vis-à-vis
the Facility Agent and would attend syndicate meetings (IBG may
accompany if required), respond to facility correspondence, and take charge
of all credit related matters; and
6. From that point forwards, IBG will act in an advisory capacity but will continue
to independently monitor project progress. In any event, IBG support would
remain committed and available as and when required by Corporate Bank.
The bank shall ensure that best practices on project financing/infrastructure

project financing are followed.
1.2.4 Guarantees (Bonds)
Primarily, guarantees would be issued in accordance with SBP guidelines for

approved customers as per conditions stipulated by CC. For the purpose of
issuance of guarantee, Bank will ensure that the following features are included
in the text of the guarantee:
 The guarantee must be issued as per approved text and formats by in house
legal counsel or vetted by a counsel nominated by legal division;
 The guarantees must be signed by TPC authorized attorney holders;
 The guarantee must be for a clear, well-defined purpose and for a specific
amount and period and shall contain claim lodgment date as per policy;
 The text of the guarantee will have a reference to the underlying contract
agreement stipulating the Bid or Performance Bond or Advance Payment
Guarantee etc. as the rationale for issuing the guarantee;
 Payment under the guarantee will be made upon beneficiary’s request or
upon presentation of an agreed document (viz statement of claim) or set of
documents along with guarantee in original, if claim is lodged within validity
of the guarantee;
 The guarantee shall state the maximum amount of the Bank’s commitment in
clear terms both in figures and in words; and
 The guarantee must have a specific expiry date, and all claims must be
lodged before the expiry date. In case of deviation, approval as per Credit
Policy shall be required.
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1.2.4.1 Guidelines
 Necessary credit approval as per Bank’s standard practice and procedures

must be obtained prior to issuance of any bond or guarantee;
 The customer on whose behalf the guarantee is being issued must agree to
and sign the text of the guarantee concurrently with the signing of a counter
guarantee. Such counter guarantees shall include a request for the issuance
of guarantee as well as an irrevocable commitment from the customer to
reimburse the Bank on demand;
 Stipulated margins and collaterals will be realized upfront and applicable
commission will also be recorded, preferably upfront, or as approved by the
relevant CC;
 A valid Disbursement Authorization Certificate (DAC) issued by the RCAD
must be in place prior to the issuance of any bond/guarantee; and
 RCAD will monitor expired guarantees, with a view to obtain guarantees back
after expiry and decontrol the liability as per bank’s policy.
1.2.4.2 Execution of Guarantees/Bonds
While executing a guarantee following aspects will be considered:
1. The terms and conditions of the guarantee must be examined carefully to

determine the:
 Type of guarantee;
 Unusual conditions which could create unforeseen circumstances;
 Extent of Bank’s obligation; and
 Financial liability under the guarantee.
2. After the guarantee has been issued, a copy of the same will be attached to
the counter guarantee executed by the customer along with a copy of the
guarantee signed by the customer for record. Standard text of Letter of
Guarantees (LGs) attached (Annexure II).
3. Undertaking shall be obtained from the customer that cash margin will not be
released until original LG or letter of disclaimer is obtained from the
beneficiary.
Reversal of cash margin
Under regular LG retirements Cash margin shall be released by TPC if following

conditions have been met:
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 If original guarantee has been returned;
 LG limit has not been cancelled;
 Main security (fixed assets) are not being released; and
 Customer or any Group company does not have any overdue (Confirmation
to be obtained from RCAD).
In case of overdues, approval from CC shall be required prior to release of

margin.
1.2.4.3 Booking of Liability against Counter Guarantee of a bank/

Financial Institution:
Sometimes business units extend credit facilities to their customers and/or issue
guarantees/bonds on the strength of a “Counter Guarantee” issued by a bank or
other FI having FIRMU approved “Guarantor” lines.
Prior to undertaking any such transaction, the procedural guidelines as stated

below are required to be followed by respective business units/Branch/CPU-
Trade/TPC and RCADs;
Procedural Guidelines
1. A guarantor line will be established by FIG in respect of a Bank/FI, counter

guaranteeing the transaction; and
2. The liability will be controlled as under:-
In case where a guarantee/bond is required to be issued on behalf of a local

customer, on the strength of a “Counter Guarantee” of a bank/DFI, the
respective business group will get an appropriate credit line approved from the
relevant CC and guarantor line approved from FIRMU. Liability will be booked in
the name of the customer.
In case where guarantee/bond is required to be issued on behalf of a “Foreign

Customer/Supplier/Contractor” etc. on the strength of a “Counter Guarantee” of
a Bank/DFI, the establishment of line will not be required. In such cases, the
liability will be booked in the name of FIRMU approved Foreign Bank, counter
guaranteeing the transaction.
In both cases, a DAC will be issued by the RCAD to cover the transaction.
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Decontrol of Contra Liability
Prudent banking requires reversal of contra liability relating to a LG as soon as it

becomes feasible after its expiry date mentioned in the guarantee. As per legal
advice if an instrument clearly defines its expiry date and no claim has been
received during its validity, the guarantee is deemed to be expired on the due
date and the right of the beneficiary to make a fresh claim under the guarantee
ceases to operate unless the beneficiary can prove that the claim was lodged
before the expiry date.
However, as per practice, the business units do not reverse the liability unless
the original instrument is received back duly cancelled, or a letter of disclaimer is
received from the beneficiary. This results in an unnecessary accumulation of
contingent liabilities as the beneficiaries fail to return the original guarantee after
its expiry date, or sometimes the original guarantee is lost.
To reduce unnecessary outstanding of contingent liabilities across the country

the task for reversal of contra liabilities will be undertaken in two phases.
The Branch/Business unit Operation/TPC will follow the below mentioned

guidelines for reversal of the contra liabilities relating to all expired LGs:
Phase 1
1. Segregate valid and expired LGs.

2. Review each expired LG (Excluding those favoring Federal/Provincial
Government Departments) to ascertain that:-
 It contains a specific expiry date;

 Text of the Guarantee does not have the automatic renewal clause; and
 No claim has been received during its validity period, in other words the
period applicable before the expiry date.
Phase 2
After having completed the above exercise and for the purpose of settlement of
each case following action to be undertaken:-
 A formal letter (as per Annexure III) to be sent to the beneficiary stating, inter
alia, that no claim has been lodged with the Bank by the beneficiary in terms
of the guarantee during its validity period and that the guarantee has expired
and the Bank stands released and discharged of any liability under the
--- Page 19 of 113 ---

guarantee, hence, return the original LG. This letter should be sent by
registered post or by courier service;
 Follow up with three reminders on weekly basis on the same pattern as per
Annexure III and thereafter final reminder as per Annexure IV shall be sent to
the beneficiary; and
 The customer is also required to be notified in writing (through registered
post) that the guarantee has expired, retrieve the original guarantee duly
cancelled from the beneficiary and surrender it to the Bank. (Annexure V)
In case where the original LG is surrendered or letter of disclaimer is

received from the beneficiary:
 Cancel the original LG by marking “CANCELLED” within 2 parallel lines on

the face of the LG;
 Reverse contra liabilities; and
 Refund margin, if retained, and release the securities, obtained at the time of
issuance of L/G after obtaining approval from the relevant CC.
In case where no response is received from the customer/beneficiary:
 Transfer the contra liability and park it in the expired LG by reducing its value
to PKR One after a period of 30 days from the date of the final reminder letter
sent by registered post and courier service;
 Refund the margin, if retained and release the securities after obtaining:
 Indemnity drafted by the Chief Legal Council (CLC)/Legal Division from
the customer (Annexure VI);
 Approval from relevant CC.
Where LG is “Open Ended” (without expiry date) or those favoring

Federal/Provincial Government Department:
 No action will be taken to reverse the liabilities unless original LG is

surrendered or letter of disclaimer from the beneficiary is obtained;
 Upon receipt of the original LG/letter of disclaimer from beneficiary:
 Cancel the original instrument by marking “CANCELLED” within 2 parallel
lines on the face of the LG;
 Reverse the contra liability either upon receipt of the original LG or receipt
of letter of disclaimer from the beneficiary; and
 Refund margin, if retained, and release the securities, obtained at the
time of issuance of L/G after obtaining approval from the relevant CC.
All securities including margin, securing the LG shall be released only after
obtaining the approval of the relevant CC.
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1.2.5 Documentary Sight and Usance Letters of Credit
1.2.5.1 Third Party – Documentary Letters of Credit
Documentary Letters of Credit established on behalf of third parties (parties

other than the obligor/customer) represent an additional element of risk.
Therefore, if imports on behalf of third parties are required, line descriptions
should clearly state accordingly. Furthermore, the customer should confirm that
“the L/C is issued at customer’s risk and liability”. Customer will also sign on L/C
application as guarantor.
Compliance with relevant PR must be ensured for 3rd party L/Cs.
1.2.5.2 Inland L/Cs
TR to be obtained at the time of opening sight/usance inland L/Cs or before

handing over the documents to the customer. This condition may be waived by
CC in exceptional cases.
1.2.5.3 Third Port/Country Imports
If imports into third countries are required, line descriptions should clearly state
port/country of destination, items to be imported/procured etc.
Conditions
 100% cash margin will be required for Import of perishable items and
chemicals. For relaxation of margin requirement specific approval of CC will
be required;
 LC for import of banned items will not be established;
 It will be ensured that specific approvals are obtained for third party and third
port/country L/Cs from the relevant CC;
 TR shall be obtained to protect bank’s interest;
 Margin requirements shall be determined by the bank taking into account the
risk profile of the customer;
 Business Units/CC must ensure:
 Adherence to margin restrictions stipulated by SBP/Central Banks at
Overseas Centres;
 Demand and turnover of the product/commodity in the market;
 Durability, salability and estimated realizable value of
merchandise/commodity being imported;
 Custom duties and import tax structure;
 Financial strength of the customer;
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 Bank’s experience of dealings with the customer; and
 Profitability of the relationship.
1.2.5.4 Shipping Guarantees
Customer Documentation
In all cases involving shipping guarantees, the customer will sign standard
shipping guarantee application that includes an irrevocable undertaking that the
related shipping documents, when received, will be accepted unconditionally,
regardless of discrepancies.
Missing Invoices
In case of documentary collections when the invoices are not available with the
Bank, the value of merchandise for issuance of shipping guarantees against
cash margin/cash collateral as per policy will be established on the basis of
supporting documents relating to price along with an undertaking to indemnify
the bank in case of any fluctuation in price resulting in a shortfall in value. Limit
for issuance of shipping guarantees are required to be approved by CC and will
be made available by RCAD.
Open Ended
The requirement for a fixed expiry date will be considered waived in all cases
since carriers and Customs Department do not accept shipping guarantees with
a stated expiration date.
Decontrol
Shipping guarantees can be decontrolled after settlement of documents in the

following scenarios:
 Return of original shipping guarantee; or

 When original Bill of Lading (B/L) is with the bank, and provided that two
follow-up reminders letters for return of original shipping guarantee have
been sent to the importer by registered port and courier service with an
interval of 2 weeks each.
The original B/L should be kept in the file to serve as evidence in the event the
shipping agent inquire or call on the shipping guarantee. CC approval for the
amount of the transaction should be taken.
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1.2.6 Financing against Shares (FAS)
To manage credit risk on account of FAS facility, Market and Treasury Risk will
issue list of approved shares. It will be responsibility of Market and Treasury
Risk to ensure market liquidity for sell off in case margin calls are not met.
Disbursements against the approved lines are subject to availability of Drawing

Power (DP) which is equivalent to the market value of the pledged securities
with applicable margin as per approval. If the DP falls below the outstanding
amount, Treasury Middle Office (TMO) notifies DP shortfall to the respective
RM, Business Head and RCAD.
If deterioration in market value of the pledged securities continues and the

margin falls below 25%, a margin call is generated to the customer by respective
business unit. Customer is required to top up the security in order to cope up
with the margin call and bring outstanding exposure at least equivalent to DP. If
the customer fails to comply with the bank’s instructions after three calls, the
respective business unit is authorized to offload the security without giving any
further notice to the customer within three working days.
If the margin held falls below 20% and the customer does not replenish the
shortfall after three margin calls bank will sell the shares of the customer to
reduce the outstanding after obtaining approval from GE-Treasury & Capital
Markets under intimation to respective Business Unit.
Criteria for extension of Credit Facilities against Shares is detailed below:
1. Shares accepted as security must be of a public limited company, quoted on

the local Stock Exchanges and approved by Market and Treasury Risk;
2. Shares should be widely held by the public and well traded in the stock
exchanges. This will facilitate easy disposal should the need arise;
3. Share should not be owned by the minors;
4. Shares should be in marketable lots. If such is not the case, a Power of
Attorney (POA) is to be obtained from the owner(s) to enable the bank to split
shares into marketable lots;
5. Pledge of shares should be accepted ONLY through Central Depository
System maintained by Central Depository Company of Pakistan Limited
(CDC);
6. Financing against shares will be allowed only if all regulatory requirements
stipulated by the SBP/Central Banks at Overseas Centers are met;
7. The value of pledged shares shall be monitored regularly and marked to
market. In order to better manage risk, the Treasury Middle Office (TMO) will
monitor the positions created by Financing against shares. All proposals
--- Page 23 of 113 ---

pertaining to Financing against shares require concurrence of Head TMO,
who will monitor the Bank’s exposure and keep it in line with SBP’s directives
and regulations for financing against shares; and
8. Third party mandate to be obtained where applicable.
Exceptions to the above instructions will be approved by GE/GH-R&CP on the

recommendation of respective Business GE.
1.2.6.1 Documentation
Following documents should be obtained for FAS:
1. Pledge Agreement to create lien on the shares;

2. The shares shall be kept in a CDC account with Bank’s lien marked on it;
3. In case of lending to a partnership firm whose liability is unlimited by law,
joint and several guarantees must be obtained from each partner. The aim is
to ensure each partner’s awareness of his or her personal liability towards
the full debt;
4. Board Resolution of the company authorizing specific person(s) to pledge
approved shares/securities with the bank (pledge of third party shares). A
letter of lien with the rights to set off will also be obtained; and
5. In addition to other documents, Agreement for Sale and Buy Back of
marketable securities (IB – 1026) shall be obtained from the borrower.
1.2.7 Risk Participation
‘Risk Participation’ is used by banks to allow other bank or banks to share risks
and returns of a financial transaction. Under this product a Grantor bank may
invite a Participant bank to participate in the risk of an Obligor via a transaction.
The Obligor would be the instrument issuing bank and the instruments may be
(but not limited to) L/C, Promissory Note, Trade Advance, Bills, Banker’s
Acceptance, Buyer’s Credit or a Guarantee; or as the beneficiary of a
Syndicated Facility or a Term Loan, the Grantor may offer to the Participant
Unfunded or Funded Participations.
UBL may act as a Grantor or as a Participant in the above defined product. The
Participant may participate in the transaction with the primary risk being that of
non-payment by the Obligor to the Grantor. The Participation may be on the
following two bases:
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A. Funded Risk Participation
When Participant buys the risk it funds the Grantor for an amount equivalent to
the amount of participation either via a direct remittance or a treasury placement,
as collateral which is an additional risk on the Grantor besides taking exposure
on obligor in the underlying transaction. Following examples below show credit
exposure of UBL as a Grantor as well as a Participant in funded risk participation
transactions:
Examples
i. UBL as Grantor
Grantor UBL
Participant Soneri Bank
Obligor HSBC (LC issuing Bank)
Transaction Nature Funded Participation in LC Discounting
Transaction Amount USD 30M
Participation Amount USD 15M
Security (Placement) None with UBL
Pre RP transaction, UBL will book Short Term Trade (STT) exposure of USD
30M on HSBC. Once UBL sells 50% of the exposure to Soneri Bank, credit
exposure of UBL on HSBC will reduce to USD 15M. There will be no net
exposure on Soneri Bank as they would already have provided funds to the
obligor through us.
UBL’s Exposure on: Pre RP exposure Post RP exposure

HSBC USD 30M USD 15M
Soneri Bank - -
ii. UBL as Participant
Grantor Deutsche Bank

Participant UBL
Obligor ICBC (LC issuing Bank)
Transaction Nature Funded Participation in LC Discounting
Security (Placement) USD 5M by UBL in Deutsche Bank
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Once UBL buys 50% of the exposure from Deutsche Bank, it will book USD 5M
placement exposure on Deutsche Bank and USD 5M STT exposure on ICBC.

Deutsche Bank - USD 5M
ICBC - USD 5M
B. Un-Funded Risk Participation
When Participant buys the risk, it does not fund the Grantor and in case of
default by the Obligor, Participant bank irrevocably and unconditionally
undertakes to pay to the Grantor within a reasonable period (usually defined in
the Master Agreement) of the Grantor’s first written demand an amount equal to
the relevant Participation portion. Following examples show credit exposure of
UBL, as a Grantor as well as a Participant in un-funded risk participation
transactions:
i. UBL as Grantor
Grantor UBL
Participant Mashreq Bank
Obligor Citibank (LC issuing Bank)
Transaction Nature Un-Funded Participation in LC Confirmation
Security (Placement) None with UBL
Pre RP transaction, UBL will book STT exposure of USD 15M on Citibank. Once
UBL sells 40% of the exposure to Mashreq Bank, credit exposure of UBL on
Citibank will reduce to USD 9M and we will have a STT exposure of 6M on
Mashreq Bank.

Citibank USD 15M USD 9M
Mashreq Bank - USD 6M
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ii. UBL as Participant
Grantor Barclays Bank

Participant UBL
Obligor South East bank (LC issuing Bank)
Transaction Nature Un-Funded Participation in LC Confirmation
Security (Placement) None with Barclays
Once UBL buys 50% of the exposure from Barclays Bank, it will book USD 5M
STT exposure on South East Bank.

Barclays Bank - -
South East Bank - USD 5M
1.2.8 Islamic Banking Products
The bank shall follow documentation and related formalities as required by

Sharia advisor and verified by the bank’s legal counsel.
1.3 Facilities to be taken Over/Swapped from Other Banks/FIs
Whenever credit facilities are being taken over/swapped from another bank/FI,
the following guidelines are to be followed:
1. Prior to making swap arrangements, business chain should complete the

SCA package with clear details and reasons for the documents to be
deferred and obtain necessary approvals from the CC;
2. Swap arrangements would be completed through CLC/Legal Division pre-
approved legal counsel, having experience and expertise in corporate affairs,
revenue records verification, and other related matters;
3. Bank’s Muccaddam shall verify the quantity and quality of pledged stocks
and provide a provisional stock report. In case of hypothecated stocks, a
report from an out-sourced company or satisfaction report from the business
team member is to be obtained;
4. After applying prescribed margin on the value of pledged goods reported in
the provisional stocks report, cashier’s cheque will be exchanged against the
physical delivery of goods to the bank’s Muccaddam simultaneously and the
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required documents as per approval obtained by business team will be
lodged with RCAD;
5. An undertaking is to be obtained from other/counterparty bank(s) regarding
swap of facilities and it shall be drafted by legal counsel covering in detail,
besides other aspects of the deal, specifically the following:
 The customer’s Bank shall hand over to UBL all security documents
and/or title deeds and pledged stocks held against the financing being
swapped simultaneously in exchange for bank’s cashier’ cheque in full
and final settlement of all liabilities of the customer being swapped as per
arrangements and no claim shall be entertained in the future.
 A NOC regarding vacation of all charges/redemption is to be signed by
the customer’s bank and handed over to UBL on the same day.
 Exceptions, if any, shall be approved by Head CRM.
6. CLC/Legal Division/ approved Legal retainer shall draft undertaking to be
obtained from the customer regarding completion of all legal documentation
formalities;
7. Before proceeding for swap, latest search report shall be obtained from
Securities and Exchange Commission of Pakistan (SECP) to ascertain any
outstanding charges against the company;
8. Simultaneous execution of all charge documents and Personal Guarantee(s),
where required along with Personal Net Worth statement shall be ensured;
9. As a matter of policy, deferrals/waivers relating to swap transactions will be
discouraged. Any deferral/waiver of documents, if required, will be approved
on case to case basis according to the type of document as per authorities
defined; and
10. Written Bank checking of all banks of customers and market checking is
essentially required.
11. If swapped facilities are also encumbered with other banks then a prior NOC
for all concerned banks are required to have pari passu status.
1.4 Financing against Standby Letter of Credit (SBLC) issued by

foreign banks.
FIG/TPC shall ensure that SBLC is vetted by CLC/Legal Division.
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CHAPTER 2
CREDIT INITIATION
Credit initiation involves an in-depth analysis of the customer based on key
financial, operational and organizational information and thus acts as a basis for
appropriate risk assessment. Documentary requirements and details of
requirements of Credit Application Package along with Risk Rating Systems, has
been defined to aid the initiation process.
2.1 Credit Application Package
Currently two SCA packages exist. The SCA package is used for credits above
Rs. 100 million (above $1M for international credits). The Simplified Credit
Application Package is used for credits upto Rs. 100 million (upto $1M for
international credits). Both packages contain several documents which are listed
in the subsequent sections.
2.1.1 Standard Credit Application Package (Credits above Rs. 100 M)
The SCA package (Annexure VII) for initial extensions of credit and for annual
reviews is expected to contain a comprehensive appraisal for the relationship.
The application should be accompanied by a set of supporting documents,
collectively described as the SCA Package, comprising the following:
1. Executive Summary;
2. SCA;
3. Facility Appendix;
4. Basic Information Report;
5. Comparative position of financial statements;
6. Obligor Risk Rating (ORR) sheet;
7. Facility Risk Rating (FRR);
8. RAC, where applicable;
9. Borrowers Basic Fact Sheet;
10. Credit Information Bureau (CIB) report on the customer and group
companies, where applicable;
11. BRR report, where available;
12. SBP observation/annexure, if any;
13. RCAD’s observations sheet, if any;
14. Valuation Report and Desktop Valuation Report where applicable;
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15. Audited financial statements (three years’ auditor band to be mentioned. If
recent management accounts are submitted at the time of approval, revised
review of financials should be submitted to CC within 10 days of receiving
audited financials) ;
16. Latest management accounts of public limited company and where required;
17. Customer Profitability sheet;
18. Project feasibility, financial projections along with assumptions for long term
loans;
19. Call report and site visit report;
20. PR (ME or Corp and Com whichever is applicable) Check List;
21. Bank and Market Checking by approved outsourced agency (at overseas
centers where outsourced agency is not available informal sources can be
used);
22. Memorandum and Articles of Association (for new customers);
23. Letter of undertaking for proper utilization of facility;
24. Central Liability Report;
25. Latest Stock Report, where applicable; and
26. Stock Inspection Report (Hypo and Pledge), where applicable.
2.1.2 Simplified Credit Application Package (Credits upto Rs. 100 M)
The Simplified Credit Application package for credits below Rs. 100M (Annexure
VIII) comprises of the following documents.
1. Simplified Credit Application;

2. Basic Information Report;
3. Facility Appendix;
4. Bank Checking;
5. Market Checking by approved outsourced agency (at overseas centers
where outsourced agency is not available informal sources can be used);
6. CIB report on the customer and group companies, where applicable;
7. Borrower Basic Fact Sheet;
8. Audited Financial Statements (three years’ auditor band to be mentioned)
(preferred for cases where SBP allows exemption);
9. Latest management accounts, where required;
10. ORR Sheet;
11. FRR;
12. RAC, where applicable;
13. Customer profitability sheet;
14. Comparative position of financial statements;
15. Call Report/Site Visit Report;
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16. Project feasibility, financial projections along with assumptions for long term
loans, etc;
17. Memorandum and Articles of Association (for new customers);
18. BRR report, where available;
19. SBP observation/ annexure, if any;
20. RCAD observations sheet, if any;
21. Valuation Report and Desktop Report, where applicable;
22. Central Liability Report;
23. Stock Report, where required;
24. Stock Inspection Report (Hypo and Pledge), where required;
25. PR (SE or ME whichever is applicable) check list; and
26. Letter of undertaking for proper utilization of facility.
After implementation of Loan Origination System (LOS) all Corporate SCAs are
required to be routed and approved on LOS, while all Commercial and RB cases
will gradually be taken on LOS system due to long transition period and large
number of customers.
Note: All SCAs/Credit memos shall reflect overdues.
Exceptions to the Standard Credit Application
1. Applications submitted for interim reviews need not be accompanied by all

documents listed above, except to the extent compatible with the purpose of
the presentation and mandatory requirements. Instead, interim reviews
should refer logically to the approved SCA already in place and, if necessary,
update the information. Aside from this, comments can be limited to the
transaction for which approval is being sought; and
2. Applications having only facilities that are fully covered by Security Class 1
need not be accompanied by a full package unless it is mandatory or
required by the approving authority. However, care should be taken to
ensure that relevant information is properly recorded.
3. Special urgent transactions/memos can also be initiated through emails
where RCAD is fully involved and kept in loop.
Presentation
Annexure VIIE and VIIID include detailed guideline to present the analysis in
accordance with the complexity of the transaction, the customer’s financial
position, and the degree of risk involved. Presentations are expected to be
complete, and no essential elements are to be omitted. Current Ratio shall be
calculated as per Annexure IX.
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The Credit Proposal Package for the FIRMU is comprised of a Credit Application
face and a data sheet that originates from Bankscope (a specialized software).
The format of the Credit Proposal package for FIRMU is attached (see Annexure
X).
2.2 Responsibility
Business Units will be responsible for credit initiation and for accuracy of
information in the SCA package. Preparation of the SCA package will involve the
following broad steps:-
1. Establishing and maintaining contacts with clients;

2. Receiving credit requests from clients;
3. Collecting required information from applicants and independent sources;
4. Analyzing financial and market position of applicants;
5. Assessing security and support being offered;
6. Negotiating appropriate pricing, and terms and conditions; and
7. Incorporating required information into respective forms.
The responsibilities of CAD regarding credit initiation are outlined below:
 Receive Simplified/SCA through LOS (where applicable). The date of receipt

at RCAD will be automatically tagged in LOS and can be checked for
monitoring purpose;
 Review SCA. Verify Standard Line Description, Security Description and
compliance with PR, Credit Policy and Credit Manual; and
 Ensure that any errors, omissions, and/or deviations from the above are
highlighted and returned to Relationship Management for correction and/or
amendment. The queries in this regard can be raised through emails or Loan
Notes feature available in LOS. In any case, RCAD queries and Business
response should be made integral part of Loan Application.
RCAD to:
 Assign a routing number (log in routing register), and ensure that all relevant
documents are attached, e.g. BIR, BBFS, CIB report, Bank/Market Checking,
Financials, etc. and CAD Issues Sheet (if any). In case of electronic routing,
a unique credit application number is assigned by LOS to each credit
application.
 Initial all pages of facility appendix (for LOS cases RCAD to check on
system);
 RCAD should sign the check list of documents attached (For LOS cases
RCAD to ensure complete check list is uploaded in the system);
 Check BBFS and ensure that all fields are filled by RM;
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 Obtain certificate of bank’s approved legal counsel confirming genuineness
of property being free from encumbrances;
 Confirm that joint inspection of the property has been carried out by RM,
RCAD and Valuator (Fresh/renewal/enhancement) prior to disbursement of
facilities. In case of Annual renewals, joint inspection of property by
RM/business, RCAD & Valuator prior to disbursement shall not be applicable
to Agri Credits, Retail and Commercial credits below Rs. 10Mn. Additionally,
for Agri financing (fresh/enhancements) joint inspection will be applicable to
credits exceeding Rs. 1Mn;
 The CC will be selected by LOS automatically based on the certain
parameters to be filled by the respective RM. RCAD is required to review
data fed by the RM in those parameters and identify if any parameter is left
unfilled by the RM. (Select relevant Risk Manager/Senior Risk Manager or
higher level Tier as per customer/group Risk Weighted Exposure/Security
Classes (Annexure XI) for the manual routing);
 In case of manual routing, prepare and sign routing memo, which is to be
attached to the completed SCA Package;
 Execute Pre-Approval Checklist ensuring that all documents are attached
with the loan application as required by UBL Credit Policy and SBP PR;
 Circulate package to the relevant CC in case of manual routing.
2.3 Lines and Special Transactions (One Offs)
2.3.1 Sub-Allocation/Re-Allocation of Approved Credit Facilities
1. The unutilized portion can be sub-allocated/re-allocated to establish a new

facility or to increase another existing facility under the following conditions
as per the format attached (Annexure XII):
 The DAC will be issued after all documentation formalities for the facility
to be sub-allocated have been completed;
 All regulatory requirements that apply to the sub-allocated line have been
met;
 Risk of new/ increased facility is equal to or lower than the risk of the
facility prior to the change i.e. from Fund Based to Non-Fund Based;
 Tenor of the new or increased facility is equal to or shorter than the tenor
of the previously approved facility;
 The facilities are for any related borrower of equivalent risk within the
same customer group relationship, provided cross company guarantees
are obtained. Sub-allocation may also be allowed to associated concerns
of sole proprietorship and partnership firms if required criteria are met.
For sub-allocation to any group concern comprised of Limited
Companies, it will be ensured that the particular group concern complies
with all applicable PR for the level of exposure being sub-allocated; and
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 There is no deterioration in security/support documentation already held.
Additional security/support documentation may be obtained before
utilization of the sub-allocated line, if required.
 In case NICF pledge is being sub allocated, RCAD to ensure Drawing
Power available from Pledged Stocks to cover the security of sub-
allocated facility.
Schedule of Facilities That May Be Sub-Allocated Based On Above
S.NO. FROM TO
ERF – I, II, FAPC, FBP-A/C
L/C Sight, LC-DA, FAFB
1. NICF (Pledge/Hypo)
L/G (with a tenor not more than
one year)
L/C – Sight
2. L/C-DA L/G – (with a tenor not more than
6 months)
Non-funded lines as specified in
Credit Policy.
Funded lines as specified in
3. Non-Funded Lines (e.g. STT,
Credit Policy.
guarantor line or custodian line or
intermediary line or vice versa)
considered as equal risk
In addition to the above schedule, unutilized portion of approved lines for

NICF/ERF I-II, FAPC and FBP-A can also be allocated for USD Financing under
FE 25.
In addition to the above, Head FIRMU may also approve allocation, sub-
allocation by blocking approved line of same risk on one off basis.
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2.4 Risk Rating Systems
2.4.1 Obligor Risk Ratings (ORRs)
The methodology for the evaluation of ORR is given below.
2.4.1.1 Methodology
The ORR is evaluated using the ORR Grid for Corporate, Commercial, SE, ME,
Individuals and FIRMU (Annexure XIII, XIV, XV and XVI). The following
guidelines may be used to arrive at the numerical ORR for a particular borrower
(further details for calculation of Corporate/Commercial, SE, ME and Individuals
are provided in Annexure XVII):
Step 1: Map the customer’s characteristics against the Rating Factors and
allocate the appropriate score to each characteristic.
Step 2: Make a sum total of all marked characteristics.
Step 3: Map the sum total of all factors to arrive at final ORR of the customer.
2.4.1.2 Level of Risk
ORR 1 - This highest rating is reserved for a handful of multinational and large
institutional customers. Customers with this rating should have unusually solid
and stable profitability, liquidity, and debt coverage in the past and are projected
to continue this performance over the long term.
ORR 2 - Strong corporate/institutional customers or multinationals with

somewhat greater long term risk than Rating 1 customers, but still supported by
very stable operating and financial performance. Taking into account their
activities, ongoing viability, profitability, liquidity, solvency, and capacity to repay,
customers with this rating carry a very small degree of risk due to their notable
stature, stability, and longevity.
ORR 3 - Customers demonstrate medium to long term operational and financial

stability but they may be somewhat more susceptible to cyclical trends or
variability in earnings. Their operating cash flow projections over the medium to
long term adequately cover both projected principal repayments and interest.
ORR 4 - Customers portray operational and financial stability over a three to five
year time horizon, but are more likely to be weakened by adverse business,
financial or economic conditions than customers with stronger ratings.
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ORR 5 - Customers are reasonably sound and have some margin of protection
in their current performance, but may portray more erratic patterns as a result of
competitive or general economic pressures. Recent profits and operating cash
flows provide moderate comfort, and therefore interest and principal repayments
are less well assured over a medium to long term time horizon.
ORR 6 - These customers face more uncertainty over future operating cash
flows, and are often under stronger competitive pressure. Their future over the
next three to five years, in both good and bad times, is less well safeguarded by
operational and financial performance, with smaller margins of protection on
principal repayments and interest.
ORR 7 - This category is termed as Watchlist. Customers have greater

vulnerability to default. While current projections show that they are able to
support principal repayments and interest, capacity or willingness to repay is
likely to be impaired by adverse business, financial or economic conditions.
These customers often show more erratic performance, and may have
experienced recent loss years. They may be perceived as fighting to maintain
current levels of profitability.
Customers which are watchlisted due to subjective or above factors and have
delayed payments by 16 to 29 days (16-59 for SE customers) will fall in this
category.
ORR 8 - This category is termed as Serious Watchlist (Severe Watchlist for SE

customers). Customers have high vulnerability to default. Current dealings
reflect delay in interest payments. Future payments might depend on continuity
of positive prospects of the industry.
These customers often show more inconsistent performance in terms of profit

margins and mark-up payments in recent times.
Customers which are watchlisted due to subjective or above factors and have
delayed payments by 30 to 59 (60-89 days for SE customers) days will fall in this
category.
ORR 9 - This category is also termed as Severe Watchlist (OAEM for SE

customers). Customers with high probability of default fall under this category.
Current financial position of the customers is weak. Even positive development
of the business, financial and economic conditions might not ensure its capability
to meet its financial obligations.
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Customers with delayed payments by 60 to 89 days (90 days or more for SE
customers) might fall in this category.
ORR 10 - These customers clearly exhibit weaknesses, and depend on

favorable economic conditions to meet financial commitments. They have been
experiencing difficulties, which may threaten the safety of lending. Returning the
business to sustainable health without important changes in strategies or
practices is difficult. If it is highly likely that a breach of repayment arrangements
will occur within a period of three months, the requirements of ORR11 and 12
are to be strictly observed. Customers under the substandard category as
defined under the SBP’s PR (i.e. where mark-up/interest or principal is overdue
by 90 days or more from the due date (180 days or more for SE customers))
would also fall under this risk rating.
ORR 11 - Customers with Credit Rating 11 are of very poor standing with little
prospect for improvement. Principal recovery will require rigorous remedial
management. Customers under the Doubtful category as defined under the
SBP’s PR (i.e. where mark-up/interest or principal is overdue by 180 days or
more from the due date (1 year or more for SE customers) would also fall under
this risk rating.
ORR 12 - This risk rating clearly recognizes and measures assets impaired due
to loss of principal (which may be partial) as well as mark-up, thus justifying the
provisioning for the same. Customers under the Loss category as defined under
the SBP’s PR (i.e. where mark-up/interest or principal is overdue by one year or
more from the due date (18months or more for SE customers) would also fall
under this risk rating or trade bills (import/export) bills or inland bills are not
paid/adjusted within 180 days of the due date.
For International Credits, classification policy defined in Credit Policy-

International shall be followed.
2.4.1.3 Risk Rating vs. Classification

Risk Rating Category Classification
1-6 Current
7 Watchlist
Serious Watchlist (Severe Watchlist for SE
8
customers)
9 Severe Watchlist (OAEM for SE customers)
10 Substandard
11 Doubtful
12 Loss
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2.4.1.4 Frequency of Reporting
CRM/CC must reassess the ORR whenever a review event (frequent overdues,
deferrals, material adverse change in the company or industry) occurs, and if
appropriate, the ORR must be revised/downgraded. The outcome of the review,
including details of major issues to resolve, should be recorded. Further, ORR
should be downgraded if the deferrals are outstanding for more than 1 year.
Where there is a downward movement in an ORR, the relevant Business Unit

and Risk Manager will determine the required course of action, which may
include issues to be addressed with the customer.
Under normal circumstances, the following maximum review periods will apply
for ORR:
ORR Rating Review Frequency

1 Annually
2 Annually
3 Annually
4 Annually
5 Annually
6 Annually
7 Semi-Annually
8 Semi-Annually
9 Semi-Annually
10 Quarterly
11 Quarterly
12 Semi-Annually
In case of credit limits approved for FIG and TCM, the review of ORR should be
done annually for the banks with which permanent credit limits are in place.
2.5 Security Classes
The following security classes have been identified which would be subject to
review with the changing market dynamics:
Class I:
 Deposit (PKR/FCY) with UBL; and

 US$ Bonds, Pakistan Investment Bond, Treasury Bill, National Saving
Certificate (NSC), discharged and under lien, and Government guarantee.
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Class II:
 Certificate of Investment, Deposit, guarantee of “A” rated FIRMU Approved -

Global Banks.
Class III:
 Certificate of Investment, Deposit, guarantee of FIRMU Approved - local

Banks (Or other than class II).
Class IV:
 Certificate of Investment, Deposit, guarantee of FIRMU Approved -

DFIs/NBFCs;
 Shares/TFCs/Certificates of Mutual Fund; and
 NIT Units.
Class V:
 Token/Registered Mortgage;
 Pledge of goods financed by UBL; and
 Lien on import documents under Sight LCs.
Class VI:
 Equitable Mortgage;
 Hypothecation of stocks and receivables;
 Hypothecation over plant and machinery; and
 Others (TRs etc.).
(3RD party security would be reflected by adding a prefix 'T')
Security classes should be mentioned in SCA.
A risk-scoring model is prepared which would generate risk weighted exposure

limits as a product of facility amount and security weight. The proposed criteria
would be applicable to both Simplified and SCAs. The RM would be responsible
for matching facilities with their respective security classes and determining the
weighted risk score. RCAD would then be responsible to route the SCA to the
relevant CC based on the risk weighted score instead of the proposed exposure
amount.
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For example, in Appendix B of Annexure XI, the risk weighted exposure amount
comes to Rs. 476M whereas the exposure proposed is of Rs. 700M. With this
method the CC for the risk weighted approval level covering Rs. 476M will be
chosen by the RCAD for routing SCA, and not the CC for Rs. 700M.
MIS would be developed to reflect all security fields for necessary reporting and
monitoring.
2.6 Facility Risk Rating (FRR) Model
In line with efficient risk management practice, FRR Model has been formulated
for implementation. FRR comprises of two components; risk associated with the
type of collateral and facility itself. The model (Annexure XVIII) has been devised
to meet various types of transactions comprising of single facility to multiple
facility structure. Usually customers avail multiple facilities, this model also
enables us to calculate facility wise FRR as well as aggregate FRR of the
customer.
The purpose of this model is to outline a criterion that truly reflects expected loss
of exposure (in the event that default has occurred) of each facility as well as of
aggregate facilities. It is aimed to have lending risks properly identified to aid risk
approving process and reflect true credit quality. Calculation methodology for
FRR Model is defined in Annexure XVIII.
This Model shall be applicable with immediate effect. Till the time the Model is
incorporated in LOS, FRR Sheet as per the attached annexure shall be prepared
manually and attached with the SCA in LOS or sent as a hard copy/scanned
copy to the sanctioned authority.
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CHAPTER 3
CREDIT APPROVAL
The credit approval requires a framework within which a reviewer can judge the
quality of credit proposed. All Credit Officers should make themselves
thoroughly familiar with the credit process, industry dynamics etc. Following
Credit approval structure shall be applicable:
 Risk Analyst;
 Senior Risk Analyst;
 Risk Manager; and
 Senior Risk Manager.
3.1 Expected Attributes of Risk Analyst/Senior Risk Analyst
The Risk Analysts must have sound capabilities including:
 Adequate academic knowledge with capability to conduct financial analysis

of existing and prospective clients including spreading the financial data on
the spread sheets;
 Enhanced capacity to analyze financial health and operational aspect of the
obligor;
 Capacity to comprehend Credit Policy and SBP regulations;
 Ability to carry out need-gap analysis, collating the required information and
presenting complete information along with view on credit to the Risk
Manager/Senior Risk Analyst;
 Ability to monitor convents and other credit related matters;
 Sound communication skills; and
 Ability to follow up to keep track of regularization of deferrals and preparation
of required reports.
In addition to the above mentioned capabilities, Senior Risk Analysts are

required to have:
 Capacity to provide guidance to business on credit related issues to ensure

quality of credit proposals;
 Command over PR and Bank’s Credit Policy
 Strong grip on different products of the bank;
 Commercial awareness;
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 Ability to evaluate and understand risk associated with individual
transactions, products and borrowers;
 Ability to foster professionalism in the department and to mentor less
experienced credit staff; and
 Ability to make balanced and independent judgment, with the character to
assess each credit proposal on its merits.
 Partial clearance on any external exams/certifications as required by the
Bank from time to time (e.g.; OMEGA).
Credit approving authority may be delegated to Senior Risk Manager jointly with
Risk Manager.
3.2 Expected Attributes of Risk Manager/Senior Risk Manager
The Risk Manager must have sound capabilities including:
 Adequate knowledge of credit analysis, negotiation, structuring and

maintenance;
 The ability to communicate clearly, in speech and in writing;
 Sound knowledge of bank’s Credit Policy, Credit Manual and the ability to
apply this knowledge to specific situations;
 Integrity, honesty, sound judgment, common sense, and attention to detail;
 The ability to think and act independently;
 The sense to know when to ask for guidance from more experienced officers;
and
 Clearance on any external exams/certifications as required by the Bank from
time to time (e.g.; OMEGA).
In addition to the above mentioned capabilities, Senior Risk Managers are

required to have:
 Diverse experience in corporate and commercial lending;

 Appropriate credit training;
 Exposure to more than one geographic or business areas;
 Remedial management or workout experience; and
 An acceptable track record with respect to the performance of portfolios
under his/her responsibility.
They must also have a wide range of capabilities such as;
 Advanced knowledge of bank’s credit culture, policy, procedures and the

ability to interpret and apply this knowledge to specific situations;
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 Sensitivity to portfolio management strategies;
 Understanding of the business cycle and its effects on the portfolio and
individual credits;
 Ability to identify current risks and to anticipate potential risks;
 Negotiating ability, especially in difficult or troubled credits;
 Ability to work with customers, other banks, lawyers, etc.;
 Ability to consult and work with seniors, and subordinates in a team approach
to any situation;
 Ability to work under pressure and maintain a detached, independent
perspective;
 Ability to apply knowledge and experience to actual credit situations and to
communicate assessments and opinions clearly and directly in speech and in
writing;
 Ability to give strict attention to details;
 Ability to coach and groom juniors and to show a commitment to their credit
training;
 Balanced and independent judgment, with the ability to assess each credit
proposal on its merit, and to approve only when satisfied with all aspects of
the credit ; and
 Decisiveness, including the ability to make unpopular decisions – a
reasonable sense of when to say “Yes” and when to say “No”.
3.3 Appointment of Global Relationship Manager
There are some large business groups which spread their business operation in
various countries, business relationship groups. For these Customers, GE-Corp
& Com/RB/International/GH-Islamic Banking will appoint Global Relationship
Manager (GRM) based on the following factors:
 Accessibility;
 Strength of the relationship;
 Complexity of relationship; and
 Amount of facilities extended.
If there are disputes in assigning the GRM between Business Groups, or

GE/GH-R&CP will finally decide the appointment of GRM.
3.3.1 Responsibility of Global Relationship Manager
To manage issues pertaining to all group accounts at various locations, deal with
Non-Performing Loan (NPL) management and account monitoring. SCA of the
group will require GRM’s input and signature in addition to respective RM(s).
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SCA of all companies in the Group should be routed in one package if possible.
However, due to multiple geographies and different financial year end dates of
the Group companies, the SCA (interim or annual) for individual company can
be routed independently. In such cases, a copy of last approved Group SCA
should be attached; however sign off of GRM is essential.
3.4 Credit Approval Structure
Detailed Credit Approval Structure is defined in Annexure XIX.
3.5 Markup parameters
RM should clearly write the frequency of mark-up collection from customer in the
Facility Appendix. CC is required to approve the proposed frequency under
following guidelines:
1. All long term loans should have mark-up reset and payment frequency linked
with respective KIBOR. Markup payment frequency should be at least
quarterly. In case higher frequency is proposed specific CC approval shall be
required, subject to clearance of regulatory requirements;
2. All short term facilities should have mark-up reset and payment frequency by
customer linked with the tenor of KIBOR (for example, for 1 month KIBOR,
monthly reset and payment of mark-up). Deviation will require specific CC
approval;
3. All money market lines (MMLs)/deals should have repayment of principal and
mark-up paid simultaneously by the customer at the maturity. Any exception
will require CC approval; and
4. Regulatory requirement to be complied with in all cases.
3.6 Credit Approval Process
Credit proposals may be approved or declined by the approving authorities as

per their discretion. In order to streamline the approval process, final approving
authorities upto the level of Senior Risk Managers, are required to justify the
decisions taken in cases of decline/approval as per following guidelines:
Decline
In case the credit is declined, the authority signing last (upto the level of Senior
Risk Manager) will provide the decline memo while sending SCA/Credit Memo
back to RCAD. Memo shall contain comments on:
 Industry Characteristics unfavorable for the customer;
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 Obligor’s key risks which cannot be mitigated, financial or nonfinancial; and
 Any other detrimental factor.
Decline memos shall be required upto the level of Senior Risk Manager. RCAD
shall route such decline memo along with the declined proposal to Head CRM/
GE/GH-R&CP directly for review.
Approval
Where credits are approved the approval conditions (if any) need to be clearly
outlined and RM/RCAD are required to adhere to them.
In order to ensure controls and maintain proper records, approvals via emails
should be avoided unless it is an urgent transaction. In such cases, RCAD is
required to disseminate information to all concerned. Additionally, RCAD is
required to perform checks post approval with respect to PR, Bank’s Credit
Policy and/or any other regulations issued by SBP and highlight discrepancies, if
any. Copy of email shall be kept in Credit File for reference by RCAD.
3.7 Supervisory Role
In order to strengthen Supervisory Role of Credit Approvers (Risk

Managers/Senior Risk Managers) in CRM (for both Corporate and Commercial
Credits), approved credits will be reviewed by CRM as under;
All Credit approvers are required to review the approved credits of their one level
down credit approvers by reviewing samples on quarterly basis. This is
applicable till the level of Head CRM (meaning the final level reviewing one level
down credit approvals will be Head CRM).
3.8 Expired Credits
Any facility or credit, which is renewed by CC or its extension is in place, is not

an expired credit. The fresh security and control documentation may take time
but such facilities are not to be taken under the head of expired credits.
Under these circumstances where credit has been reviewed and approved by
the CC, RCAD will issue conditional DAC, with the memo to the respective
branch, highlighting the exception and advising that debit shall not be removed
without prior approval from RCAD. For this, only the expiry of the credit must be
changed and the new expiry of the approval is to be inserted in the system and
debit of limits shall remain blocked.
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After completion of all necessary documentation etc. for clearing the exception,
RCAD will issue a complete DAC after which proper debit operations will be
effective.
While RCADs will provide MIS of credits which are expired and will be expiring in
the coming months to all concerned, it is a joint responsibility of Business and
CRM to have expired credits at low levels, all the time.
3.9 Unusual Risks
Credit transactions representing unusual risks shall be treated as exceptions to

the Policy. A few examples of exceptions are:
1. Credit transactions with tenor longer than the stipulated period as per policy;
2. Term Loans having:
 Bullet payment at maturity (loans exceeding one year tenor); or
 Grace period in excess of 2 years;
3. Lending for the purpose of providing equity to a business;
4. Issuance of open-ended guarantees and/or guarantees which may be
extendible at the sole option of the beneficiary and guarantees with auto-
renewal clause (ARC); and
5. Concentration of collateral with limited marketability.
Approval level:
 1, 2 and 3 – GE/GH-R&CP.
 4 and 5 – one level higher than relevant CC.
Guarantees with ARC favoring Government and Government owned entities and
top tier multinationals at Overseas Centres shall be approved by relevant CC.
3.10 Politically Exposed Entities
All politically sensitive credits (fresh and renewals) as well as credits linked with
persons holding public offices shall be approved by GE/GH-R&CP in addition to
relevant CC including Senior Risk Manager and Head CRM.
3.11 Revaluation
RCAD will submit a monthly report of credits booked (funded + non-funded) in

foreign currency to business and CRM showing the impact of exchange
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fluctuation i.e. customer’s liability at prevailing exchange rate and the exchange
rate at the time of booking foreign currency loans.
If the depreciation of PKR is more than 5% from the booked rate of the loan, RM
will ask the customer to reduce his/her liability proportionately or obtain approval
of enhanced amount with adequate security. An undertaking to cover exchange
fluctuations shall be obtained from the customer at the time of initiation.
Such loans, where the exchange rate has depreciated more than 5% and the
liability is not reduced or security is not topped up by the customer promptly, will
be watchlisted. Subsequently, business shall submit a resolution plan after
agreeing with the customer in 30 days.
3.12 Overdue
It has been observed that TPC continues to issue LCs upto the limit approved in
cases where the import bills have been overdue for considerable period. This is
against the true spirit of due diligence to be conducted while lending to
customers. Inability of the customer to pay for current dues signals that the
customer’s cash cycle is disturbed and would face problems for further
repayment of the loan. Additional lending to such customers might lead to
deterioration of the portfolio. Therefore, such cases will require additional
approval (as specified in Annexure XX) for continuation of issuance of LCs,
Finance against Trust Receipts (FTRs) and FIM – (sub limits) for overdue
accounts within the approved limits.
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CHAPTER 4
DOCUMENTATION AND DISBURSEMENT
The disbursement of funds against any facility does not take place unless the
requirements pertaining to credit have been met. The responsibilities and
guidelines for completion and perfection of documentation along with minimum
document requirements are defined below.
4.1 Documentation Responsibilities
Prior to issuance of DAC and on receipt of approved SCA, RCAD will ensure the
following:
 Routing number allotted to SCA to be logged off from routing register, routing
sheet to be filed (for LOS, this is system generated), and copy of SCA to be
provided to Documentation Officer in order to check/record credit approval
and CC’s covenants, if any;
 A copy of Credit Approval forwarded to MIS Officer for updating of database;
 Upon written request from RM, RCAD to prepare IB documents, as per credit
approval, completely filled in, including, principal amount, rate of markup,
frequency of markup for each facility, expiry of IB Agreement, details of
collateral etc.;
 RM to fill date of execution in IB documents and RCAD to ensure accurate
date of execution is filled.
 Signature of the customer shall not be obtained on blank documents;
 Provide copy of approval to RM, along with completed set of IB and related
documents;
 Independently nominate/assign external vendor (Muccaddam, Valuator, etc.)
for provision of various reports. Review and identify the discrepancies in the
reports for rectification by the vendor. All muccaddam and valuator vendors
to be spread over equally for customers;
 Nominate approved legal counsel for review/vetting of legal documents
(Non–Standard);
 Review legal opinion provided by the legal counsel and draft of agreements,
undertaking, or any other legal and property document etc;
 RM will be responsible for providing complete/executed legal documents as
per requirement of approved legal counsel;
 Documents must be executed in the presence of RM(s)/bank officer(s)-
attorney holders; and
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 RCAD will ensure that any outstanding discrepancies/issues related to the
approval/legal opinion, BRR/Audit/Valuation Report, etc. are advised to RM
in one complete report/memo. However, if RM provides RCAD with
documents on piece-meal basis – discrepancies shall be pointed out in
piece-meal.
After careful review of the credit documents, external reports and legal opinions,
RCAD will:
 Issue DAC only after resolution of all outstanding issues/discrepancies or if

valid deferrals are in place;
 Provide copy of DAC to MIS Officer for scanning of complete package (i.e.
SCA + Approval + IB Documents + Legal + External Reports) in Electronic
Document Management System (EDMS);
 Provide copy of DAC to Processing Officer for feeding of Limit details, type,
tenor, rate of mark-up, expiry, etc. in core banking system (CBS). All entries
to be duly authorized/supervised by RCAD Head; and
 Provide scanned copy of DAC to Operations via email or hard copy through
fax or mail (courier).
4.2 Documentation
4.2.1 General
1. It will be the responsibility of RMs to ensure that complete and legally

enforceable documentation is obtained as required for each credit
transaction/facility;
2. All documents intended as security or support for credit facilities must be

selected and reviewed by Bank’s approved legal counsel conforming to the
transaction/facility, adequate coverage of the risks involved, completeness,
proper execution, and registration, if required. In case of renewal of facilities
against the same arrangements where documents are already vetted by the
legal counsel, fresh opinion will not be required;
3. The security/support documentation should be executed by the borrower as

follows:
a. In case of individual, sole proprietorship and partnership, documents must

be signed by the owners. Bank will not accept any delegation of power for
the signing of credit documents; and
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b. In case of limited liability companies, credit documents will be signed by
authorized person(s) of the company/trustee or any other statutory body
as per Board Resolution or any Act delegating such powers;
4. In the case of evidencing a lien on specific property/assets, it will be the

responsibility of RM and RCAD to verify the actual existence by conducting
joint visit of the property/asset;
In case of pledge of shares, Bank’s lien should be recorded through CDC and
letter of lien (shares) should be obtained duly signed by the owner of shares.
In the case of residential/commercial/industrial property, Bank may get one of

the following types of title documents;
a) Sale Deed, GIFT (HIBA) Deed/Exchange Deed etc.

OR
b) If the title has been originated from the Revenue Record Department then:
 Copy of register HaqDaranZameen/Jamanbandi issued by the relevant
Halqa Patwari.
 Copy of Mutation (NAQAL INTEQAL) issued by the relevant Halqa
Patwari.
 AQS SHIJRA (Site Map of the property).
OR
c) In case of land located in Societies/Schemes.
 Allotment letter/Transfer letter
OR
d) Permanent Transfer Deed (PTD) issued by the Settlement Department with
respect to evacuees properties.
 Certificate from the relevant Halqa Patwari that this PTD has been
incorporated in the revenue record.
OR
e) Proclamation Decree issued by the Court of Law.
OR
f) Partition Deed duly executed in the Court of Law along with extract from the
relevant ownership record.
Following additional documents relating to the Title Deed must also be obtained:
 Approved copy of the map;

 Non-encumbrance certificate;
 Valuation certificate from a Bank’s approved surveyor;
 Extract from City Survey Department (PT-1) or Excise department if no
record of ownership is available with any other department; and
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 NOC/permission to create mortgage, in case of lease hold property.
N.B. Factum of mortgage is required to be entered in the relevant

revenue/ownership/authority/City Survey Record (PT-1) and certificate to this
effect to be obtained and must be placed on Bank’s record.
Instructions concerning the requirements to establish valid liens on various

categories of assets will be issued from time to time. In case of pledge of shares,
bank’s lien should be recorded through CDC.
In International Group local regulatory requirements in each region will be

followed for creating a charge on assets/real estate.
Except as otherwise specifically provided, no disbursement against approved

credit facilities will be permitted before the RCAD determines that all required
documents have been received. RCAD will not issue the DAC unless all the
required security / support documentation have been received and lodged.
4.2.2 Lodgment
Except as otherwise provided, all documents received as security or support for

credit facilities must be recorded in safe-in and safe-out. These documents shall
be lodged under dual control with designated custodians in RCAD. In this
regard, CAD will institute control procedures.
4.2.3 Temporary Release
Temporary release of credit documents (previously lodged with RCAD/SAM-

CAD) for any justifiable reason will be allowed to RMs if the request is initiated
by RM (as per format attached Annexure XXI A) and approved by TL/Unit
Head/RHRA+RCH/HCA/CHRA/DH-SAM.
Documents will be returned within 7 working days from the date of release.
Documents relating to SAM accounts will be returned within 15 working days
from the date of release. RCAD will diarize the receipt of released documents
and ensure that the documents are received on due dates. Release of
documents for more than 7 working days (15 working days for SAM accounts)
will require approval from relevant level of CC originally required for total facility
approval.
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4.2.4 Permanent Release
Request for permanent release of credit documents will also be initiated by the
RM+TL/Unit Head/RHRA+RCH/HCA/CHRA (as per Annexure XXI B) and
approved by the relevant level of CC originally required to approve credits as per
Credit Approval Authority & Structure, provided that:
 Related facilities have been fully liquidated/settled/cancelled; or

 Expired documents are to be exchanged/replaced with the new ones.
However, before release of documents, RCAD to ensure that these documents

are not held to secure any other exposure in the Bank by confirming from all
relevant departments.
Furthermore, RCAD to ensure that all classified accounts, where collateral

release is being approved against securities where Forced Sale Value (FSV)
benefits have been availed, must be done by keeping FINCON in loop.
4.2.5 Expired Documentation
Continued lodgment of obsolete or expired documents in the vault will be

permitted only when problems in the relationship preclude obtaining new ones,
or when they are necessary to evidence the past due status of an obligation.
The obsolete or expired condition of such documents must be properly noted in
the security/support section of the respective SCA. In all other cases, obsolete
or expired documents must be replaced promptly.
4.2.6 Copies in Credit Files
Wherever practical, photocopies of security and support documents will be kept

in the appropriate section of the credit file to minimize the need for access to the
originals held in the vault.
4.2.7 Witness
1. All documents which may have to be presented to a Court of Law are

required to be witnessed in the presence of bank officer(s) / RM(s);
2. Two adult male Pakistani nationals will be preferred as witnesses. Female

witnesses may also be accepted, but two females are required to replace
one male witness as per prevailing laws;
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3. Following precautions must be observed when selecting witness;
 They must be physically present at the time of signing;

 They must be properly identified, and number of their CNIC must be
shown on the document;
 To the extent possible, witnesses should be independent;
 Witness of minor and insane will not be accepted; and
 Signatures of witness should match with his/her CNIC.
4. As a rule, documents that are subject to foreign jurisdiction need not be

witnessed. Instead, the procedure prescribed by the foreign jurisdiction for
the authentication of signatures must be followed.
4.2.8 Minimum Prescribed Documents for Fund based Facilities
All working capital lines will be evidenced by a demand promissory note and a
buy back agreement. Both documents will be made out for the total amount of
the line including mark-up and will be listed in the security/support section of the
SCA and renewed every year. It is also recommended to obtain a letter of
continuity from the borrower in order to perfect the loan documentation.
In the International Group, loan documentation/agreements will be obtained

according to local legal requirement.
4.2.9 Assigned Contract Proceeds – Acknowledgement
Unless specifically waived by the CC, assignment of contract proceeds must in

all cases be accompanied by the relevant acknowledgement from the project
owner.
At the time of annual review, the RMs shall obtain details of projects/contracts in
hand with their original and residual value from the customer.
4.2.10 Letter of Guarantee (Company)
1. In cases where a LG from a parent company or from a third party is

accepted, following requirements should be fulfilled;
 The guarantee must be signed by an authorized signatory or signatories

in accordance with documentation held by the Bank. List of authorized
signatories duly attested by the parent company/third party to be attached
with the guarantee.
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 A Board Resolution must accompany a corporate guarantee authorizing
the issuance of the particular guarantee. A board resolution which does
not mention the name of the guaranteed company but refers to it as a
“company/ corporation” requires extra care in that we should ensure that
by virtue of the governing law the guaranteed company is deemed to be a
subsidiary of the guarantor. A board resolution supporting a corporate
guarantee given by a foreign company should have, apart from being
notarized, the certification of the Ministry of Foreign Affairs and the
Embassy/Consulate of Pakistan/UAE/Qatar/Bahrain/Yemen in the
concerned country.
 Certified copy of Memorandum and Articles of Association must be
obtained to ensure that issuance of any corporate guarantee is within the
powers of the entity and company is authorized to provide third party
security/guarantee.
 Legal opinion should be obtained from a lawyer domiciled in the country
of guarantor (Lawyers panel to be updated annually) regarding the
enforceability of the guarantee (if the guarantor (prime obligor) is not
residing in Pakistan/ domiciled in a country other than that of Law of
Jurisdiction). Following issues should be included in the opinion of the
concerned legal counsel:
 That the guarantor was duly informed and is validly existing,

 That the issuance of the guarantee falls within the power of the
guarantor as evidenced by the law of the country and by the by-laws
of the guarantor,
 That under the applicable laws of the country, the guarantee is valid
and is enforceable as per the terms and conditions thereof.
 Confirmation that issuance of a guarantee by an unincorporated entity is

within the powers of the partnership agreement, joint venture agreement,
or other similar document to be obtained either by possession of a copy
of the document or by an opinion from approved CLC/Legal counsel.
4.2.11 Deferrals of Security/Support Documentation
Security documents have been segregated into Mandatory, Crucial and Semi
Crucial documents (Annexure XXII A). All Waivers/Deferrals have to be properly
justified by RM. Following guidelines will be observed for allowing deferrals:
 The customer has satisfactory track record.

 The customer has undertaken in writing to regularize the deferred document
within the stipulated time.
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 The Bank is not exposed to a pecuniary risk on account of the proposed
deferral.
 Completion of deferred documentation is certain.
 The deferral does not violate any of the regulatory requirements.
 Deferral is required to be routed through the same CC who has originally
approved the credit.
Format for Document Waiver/Deferral Memo attached (Annexure XXII B).
Maintenance
Monitoring of outstanding deferrals and other documentation discrepancies will

be the responsibility of RCAD. A monthly follow-up with the respective Business
Units will also be maintained by RCADs to ensure the timely elimination of
exceptions. Deferral report will be circulated by CAD to Business, Audit, BRR
and Risk.
The credit facilities of the customer shall automatically be frozen after 30 days
on expiry of the deferral.
4.2.12 Facility Offer Letter (FOL)
A facility offer letter should be issued to the customers by RM/TL/Unit Head in

coordination with RCAD as per prescribed format (Annexure XXIII). RM will
provide FOL duly accepted by the customer to RCAD for record.
Requirements
The facility offer letter must have the following minimum information:
1. Description of facilities with approved amounts;

2. Security/support for each facility;
3. Mark-up/Commission (Pricing) and frequency (payment period by customer);
4. Overdue rate as mentioned in Bank’s schedule of charges for expired trade
loans;
5. Outstanding as of the date of the FOL under each facility;
6. Subordinated loans;
7. The relevant terms and conditions from the approved text for the related
facilities;
8. FOL should be jointly signed by business and RCAD with a valid POA. Prior
to sending it to the customer, the facility letter must be reviewed and initialed
by Head RCAD to ensure that it covers all the conditions;
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9. FOL must be signed and accepted by the owners or partners in the case of
sole proprietorships and partnerships. In the case of Limited Liability
Company/any other Statutory Body or a branch of foreign
company/corporation, FOL must be signed and accepted by an authorized
signatory who has the powers to sign loan documents;
10. Separate FOL should be obtained for each group company;
11. Accepted FOL must have company stamp;
12. All pages of FOL must be signed/initialed by the customer;
13. Copy of FOL signed and accepted by the customer must be obtained before
issuance of DAC;
14. In case of interim approvals with change in facility structure or security
support, the signed copy of offer letter to this effect should be obtained prior
to issuance of DAC; and
15. Bank shall have the right to block or withdraw facilities immediately whenever
deemed necessary.
Any exception to the above points shall be approved by the relevant CC in

addition to Senior Risk Manager.
4.3 General Rules
In order to avoid the possibility of any misunderstanding between what is

approved by the CC and what is enforced by the RCAD, there are certain rules
that specify the information required in describing each type of security and, to
the extent possible, standardize the wording to be used in each case. For
perfection of documentation, following rules that apply in general to the
documents listed in the security/support section of the SCA should be adopted;
Rule # 1
Signature on all documents must be verified by an authorized attorney holder of

Operations Department.
Rule # 2
When a term loan agreement is listed as security/support, this implies that Bank
will not only have the agreement itself but will also have all other related
documents mentioned in the agreement. Usually these documents are listed in a
section of the agreement called “Conditions Precedent” and they include such
things as certificates of corporate authority, etc. Transaction lawyer will be
responsible to confirm completion of conditions precedent mentioned in term
loan agreements.
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Rule # 3
Certain documents imply the existence of other documents. For example, a

mortgage on plant and equipment implies the existence of insurance assigned to
the Bank. Implied documents may or may not be listed in the security/support
section of the SCA but they must be in Bank’s possession.
Rule # 4
Loan Documents taken as evidence of debt may or may not be listed in the
security/support section since they are essential to the granting of credit and
therefore may be assumed to be always obtained in each and every case. The
security/support section should include only the documents that serve as
security or support since their obtaining depends on the CC’s perception of the
risks involved. In case the credit is extended beyond 90 days due to delay in
annual review, the validity of loan documents is essential and fresh loan
documents must be obtained, if required.
Rule # 5
All Documents should be on Bank’s formats approved by the approved

CLC/Legal Counsel.
Rule # 6
Documents other than on Bank’s Format may be developed and vetted by

Bank’s CLC or his nominated lawyer.
Rule # 7
For Limited Liability Companies, signing powers should be checked by obtaining

the following documents.
Duly signed by the
 Articles of Association. Secretary
verifying
of
upto
board
date
 Memorandum of Association. amendments, with date of
verification.
 Board Resolution signed by all the Board Members/Directors or a copy of

Board Resolution certified by the Company Secretary quoting the extract of
the Resolution certified by the Board. OR
 POA.
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Rule # 8
In the case of partnerships or sole-proprietorships, the documents should always

be signed by the partners/owners – No delegation of powers shall be accepted.
Rule # 9
Document should always be filled in completely and no blank should be left.
Rule # 10
Name and designation of persons signing the documents should be mentioned

next to their signature.
Rule # 11
Copies of the Computerized National Identity Cards of all persons who sign the
documents as borrower/witness/guarantor should be obtained.
Rule # 12
All limited companies would be required to execute Personal Guarantees (PGs)

of their directors as collateral support to borrow from the Bank except FIs. The
Bank may consider waiver of PGs based on the following:
# Public Limited Company Private Limited Company SME

Have an external rating of
BBB (PACRA/JCR-VIS or
whose ratings are mapped Personal
with PACRA/JCR-VIS and are Guarantees
Have an internal credit rating of
1 approved by SBP) or better. irrespective
ORR 3 or better
If the company is not of business
externally rated, an internal constitution
credit rating of ORR 4 or
better would apply
Have at least a 3 year Have at least a 4 year relationship
relationship with the Bank with with the Bank with all
2A all arrangements observed arrangements observed As above
(financially disciplined) over (financially disciplined) over at
the last 3 years. least the last 3 years
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In case of a new relationship,
In case of new relationships, the
the customer’s track record for
customers’ track record for at
2B at least 3 years with other As above
least 5 years with other banks of
banks of similar stature can
similar stature can be considered.
be considered.
Note: For each case of the categories above, condition 1 and 2 must be jointly
met (2A or 2B whichever is relevant).
In addition to relevant CC, the approving authority for the waiver of PG rests with
GE/GH-R&CP. However, PGs for credit lines fully secured by cash
collateral/liquid securities will not be required (as a partial facility among multiple
facilities or total cash/liquid secured). For this RCAD shall confirm that the facility
is fully secured by cash/liquid securities.
For overseas lending, rules and regulations of local central banks to be complied
with.
Rule # 13
In addition to the basic criteria, following exceptions are additionally identified

whereby the PG of directors would not be required.
1. In case of foreign controlled private companies, whose directors in Pakistan

are only paid directors, either the PG of directors in Pakistan or bank
guarantee or corporate guarantee from the holding company may be
obtained;
2. In certain cases the Bank may be willing to consider a strongly worded letter
of comfort duly drafted by the Bank’s legal counsel. Such exceptional cases
must be approved by GE/GH-R&CP;
3. In case of nominee directors representing GOP direct/indirect interest and
non-executive directors of Multi-National Corporations;
4. In case of GOP owned/majority holding entities;
5. In case of directors who are full time paid employees of the company and the
position of director is held by them owing to their professional and technical
capabilities. A director of a company who is not related to sponsors/owners
of the company, having a post graduate education in
business/commerce/accountancy/law/finance/management or in any subject
related to his job, along with a minimum related experience of five years, may
be considered as a professional director;
6. Directors who are nominees of corporate entity/FI and a guarantee has been
given by the corporate entity/FIs nominating such a person as a director;
7. A nominee director, nominated by a creditor bank on the board of a private
limited company; or
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8. In cases where the PG from the directors representing majority interest in a
private limited company are backed by assets that are held in the name of
these directors or in the name of their spouses are sufficient, severally, to
cover the amount of financing given, the requirement of obtaining PG from
the directors representing minority shareholding in the company may be
dispensed with and need not be insisted upon. Evidence about the assets of
directors and/or their spouses will need to be obtained, in the form of a
Personal Net worth Statement (PNWS) filed by such directors and/or their
spouses, which shall be properly placed in the Bank’s record.
In order to seek a waiver from the requirement of submission of PG of directors,

the line management would need to raise a detailed memo providing the
background, Bank’s experience with the customer, and any other significant or
material factors that would justify the waiver of PG, on a case to case basis.
Rule # 14
Charge certificate from SECP, in case of creating/modifying any type of charge

on assets of the limited liability company, should be obtained.
Rule # 15
Any change in the ownership of the company (within the shareholding structure)
or outside shall require NOC from the Bank.
Rule # 16
Bank’s lien should be created with proper evidence (certificate from the relevant
authority) in case of any tangible collateral taken as security.
(On every renewal of SCA/Facility, intactness of the Bank’s lien/charge to be

ascertained through retrieval of search report for charges registered with SECP
or PTI/Loan Excise Department. Such intactness of the Bank’s lien/charge for
tangible collateral originating from Land Revenue Department to be ascertained
by pooling Extract from Record of rights after every 4 years, where underlying
record of rights/Jamabandi is updated periodically after 4 years).
Rule # 17
Third party guarantee (personal/company) shall be obtained in case of security

pledged (under lien), or property mortgaged is third party owned by them.
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Rule # 18
Facilities against Third Party instrument/certificate of Central Directorate of

National Savings (CDNS) (i.e. DSCs/SSCs/RICs etc.) shall not be allowed
unless permitted by SBP/CDNS. Temporary extensions as per credit policy may
be sought incase existing facilities are issued against this security. Further,
business is required to persuade the customers to replace pledge of 3 rd party
DSCs/SSCs/RICs etc. with securities in their own names.
Rule # 19
The amount should be written in full both in words and figures.
Rule # 20
All pages of the documents should be signed by the borrower in order to avoid
any dispute later on.
Rule # 21
Cross Company guarantees should be obtained in case of unallocated facilities

(limits) in a group of companies i.e. where facilities can be allocated amongst
various companies. Further BBFS and request letter to be obtained from the
borrowing company.
Rule # 22
In case of lending to Multi National Private Limited Companies, the personal

guarantee of local sponsoring directors must be obtained.
Rule # 23
Any agreement must be signed by the borrower and the Bank e.g. Buy Back
Agreement, Term Loan Agreement etc.
Rule # 24
Term Loan Agreement should be obtained for all term loan financing i.e. Non
Interest Demand Finance (NIDF) in line with the date of disbursement.
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Rule # 25
Company stamp/seal should be affixed on all documents executed on behalf of

a company.
Rule # 26
The documents should be signed on behalf of the Bank by Business or Branch

Managers/Officers with valid POA.
Rule # 27
FE-25 loans should not be extended to customers with ORR 9 or worse.

However, export oriented customers with substantial natural hedge having sales
revenue in FX can be allowed FE- 25 loans on selective basis by CC.
Exceptions to be approved by Senior Risk Manager.
4.4 Facility Utilization
Operating Procedure:
It is the responsibility of RCAD to feed in limits of DP, Markup rate, Insurance

and collateral in the system so that customer can utilize the facilities.
Transaction vouchers are prepared by Branch Operations. Two Officers will sign
the voucher for utilizing any facility after ensuring that sufficient cushion is
available under the valid approved lines advised by RCAD. Later on the voucher
will be posted into the system by one Officer and supervised by another Officer.
These Officers may be the same who have prepared/signed the voucher or
different as the case may be. Branches where Symbol System is implemented,
transactions shall be supervised by authorized officials, on the system.
Any facility utilization by Branch Operations without valid DAC issued by RCAD
is not permissible. A disciplinary action will be taken against any Officer who
violates the policy.
4.5 Execution of Agreement
For financing to rice and other commodity exporters, the Bank releases
consignments from Muccaddam to C&F agent (both on Banks’ approved panel)
for onward shipment. For each such transaction, the customer executes TR with
transit Insurance Policy. An undertaking/indemnity is also obtained from the C&F
Agent.
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CHAPTER 5
VENDOR MANAGEMENT
5.1 Purpose
This section covers enlistment, delistment, suspension, services, functions and

performance evaluation of credit vendors for Corporate, Commercial, SME and
Agri Credits.
Credit Vendors
Credit vendors are external agencies which help banks in decision making and
mitigate risk by providing following services to the bank:
Services Includes:
 Valuation and Stock Inspection;

 Muccaddamage;
 C&F; and
 Business Information Reports
Vendor Management Unit
Vendor Management Unit (VMU) is an integral part of Credit Policy Division and
deals with Vendors who provide various services required by the Bank.
5.1.1 Valuator
Valuators provide valuation of fixed assets i.e. land, building, equipment,

vehicles, plant and machinery obtained to secure financing facilities as required
in the credit process. Valuators also conduct valuation of stocks
(Pledge/Hypothecation).
5.1.2 Muccaddam
Muccaddams are appointed to have effective control on pledged goods of the

Bank provided by the customer to secure financing facilities.
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5.1.3 Clearing and Forwarding Agents
Clearing and forwarding agents are engaged to handle consignments as per

approved arrangement and get clearance of the goods from custom authority.
5.1.4 Business Information Report Provider
Business Information Report (BIR) Provider gives report on borrower’s

essentials, facts and figures regarding his overall business and ability to meet
credit obligations including the following:
i) Local Credit Report;

ii) Market Checking Report;
iii) Search Report; and
iv) Foreign Credit Report.
Any future credit vendor requirement will be carried out by VMU for due
diligence of any material function/activity required to be outsourced as per
outsourcing guidelines.
Vendor Management Process:
For this purpose VMU conducts the following activities:
 Enlistment, suspension and delistment of Vendors;

 Performance evaluation of Vendors; and
 Centralized solicitation and payments to BIR service provider.
5.2 VMC Definition and Constitution
Vendor Management Committee (VMC) constitutes the following:
1. GE/GH – Risk & Credit Policy (Chairman)

2. DHCP/HCP (Member/Secretary)
3. Head CRM (Member)
Concurrence of any two members including Chairman shall be required for

approval of any proposal. In case of absence of any member (including
Chairman and Secretary), the approval of bank officials to whom the member
has delegated his authority will be accepted.
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The functions/terms of reference of VMC shall include the following:
1) Enlistment (Temporary/Permanent) of Credit Vendors as per eligibility

criteria;
2) Addition of regions for Vendors for conducting business;
3) Enhancement in limits of Valuators/Muccaddams and handling limit of C&F
Agents;
4) Reinstatement and Delistment of Vendors; and
5) Any other related matter.
5.3 Enlistment of Vendors
Enlistment of Vendors shall be conducted in following two phases:
 Scrutiny of Vendors request; and

 Approval, Enlistment and execution of agreement.
5.3.1 Scrutiny of Vendors Enlistment
Enlistment of vendors will be scrutinized on the following requests:
 Unsolicited Request (Vendors approach the Bank for enlistment); and

 Solicited Request (Bank approaches the vendors).
5.3.1.1 Eligibility Criteria
1) Must be enlisted at Pakistan Banks Association (PBA) and member of

Pakistan Engineering Council (PEC) (in case of Valuators/Stock Inspectors);
2) Must have valid Custom License (in case of C&F Agents);
3) Satisfactory performance report from atleast 3 Banks (Head Offices only);
4) Satisfactory performance report from atleast 1 of the top 6 banks (Head
Offices only) for Muccaddam;
5) Clean CIB report of the firm and their Partners/Directors;
6) Relevant experience of business for atleast 3 years for BIR and
Valuators/Stock Inspectors and 5 years for Muccaddam and C&F Agents;
7) Acceptance of Bank’s Security Deposit (applicable for C&F and
Muccaddam);
8) Acceptance of Bank’s Schedule of Charges (not required in case of C&F
Agents); and
9) Acceptance of Bank’s report formats (for Valuator and BIR reports).
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Note:
 Any exception to the above requirements will be approved as per DAM

(Annexure XXIV).
 Compliance of eligibility criteria # (1) and (2) is mandatory and no exception
will be allowed.
 If the ownership of any credit vendor fully/partly includes
management/employment of the bank, enlistment will not be allowed.
5.3.1.2 Documents/Formalities Required
To seek approval of VMC for enlistment of vendors who meet eligibility criteria,
VMU will send the following documents:
 Standard and specific application form (Annexure XXV);

 Schedule of Charges (Annexure XXVI); and
 Security Deposit (Annexure XXVII).
Site Visit shall also conducted by VMU if Vendor’s Head Office is situated in
Karachi or by respective Head RCAD, if the Vendor’s principal office is outside
Karachi. Required rating and visit report shall be prepared by VMU or RCAD as
the case may be and reviewed by VMU. Format for site visit report is attached
(Annexure XXVIII).
5.3.1.3 Approval
If the rating and recommendations are satisfactory, proposal for enlistment will
be sent to VMC for approval. After approval of VMC, VMU will intimate
enlistment to the vendor.
Vendors will be initially inducted on probationary period of 6 months. The initial

limit assigned to vendors will be based on the limit defined in Annexure XXIX.
All related departments will be advised about the new enlistment of vendors on
the Bank’s panel.
Proposals with unsatisfactory ratings will be declined and vendor will be advised
accordingly.
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5.3.1.4 Permanent Enlistment
On completion of probation period, VMU will review the performance of the

vendors by obtaining the relevant feedback from Head RCAD, Business,
CPU/TPC and banks (if required) and submit proposal for permanent enlistment/
extension in probation period/ delistment to VMC for approval.
5.3.1.5 Execution of Agreement
Agreement as per (Annexure XXX) will be executed either by VMU if Vendor

Head Office is situated in Karachi or by respective RCAD if the Vendor is having
its principal office other than Karachi. RCAD will send the original agreement to
VMU. Agreement with vendors will be renewed after three years.
VMU will circulate the Bank’s approved vendors list to all concerned on
semiannual basis i.e. 1st week of January and July.
5.4 Addition of Regions
Addition of region for vendors for conducting business will be scrutinized on the
following requests:
 Unsolicited Request (Vendors approach the Bank for addition of region); and
 Solicited Request (RCADs approach/request for addition of region).
Request for additional region will be scrutinized on the following criteria:
 Satisfactory performance report from respective RCADs (for Valuator and

Muccaddam) and for BIR service Provider, feedback of respective Head
RCAD and Business;
 Satisfactory Performance report from other banks; and
 Site visit report of Vendors’ office where business is intended.
Allotment of additional regions to vendors will be approved by VMC.
5.5 Evaluation of Vendors
5.5.1 Performance Evaluation of Vendors
Performance evaluations of vendors will be conducted semiannually by VMU

based on performance rating models (Annexure XXXI). An extensive MIS
(Annexure XXXII) shall be maintained to collate the bank’s internal feedback. In
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addition feedback from banks regarding performance of vendors will be obtained
once in a year. Performance of the vendors will be reviewed by DHCP/HCP and
action will be taken accordingly.
If a vendor is reported to have indulged in any of the following discrepancies,

Event Driven Evaluation will be conducted against the vendors (Valuator,
Muccaddam, C&F Agents and BIR Service Provider):
5.5.1.1 Valuators
Head RCAD will investigate the reported incidence, and recommend to VMU
appropriate action against the valuator in case of following incidents/issues.
 Overvaluation;
 Misreporting/Misrepresentation of the facts;
 Fraud/ Forgery;
 Professional Incompetence; or
 Misconduct.
5.5.1.2 Muccaddam
appropriate action against the Muccaddam in case of following incidents/issues:
 Lifting of Pledged Stock without authority;

 Involvement of Muccaddam with customer;
 Fraud/ Forgery;
 Misconduct etc.
5.5.1.3 Business Information Report Provider
Head RCAD, Business, RCRM and CPU/TPC will investigate the reported
incidence, and recommend to VMU appropriate action against the BIR service
provider in case of following incidents/issues:
 Unnecessary delays in providing the Business Information Report;

 Misconduct etc.
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5.5.1.4 Clearing and Forwarding Agent
appropriate action against the C&F Agents in case of following incidents/issues:
 C&F Agents Process/transit delay;

 Mishandling of Goods on C&F Agent’s behalf;
 Involvement of C&F Agents with customer;
 Non Compliance of Bank’s Instruction;
 Fraud/ Forgery; or
 Misconduct etc.
Vendor will be required to provide clarification regarding discrepancies

observed/reported in semiannual performance evaluation/ event driven
evaluation.
If justification provided by vendor is unsatisfactory, warning or suspension letter

will be issued to the vendor depending upon the severity of the
issue/discrepancy.
Note: The above mentioned issues/discrepancies of various Vendors do not

enforce a limitation, any other issue related to any Vendor can also occur.
Relevant Head RCAD and Business teams are responsible to intimate/report to
VMU/CAD Head Office of any noticed discrepancy/issue/problem. Other
departments (such as RCRM, SAM, Audit, BRR, etc.) can also report any
noticed discrepancy/issue to VMU.
5.5.2 Suspension
 Initial suspension of vendor will be subject to the concurrence of DHCP/HCP;

 Suspension period will range between 3 months to 1 year (in some cases the
suspension period may extend beyond 1 year) depending upon the gravity of
the issue/discrepancy;
 Suspension of Valuator/Muccaddam/C&F Agents/BIR service provider
implies suspension of their services from all their approved regions;
 The existing assignments will be withdrawn from the suspended valuator and
will be assigned to another valuator. However, the recently submitted
assignments will be acceptable;
 PBA will be intimated about the suspension of valuator;
 In case of suspension of services of Muccaddam, Country Head CAD will
provide the details of pledged sites under the administration of suspended
Muccaddam;
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 All pledged sites handled by the suspended Muccaddam will be withdrawn
and handed over to other Muccaddams within 90 days’ time;
 Proposal for suspension of vendor’s services will be submitted to VMC for
approval; and
 After the completion of suspension period, proposal for re-instatement of
vendor will be submitted to VMC after reassessment of his performance.
5.5.3 Delistment
In case the issue remains unresolved/unsettled during suspension period and

findings suggest that vendor was found guilty, proposal for the delistment of
vendor will be submitted to VMC for approval and vendor, other stakeholders,
and PBA will be advised accordingly. In addition to delistment, if the nature of
discrepancy/wrong doing calls for initiation of legal action against the vendor, it
will be the responsibility of respective businesses and CAD. In case of loss,
same will be recovered from the security deposit kept by the vendors with the
bank (applicable for Muccaddam and C&F Agents).
5.5.4 Vendors Delisted/Re-Instated by PBA/UBL
In case a valuator is delisted by PBA his name will also be removed from the
Bank’s approved valuator. However, if the said valuator is re-instated by PBA,
he will also be restored on the Bank’s panel of valuators with the approval of
DHCP/HCP, after conducting reasonableness of the case.
Other Vendors (C&F Agents, Muccaddam and BIR Provider) if once delisted
from the Bank’s approved panel will not be considered for re-enlistment.
However, exception for re-enlistment of these Vendors will require approval of
GE/GH-R&CP.
In case of fraud and forgery or any gross misconduct is proved, vendors’ re-
enlistment will not be considered.
5.6 Services of Vendors
Services of Muccaddam, Valuators and C&F Agents will be utilized through the
processes laid out in TPC/CAD/Credit Manual. List of approved Vendors is
attached as Annexure XXXIII (Vendors may change from time to time and
revised list shall be circulated to the concerned).
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5.6.1 Management of Muccaddam Allocation
In order to better manage concentration risk of pledge stocks under one

Muccaddam, following guidelines shall be applicable for appointment and
monitoring of muccaddams:
 All available muccaddams services to be used in each region;

 Pledge volume in each region (In Rs.) which can be assigned to a single
muccaddam (aggregation of all sites amount) to be capped at 25% of that
region (Quetta and Peshawar excluded);
 Any exception to this will require approval of DHCP/HCP with a proper
justification through email by CAD Heads (North and South);
 This is a moving cap and needs to be monitored and adhered to on an
ongoing basis when the sites (amount wise) are added or reduced during the
month;
 It is noted that in some regions there are less than 5 sites or less than 4
available muccaddams. In such cases RCAD Heads should consult with
CAD Heads (North and South) for allocation. CAD Heads (North and South)
who will allow allocation keeping in view muccaddam concentration in their
respective regions; and
 CAD Heads (North and South) will monitor this and VMU will take regular
portfolio checks.
5.6.2 Business Information Report Service Provider
On request by RCAD/ Business/ TPC, VMU will arrange for BIR service provider
based on the Bank’s approved list.
5.6.2.1 Local Credit Reports, Market Check Reports and Search

Reports
Business, RCAD and branches will route their request for credit reports through
VMU regarding fresh clients, renewals and enhancements. The cut-off timings
for sending requests is 0900 – 1500 hrs, Monday through Friday, and 0900 –
1230 hrs on Saturday. Request sent after the prescribed timing will be
processed on next working day.
VMU will forward the request to vendor after checking information in respect of
name of the customer, address, place, IBCA number (where applicable),
amount, document/transaction number (in case of payment via system) and
update the MIS sheet.
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For payment to BIR service provider, branch on behalf of RM, RCAD will directly
send the amount via system or IBCA to the Central payment Section through
Sundry Deposits account. Collection of payment from the customer will be
responsibility of Business/RCAD/originating branch, who has initiated the
request for BIR.
5.6.2.2 Foreign Credit Report
On the request of CPU/TPC, VMU will approach BIR service provider for credit
reports. The cut-off timings for sending requests is 0900 – 1500 hrs, Monday
through Friday, and 0900 – 1230 hrs on Saturday. Request sent after the
prescribed timing will be processed on next working day.
VMU will forward the request to vendor after checking information in respect of
name of the customer, address, place, IBCA number (where applicable),
amount, document/transaction number (in case of payment via system) and
update the MIS sheet.
For payment to BIR service provider, CPU/TPC Trade will directly send the
amount via System or IBCA to the Central payment section through Sundry
Deposits account. Collection of payment from the customer will be responsibility
of Business, RCAD, CPU/TPC and originating branch.
In case the contact person of the company is unable to be located or the

required information is delayed, BIR service provider will approach VMU to
resolve the matter. The cut-off time for Business, RCAD, and CPU/TPC to
intimate VMU in such cases will be 12 working hours.
BIR service provider will not entertain/decline any request without informing
VMU.
5.6.2.3 Submission of Report
BIR service provider will send the report directly to the concerned Business,
RCAD, CPU/TPC and branch with copy to VMU along with Invoice as per
following Turn Around Time:
 Local Credit Reports/Market checkings - 7 working days, (for urgent cases 4

working days);
 Search Reports - 5 working days; and
 Foreign Credit Reports - 10-15 working days.
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Caution
The concerned Business team, RCAD, CPU/TPC and branch will not disclose
this report to any third party or the borrower/applicant/client.
Branch will pay charges for reports to Central Payment Section through
IBCAs/System on behalf of respective Business, RCAD and CPU/TPC, and
credit the amount in Sundry Deposits A/c. No. 3590-44-8 for Local Credit Report
(and all other reports) and 3590-24 for Foreign Credit Report.
VMU will prepare the vouchers, summary of reports, along with the note for
payment against reports requested during the month and will send to the Central
Payment. This will be done once a month, in the first week of every subsequent
month, and the note for payment will be signed by an official from VMU and the
payment approving authority.
Original invoices will be sent to Central Payment Section for making payment to
the service providers.
Central payment Section will debit Sundry Deposit Account LCR (Code# 3590-
44-8) for Local Credit Report Charges and all other reports and FCR (Code #
3590-24) for Foreign Credit Report Charges. The withholding tax will be credited
to Sundry Deposits Accounts Client services code # 343086.
5.6.2.4 Payment to BIR Service Provider
Central Payment Section will send a PO in favor of BIR service provider to VMU
for onward delivery to BIR service provider.
5.7 Limit Enhancements
5.7.1 Limit Enhancement - Valuator/Muccaddam
Valuator/Muccaddam may request for enhancement in per party

valuation/pledge limit. VMU will scrutinize the request on following criteria:
 Satisfactory performance report from RCADs;

 Satisfactory Performance report from other Banks (If required) (Head Offices
only); and
 Ability of the Valuator/Muccaddam.
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On fulfillment of above criteria, VMC will approve the enhancement in limit of
Valuator/Muccaddam and on approval VMU will intimate Valuator/Muccaddam
and inform all concerned about the enhancement in per party valuation/pledge
limit and update the MIS sheet.
5.7.2 Limit Enhancement- C&F Agents
Business or C&F Agent may request for enhancement in the handling limit of a
C&F agent. VMU will evaluate the request as a one-off case, or on permanent
basis.
For One-Off case, VMU will obtain the “Indemnity bond” from the customer along
with other required documents from C&F agent and submit proposal to VMC. In
case of limit enhancement on permanent basis, VMU will ensure that 5%
security deposit will be provided by the C&F Agents. In case of deviation, VMC
will be requested for the same. However, existing C&F agents who have been
exempted from 5% security deposit requirement shall continue working as per
their existing arrangements.
Following criteria is applied for enhancing the limit of C&F agents: Past track
record of C&F agent with the Bank, market reputation, financial strength,
capacity, working experience etc.
For safe custody of security deposit submitted by C&F agents, bank’s lien is
marked on security deposit and lien marked instrument is provided to RCAD
Corporate Bank Karachi for safe custody.
On approval VMU will intimate C&F agent and after completion of required
formalities inform all concerned about the enhancement in handling limits of the
Agent and update the MIS sheet.
5.8 One-Off Approval - C&F Agents
Business may request for the appointment of C&F agent not enlisted on the
Bank’s approved list of C&F agents on One-Off basis.
VMU will review the One-Off request and will obtain the “Indemnity bond” from
the customer along with the other required documents from C&F agent and
submit proposal to VMC for approval.
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CHAPTER 6
CREDIT MAINTENANCE
Once the credit is approved and disbursed, it becomes imperative to keep a
follow-up on the customer to maintain the credit quality and ascertain timely
repayments. CAD plays a central role in Credit Maintenance by keeping a record
of the customer’s information, establishing controls to monitor customer
performance, and highlighting issues, if any. CAD shall aid implementation of
Credit Policy and sound credit practices by raising triggers, where required.
6.1 Credit Process
6.1.1 Administration of Approved Credit Facilities
Portfolio Management Committee Meetings
Portfolio Management Committee meetings shall be held by CRM on quarterly

basis for all Corporate, Commercial and Retail to follow up on credit issues
including overdue, expired credits, deferrals etc.
Call Reports
There must be at least one call per quarter except for lending against cash
collateral or against liquid securities (as defined by SBP). As a general guideline,
following may be discussed in Call Reports:
 Credit issues;
 Company’s performance year-to-date vis-à-vis sales/profitability;
 Industry situation;
 Comment on risk areas identified in last SCA package;
 Future plans, etc., including potential requirements for incremental facilities;
 Workers/labor related issues, timing for union negotiations and prior
experience of such negotiations;
 Business/marketing;
 Our earnings year-to-date from the relationship;
 Current issues;
 Potential deals; and
 Information on competitors’ strengths/weaknesses and current situation.
 Financial information (audited a/cs/management a/cs/future projections).
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Calls on customers should increasingly be used as a forum for obtaining
checking on competitors especially those competitors who are the Bank’s
customers/prospects, strengths/weaknesses of other banks, and status of
products offered to customers by other banks.
Calls should also focus on the following:
 How their competitors are doing;

 Industry demand/supply dynamics and future projections. International
markets situation;
 Outlook for change in mark-up rates, devaluation, and inflation, and their
impact on the customer’s business;
 New projects expected to come on stream in the customer’s business;
 Regulatory changes and their impact;
 Industry’s critical success factors;
 Raw materials procurement policy;
 Parent policy vis-à-vis its subsidiaries in Pakistan for Multinationals; and
 Likelihood of getting parent support for locally supported facilities for
Multinational.
All Call Reports must follow the following format outline:
 Call Report;
 Company;
 Calling Officer;
 Calling Upon (Customer/Designation);
 Date: DD/MM/YYYY;
 Results;
 Conclusion; and
 Action plans/follow-ups/target dates.
Circulation of Call Reports
Call reports, on prescribed formats, will be sent by the RMs through email to
their business chain including HCA/CHRA/RCH,RCAD and relevant CC.
Business Heads including HCA/RCH will be responsible for taking action, if any,
after having gone through the contents of the call reports.
The call reports duly reviewed and initialed by the business chain including
HCA/CHRA/RCH, will be filed in the respective credit files being maintained with
the RCADs.
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RCAD will follow-up on conditions to be adhered to. If there is an issue it should
be circulated to the respective Business Heads including HCA/CHRA/RCH for its
resolution.
Bank and Trade Checking
It will be the responsibility of the RCAD to obtain bank and trade checkings
required by the RMs for all cases including renewals and enhancements. RMs
will request VMU for trade checking reports by email and remit vendor’s charges
via credit advice (IBCA) to VMU. VMU will maintain proper record of payments
made to the vendors.
RCAD will submit, two months ahead of scheduled revision date, request for Trade /
Credit Checking (Annexure XXXIV) to RMs to get the necessary details (Point of
contact, Name, Address, Contact No. etc.) to enable RCAD to obtain the
required credit reports from outsourced agencies. RCAD will deliver these
reports to the business chain including HCA/CHRA/RCH for their information. As
the RMs are often in a better position to obtain information about a customer
from its suppliers and competitors who also maintain a relationship with the
Bank, their active involvement in this process and free exchange of the
information they gather about each other’s customers will be helpful.
Negative/adverse remarks in Trade checking reports should be highlighted to
relevant CC.
UBL will also exchange the information regarding its customers on reciprocal
basis with other banks. RCAD will prepare the draft reply consisting of usual
information upon the receipt of written request from other banks and pass on to
RMs for their concurrence before the information is released to the inquiring
bank. RCAD will insert a disclaimer clause “The above information is provided in
strict confidence and without any responsibility on part of UBL and its officers in
the credit report”.
Financial Statements
Audited financial statements shall be obtained from every borrower/customer for

analysis/record as per SBP PR and rules and regulations of Central Banks at
overseas centres.
Additionally, semiannually and quarterly unaudited accounts of Public Limited

Companies should be obtained for analysis/review. RCAD to submit missing
Financial Report List to the Business Heads including HCA/CHRA/RCH with a
copy marked to the Country Head CAD and CAD Head South/North and Central.
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Annual audited and unaudited semiannual/quarterly financials to be received
within 15 days of SECP’s requirements.
In order to identify the risks related to transactions, repayment alternatives or

ways out, financial analysis should focus on:
 Performance on historical basis; and

 Evaluation of forecasted performance.
Pledge Financing
This short term facility is required to be handled and managed in the following
manner:
a) Control of Stocks :
Control of goods under pledge shall only be assigned to Bank’s own officials or a
muccaddam on Bank's approved panel with good track record.
Head RCAD will nominate/assign the muccaddam for a specific pledge site and
will advise RMs accordingly. A monthly report of muccaddams assigned to
various sites shall be submitted to Country Head CAD.
RCAD will attach most recent stock inspection reports (for pledge and hypo) with
SCA. In addition, RCAD will promptly send stock inspection reports with material
issues including misappropriation of stocks to the Business Heads including
HCA/CHRA/RCH and CRM for appropriate action/instructions to the concerned,
to address the issues highlighted in the report. RCAD will also inform CRM in
case periodical inspection of pledged stock is not carried out as per policy.
Goods will be stored in a separate warehouse situated within or outside the

premises of the factory with unhindered access for the
Bank/Muccaddam/Security Guards etc. RM, RCAD and outsourced inspections
to be conducted as per policy.
Pledge in open will require the following:
 All stocks should be in tanks/silos/oil terminals/bags/in form of cotton bales

stored in godowns/ in open on plinth covered with tarpaulin in an effective
manner. Further proper custody and control of bank’s representative to be
ensured all the time.
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 Raised Plinth should not be less than one foot from ground. Further plinth
should not be in low lying area so that very purpose of raised plinth is not
defeated.
 In case of pledge in open, specific approval of relevant Senior Risk
Manager/Head CRM will be required.
Any exception would require approval of relevant CC.
In case the warehouse is hired, a “Letter of Disclaimer” (Annexure XXXV) will be

obtained with the copy of lease deed/title document to ascertain the ownership.
In case of 3rd party property, lessee will provide the copy of the lease agreement
signed by owner of the property in addition to the above documents.
Bank’s sign board indicating “Goods pledged with UBL” must clearly be affixed
properly at each and every warehouse where goods are pledged in a manner
that board cannot be easily removed.
The goods will remain under custody of approved muccaddam or as approved

by the relevant CC.
Stocks will be stored by the borrower with proper stacking to ensure physical
verification by the muccaddam/internal auditor/RCAD or outsourced companies
at the time of inspection of pledged stocks. Bin cards will be placed on each
stack and a register for inward and outward movement of stocks be maintained
for each godown.
Delivery of goods will be allowed to the customers from the warehouse against a
written Delivery Order (DO) issued by the Bank duly signed by two authorized
signatories either from RCAD or from Operations where RCAD does not exist.
The muccaddam will generally ensure that the stocks received earlier are
released first i.e. on First in first out (FIFO) basis, unless practically not possible
i.e. imported cotton/fiber etc.
All stocks pledged as security must clearly be identifiable. Stocks not under
Bank’s pledge to be kept in a separate warehouse. In exceptional cases, on
specific CC approval charged and un-charged stocks or goods pledged with
other banks may be kept in a same godown provided these are segregated,
stacked and in identifiable position. In such cases these should be kept at a
distance of at least 20 feet from each other.
Pledge of stocks, for items other than those as mentioned in the SCA, will not be
accepted as security.
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At the time of annual review the RCAD will ensure that no godown remains
under the management of one muccaddam for more than two years.
Muccaddams will be rotated periodically from the available approved
muccaddam list.
Till such time financing remains outstanding, adequate stocks covering the
liability (with margin) shall remain in the custody of muccaddam.
Initial and subsequent stock reports with every movement will be submitted to
RCAD duly signed by Muccaddam and the borrower. Stock report is to be
submitted at least on a monthly basis, even if there is no movement in stocks.
Submission of stock report will be mandatory at the time of building
inventory/delivery of stocks.
b) Selection of Godown :
While taking possession of pledged stocks the RM and muccaddam will ensure
that the Godown:-
 Is not in a low lying area, river bank or near a canal;

 Has direct access without any hindrance;
 Does not have too many openings, windows, apertures and ventilators;
 Electrification is proper, safe and godown is equipped with firefighting
appliances;
 Keys of godown to remain with muccaddam and his duly appointed godown
keeper; and
 Locks are replaced after every 6 months.
Outsourced companies shall carry out inspection of pledged stocks as per

prescribed procedure and shall provide inspection report to RCAD within 15
days. Copies of the stock inspection reports highlighting the issues, if any, will
be provided to the respective Business Groups by RCAD. Business teams will
address these issues immediately or in their periodical site visits as the case
may be. Business teams will conduct site visits at least once a year. The cost for
inspection of stocks will be borne by the customer. Concurrence of the
outsourced company for site visit cost is to be obtained before assigning the job
of inspection.
In addition to prescribed stock inspection frequency, stock inspections will be

conducted whenever misappropriation and/or abnormal changes in the required
level of stocks is noticed by RCADs.
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Contents of the Stock Inspection Report
Stock inspections provide us an opportunity not only to assess the adequacy of

stocks securing our exposure, but also to monitor the following on a regular
basis:
 Stock break-up;
 Quality of collateral;
 Evidence of ownership;
 Quality of warehousing;
 Adequacy of fire-protection devices;
 Adequate protection from theft/burglary;
 Status of insurance policy;
 Address of pledge site; and
 Godown wise breakup.
Outsourced company should verify/comment on value and quality of stocks

(Annexure XXXVI).
c) Margin Requirements
Stocks will be valued at current market price as quoted in daily “Business

Recorder”/approved publications or rates sheet circulated by CAD whichever is
less, excluding FED and other Government duties/taxes/levies etc. In case rates
are not quoted, the cost price will be the benchmark for valuation. Rate of local
commodities will be monitored by CAD and circulated to all concerned.
The value of goods, held under pledge, shall always be equal to or exceed the
outstanding facility plus the margin prescribed by SBP or as approved by CC
whichever is higher, with the condition to top-up the shortfall if margin is eroded
by 25% and sellout if margin is reduced by 50%. The sellout will require approval
of Senior Risk Manager/Head CRM.
If the margin is eroded by 25% or more, RCAD will immediately notify the
business chain involved in the recommending process for top up within 7 days
keeping relevant CC in loop.
Insurance:
 Insurance must cover all standard and related risks (including fire, burglary
and theft);
 Insurance policy shall be obtained from Bank's approved Insurance
Company;
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 Insurance policy shall not exceed the Per Party Limit prescribed for the
Insurance Company. Exception, if any, shall require approval of
FIG/Insurance Committee;
 Insurance policies with premium paid receipts (Annexure XXXVII A) will be
lodged with the RCADs, whereby the insurance company confirms receipt of
premium payment or confirms that premium payment is guaranteed and is
being received as per the insurance company’s arrangement with the
customer; for borrowers who have ORR 6 or worse this exception will be
approved by DHCP/HCP. This will also be applicable for insurance of goods
imported under LCs;
 Insurance policies will require renewal before their expiry dates;
 Insurance policy generally expires on 30th June or 31st December and it
often takes time to get the renewal in place prior to the expiry of the current
policy. In such cases, Business will arrange a cover note from the insurance
company as provided in the Annexure XXXVII B. The cover note should be
for a period of minimum 30 days; and
 Confirmation of premium paid receipts, undertaking, and genuineness of the
insurance policy to be obtained from the Regional Office/Head Office of the
insurance company.
Waiver of Terrorism Insurance Policy (RSD, RFD and SEC):
Customers frequently request waivers of Terrorism Insurance due to high

premiums being charged by Insurance Companies by virtue of very less re-
insurance arrangements available for this risk outside Pakistan.
Simultaneously, it is also noted that the customers have made significant in-
house arrangements to cater to this risk. Therefore based on the above,
following instructions shall be applicable.
Proposing such waivers will require submission of the request along with
justification. RMs are required to mention such waiver requested in the proposed
section of SCA and provide the following information in the SCA:
1. Location and premises details;

2. Distance from major highway of the country;
3. Distance from main railway line of the country;
4. Security and camera monitoring arrangements by borrower at the factory;
5. Level of boundary walls of the factory; and
6. Site visit report by TL/Unit Head confirming point (4) and (5) above.
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Approval Levels:
Waiver of Terrorism Policy shall require approval of the following:
1. For customers rated ORR 6 or better – relevant level of CC; and

2. For customers rated ORR 7 or worse – DHCP/HCP in addition to the relevant
CC.
In case where Bank’s charge on land and pro-rata value assigned to UBL covers
the full exposure of the Bank then CC will approve waiver of terrorism policy
along with SCA. Also, once waiver of terrorism insurance is approved by the
competent authority this would not require approval at the time of renewal if no
enhancement or no overdues are present.
RCAD to ensure that:
 Insurance policy/cover note shall be made out in the joint names of UBL and
borrower with the condition that UBL will be the “Loss Payee”;
 Value of insurance to be adequate to cover Bank’s exposure. (Exposure is
calculated by including margin on the facility amount);
 Bank’s share will be mentioned in case of joint insurance policy unless
exempted by CC;
 Amount insured by the insurance company is within approved per party limit;
 In case of co-insurance, share of each insurance company is authenticated
by co-insurers;
 A copy of Insurance Policy Review Sheet is forwarded to Relationship
Management for their review and ratification (in case of any discrepancies);
 A separate file is maintained for insurance policy of each customer, along
with the confirmation;
 Copy of insurance policy is scanned to database, along with policy
confirmation certificate from insurance company;
 A comprehensive tickler/diary be maintained regarding expiry dates of
insurance policies;
 Letter for “Renewal of Insurance Policy” to be sent to the customer, jointly
signed by RCAD and the RM, at least one month prior to expiry of the
insurance policy; and
 In case pledged goods or mortgage of land does not cover the loan facility
extended including margins required, hypothecated goods, plant building and
machinery will also require insurance coverage.
Exceptions to the above, if any, will require approval of DHCP/ HCP.
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Customer’s Stock Report
The stock report of hypothecated goods submitted by the customer should be

checked and signed by respective RMs before delivering to RCADs. Outsourced
Company’s stock report will be counter signed by RM. Where customer fails to
submit the stock report, RM is required to follow-up through reminder letters.
Facility shall be blocked if stock reports are not provided by the customer for
more than two months.
Aging of receivables
Where financing has been extended solely against receivables, statement

showing aging of receivables will be submitted to CAD and CRM on monthly
basis. However, in cases where receivables are a component of current assets,
aging will be submitted to CAD and CRM at least annually or as required by CC.
Exceptions shall be approved by CC.
Site Visits
The periodic site visit report on ongoing projects/customers will be placed in the
credit file. SCA package must contain site visit memoranda. It will be preferred if
such site visits are conducted as close to the annual review cycle as possible.
Site Visits must be conducted as per the following arrangements:
Site visits framework
Seasonal (Sugar, Rice,

Industry cycle Normal
Cotton Ginning etc.)
Hypo Pledge Hypo Pledge
RCAD - 4 (Quarterly) - 2 (Biannually)
Outsourced 4* (Quarterly) 4 (Quarterly) - 2 (Biannually)
Business (RM/TL/Unit
- 1 - 1
Head/HCA/CHRARCH)
*Physical verification of security/collateral will essentially be required for cases above Rs. 10M only.
However, verification of hypothecated stocks will also be arranged for cases below Rs. 10M, if required by
CRM.
Site visit report must include specific remarks on pledged/hypothecated stocks,

their condition, movement and general environment of the unit. In case of
pledged stock, outsourced company will verify quality and quantity of stock
reported on muccaddam’s last stock report provided to RCAD.
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It is emphasized that site visits do not mean calls on borrowers’ senior
management personnel in their offices, but are supposed to be extended to the
place(s) where borrowers’ core business activities actually take place; be it a
construction site or a factory.
Guidelines prescribed in the respective PPMs shall be followed for stock

inspections of cases falling under PPM.
Collateral Valuation
All collaterals will be subject to periodic valuations to monitor the adequacy of

margins. Volatile securities/commodities held as collateral will be valued by the
RCAD on at least weekly basis and shares on a daily basis by Market and
Treasury Risk to calculate the DPL. In case the current margin coverage is less
than the margin required, RCAD will adjust the DPL proportionately. RCAD will
issue memos to the respective Business Unit RMs informing them of this action.
The DPL will be reinstated upon replenishment of security. RCAD/MTR shall
ensure that SBP guidelines on valuation of properties/assets/shares are
complied with.
Desktop Evaluation
Credits up to 10M
To be conducted by RM as per prescribed format (Annexure XXXVIII A).
Credits Above 10M up to 100M
To be conducted by RM or Bank’s approved valuator as per prescribed format

(Annexure XXXVIII A and XXXVIII B).
Credits above 100M
To be conducted by same valuator who conducted Full scope evaluation as per

prescribed format (Annexure XXXVIII B). In case the valuator ceases to exist on
the Bank’s panel, Desktop evaluation is to be conducted by another approved
valuator with similar expertise nominated by RCAD after obtaining Manager
VMU’s approval.
RMs are required to attach a copy of Desktop Evaluation at the time of routing
the SCA. However, in cases where the SCA is not due for renewal and desktop
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evaluation leads to decline or substantial increase in value, RCAD must notify
Business and relevant CC.
RCAD has to ensure that valuation process includes conducting a “Full Scope
Valuation’ of the assets in the first year and then followed by ‘Desktop
Valuations’ in the second and third year (Fourth year only for open plot of land,
and where building is constructed, separate valuation of land). Full Scope
valuation shall be valid for three years (four years for land only) or as stipulated
by SBP from the date of last valuation; and, at the time of classification, the Full
Scope Valuation shall not be more than one year old.
The evaluation report should contain the determinant factors of FSV as required
under PR. Furthermore, PR shall be followed for taking FSV benefit and
provisioning for NPLs.
Insurance coverage of building is required in cases where land does not

sufficiently cover the loan amount and required margin.
Documentation Verification
RMs will be required to inspect physically the security and support

documentation pertaining to their accounts at the time of each annual review.
Evidence of compliance with this requirement will be recorded on the credit
approval document and by completing a documentation check list. RCAD will
withhold the issuance of DAC until the provisions of this condition have been
satisfied.
RCAD will ensure that legal opinion of approved lawyer confirming

completeness and enforceability of legal documents in respect of NPLs as well
as regular loans is obtained prior to issuance of DAC. RCAD shall record this
information in Facility Appendix. RCAD will also ensure that latest search reports
are essentially obtained for each case.
Drawing Power Limit Calculation
RCAD will be responsible for calculation of DP. RM will submit customers’

request for release of pledged goods to RCAD.
RCAD will verify the signature and check the outstanding balance in the system.
If DP is available, RCAD will issue the Delivery Order (DO) to Muccaddam.
However, it will be the responsibility of RMs to make sure that adequate stock is
available to meet the purpose for which working capital finance is approved.
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RMs will also ensure that stock reports are received in time. Moreover, RCAD
will remind RMs if stock reports are not received on due date.
6.1.2 Maintenance of Credit Information
Credit Files Maintenance
 A credit file will be maintained for each credit relationship as well as for
customers about whom unfavorable information is on record;
 Maintenance of the files in good order, the control of their movement and the
accuracy of filing will be the responsibility of RCAD;
 Except when not warranted by the volume of filing material, credit files will be
sub-divided into sections such as Credit Approvals, Financial Information,
Correspondence and other subjects as required;
 All information of an adverse nature will be marked for permanent retention
and for future reference;
 Credit files are of confidential nature. All Charge Documents/Control
Documents, Security Documents and title deeds must be kept in lock and
controlled in fire resistant cabinets and must not be removed from the Bank’s
premises. If credit files are required, RM will return credit files promptly to
RCAD. Credit Files should be under proper lock and control in Steel
Almarih/Cabinet in joint custody; and
 Following ticklers (due date diaries) to be prepared and reviewed by the
RCAD on Monthly Basis and shared with the Business Heads including
HCA/CHRA/RCH and CRM :
a) Expiry of Credit Lines;

b) Financial Guarantees;
c) Expiry of Financial Guarantees;
d) Stock Reports;
e) Insurance Policies, Premium Payment Receipts;
f) Call Memos;
g) Charge Documents;
h) CIB, Market and Bank Checking, search reports;
i) Consortium Customers Outstanding;
j) Legal Opinions, Valuations;
k) Deferrals/Waivers Ticklers;
l) Special Terms and Conditions of SCA;
m) Muccaddam’s Rotation;
n) Inventory Inspections (by RCAD, RMs, Outsourced);
o) Mark-up Rate (KIBOR) Resets/Fixation;
p) Any other due diligence;
q) Customer-wise and Group-wise commitments, outstandings and ORR;
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r) PDO and EOL Report to be provided on a weekly basis;
s) Customer wise Clean-up Monitoring Report;
t) DAC Status Report;
u) Pledge Monitoring Report;
v) Covenants; and
w) CA log book.
Reports shall be sent for information of the stakeholders and for the better
planning of designated task of the credit.
6.1.3 General Guidelines
The purpose of this section is to outline the post-approval policies and

procedures and to ensure the following:
 That a transaction is within approved limit in terms of amount, tenor,

collateral and pricing etc. (RCAD/Operations);
 That in addition to the credit risk approval process, actual booking of
transactions are duly approved by the authorized officers of the Bank
(RCAD/Operations);
 That all credit documentation (security/support) are scrutinized for accuracy,
adequacy, completeness and are lodged with RCAD (RM/RCAD);
 That all credit documentation and pledged collaterals/securities are
effectively controlled and monitored in line with Bank’s Policy and Credit
Approval (RCAD);
 That all customers’ liabilities are timely and accurately recorded in the books
of accounts and reported in a proper manner for monitoring and controlling
purposes (RCAD/Operations) ;
 A central liability record of all extensions of credit for all customers. Identify
and report all past due/non-accrual assets on a timely manner as per policy
(RCAD/Operations);
 RCAD will be responsible for the preparation of various credit related reports
required by the senior management and SBP e.g. expired credits,
documentation maturity reminder, documentation deferral, PDO/Non-accrual
assets etc.;
 For implementation of reports generated by RCAD, it will be the responsibility
of Business Heads including HCA/CHRA/RCH to review and discuss with
concerned RMs the action required in the reports, finalize the dates for
corrective action and advise CRM for information;
 FIRMU will be responsible for consolidating UBL’s cross border exposures
on banks/DFIs booked by FIG, TCM, and Corporate / IBG under country risk
for reporting to CC on monthly basis and to MRC/BRMC on quarterly basis;
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 CAD being an independent unit should provide administrative support for the
lending activities of the line management. However, check and balance
regarding correct utilization of limits according to the terms and conditions of
approval will be the responsibility of line management;
 It is important and necessary for all concerned to realize that such checks
and balances must be followed in letter and spirit;
 Branch Operations will ensure to dispatch the mark-up charged advices to
the customer 5 days after the mark-up due date with the covering letter along
with copy of Markup account statement counter signed by RM;
 Operations will highlight any value dated adjustment appearing in mark-up
calculation sheet to RM and RCAD;
 Recovery of mark-up, being the main source of bank’s earning, is the prime
responsibility of RMs;
 The documents are renewed in time so that these may not become invalid or
time barred due to Law of Limitation;
 RCAD to obtain search report from the concerned office/authority to establish
the “free of lien or encumbrance” status of the collateral offered (RM/RCAD)
through approved Legal Counsel;
 RCAD to highlight CC’s comments (if any), irregularities and exceptions to
RM for rectification. Monthly report on exceptions generated by RCAD to be
submitted to Business/CRM/CAD;
 Ensure that approvals are promptly communicated to the originating unit for
implementation (RCAD); and
 Reporting settlement of all defaulted accounts, TRs or Acceptances, etc
(RCAD/Operations).
6.2 Annual Review and Renewals
Submission Deadlines
All credits requiring approval from CC must be submitted to the RCAD as

follows:
 SCAs requiring approval of CC - 5 weeks before expiry date; and

 All extensions – 2 weeks before expiry date.
CRM and business must take TAT into account to ensure the credits do not
remain expired and the customer does not suffer.
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Temporary Extensions
Temporary Extensions may be allowed as per Credit Policy on the prescribed

format (Annexure XXXIX). Temporary extension memo should be accompanied
by CIB report and Central Liability Report. RCAD will extract CIB Report and
submit temporary extension memo to CRM along with latest CIB Report and
Central Liability Report.
For Overdue Accounts:

(Where Markup or Principle is overdue by >30 days)
More than 3
Segment Up to 3 months
months
Retail Bank Senior Risk Manager Head CRM
Corporate
Senior Risk Manager Head CRM
Bank
Senior Risk Manager upto the approval authority limit, Head CRM irrespective of the amount.
For Regular Accounts & Overdue Accounts upto 30 days:

(For current accounts and where Markup or Principle is overdue </= 30
days)
More than 3
Segment Up to 3 months
months
Risk Manager/Senior Risk
Retail Bank Head CRM
Manager
Corporate Risk Manager/Senior Risk
Head CRM
Bank Manager
Risk Manager upto the approving authority limit, Senior Risk Manager and Head CRM irrespective of the amount.
Extension of limits should be routed by calculation of months rather than days.
For FIG and TCM, approval for all temporary extensions and renewal of credit
limits of banks/DFIs will be sought as per Approval authority matrix set by
FIRMU in the Annexure XIX.
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Chapter 7
REMEDIAL MANAGEMENT
The failure to control loan delinquency, which often leads to default, is probably
the largest single downfall of institutions that provide credit to entrepreneurs; the
risk of delinquency and default must be continually addressed. Hence, bank
shall make effort towards early recovery and settlement of NPLs. Remedial
Management process, classification and responsibilities are emphasized below:
7.1 Credit Classifications Responsibility
It will be the responsibility of the RMs to identify weakness or other signs of

deterioration in credits that may call for the adverse classification of an account.
The purpose of adverse classifications is to highlight those credits which

represent an above normal credit risk, to evaluate the degree of risk involved,
and to develop a strategy or action plan for the elimination of the weaknesses or
for the liquidation of the outstanding exposure.
Adverse classifications, when appropriate, are expected to be initiated at any

time by the lending unit or the supervising officers who have immediate
responsibility for managing the relationship. In addition, adverse classifications
may be originated by the CRM or any other risk reviewer or by credit
reviewers/auditors. In case of Forced PAD, the outstanding amount will be
transferred to Past Due Obligations when transaction takes place.
7.1.1 Watchlist
These accounts require close monitoring until it is determined whether to

formally classify or de-watchlist the relationship. Customers are to be watchlisted
as Watchlist, Serious Watchlist and Severe Watchlist as defined in Credit Policy.
Watchlist accounts shall be reviewed after every two months. The reasons for
watchlisting should be documented and specific remedial actions should be
approved by one level higher than relevant level of CC on the attached format
(Annexure XXXX A). Progress relating to remedial strategy should be reviewed
on quarterly basis on the same format.
To ensure close monitoring of watchlisted accounts, copies of the reports

generated by RCAD should also be provided to one level higher than relevant
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CC who should keep liaison with Business Head (HCA/CHRA/RCH/GM + GH
Islamic Bank + GE-RB) for the required remedial action by reviewing the
progress.
When classification of a borrower is warranted, either of the following categories

will be assigned depending upon the severity of the weakness, determined on
the basis of “time” and/or “event” related criteria. To assign the proper
classification, the HCA/CHRA/RCH must:
 Differentiate between symptoms (e.g., margin erosion) and their causes

(e.g., oversupply, product obsolescence, rising cost);
 Assess the borrower’s ability to rectify the problem within a reasonable time
frame; and
 Consider the options available to the business to improve its position as a
creditor.
7.1.2 Adverse Classification
7.1.2.1 Common Characteristics which may lead to Classification
Given below are some general characteristics underlying the categories of

classification in addition to time based classification:
a) OAEM (SE and Agri only)
Customers shall be classified as OAEM where mark-up/interest or principal is

overdue as per the timelines defined in the respective PR. In addition to time
based classification following symptoms may warrant subjective
classification:
 Weak cashflows;
 Declining margins;
 Reduction in demand for core products/services;
 Deteriorating management controls;
 External factors such as economic slowdown; and/or
 Introduction of substitutes resulting in decline in sales.
b) Substandard
Customers shall be classified as Substandard where mark-up/interest or

principal is overdue as per the timelines defined in the respective PR. In
addition to time based classification following symptoms may warrant
subjective classification:
--- Page 92 of 113 ---

 Clear evidence of adverse changes;
 Absence of controls (sloppy plant, frequent accidents, badly/ill organized
inventory);
 Labour problems;
 Lack of management depth and/or key management departures;
 Cash draining subsidiaries/excessive inter-company lending and
borrowing;
 Over reliance on a single product, supplier or customer;
 Products subject to intense competition or technical obsolescence;
 Over reliance on exports through certain types of currencies which may
carry strong devaluation risks; and/or
 Adverse regulatory, political or economic environment.
Financial Performance
 Adverse trend in sales and earnings;

 Profit margin erosion;
 Interim losses; and/or
 Fixed price contracts in highly inflationary environment.
Balance Sheet Deterioration
 Higher leverage relative to industry norms;

 Receivable or inventory excesses (MIS/control problems); and/or
 Trade payable slowness.
Transactional
 No seasonal line clean-up, lingering excesses over approved cash

finance limit;
 Term loan covenant violation, (waivers and amendments) without cogent
business reasons;
 Unrealistic repayment schedule;
 Diversion of loan proceeds; and/or
 Absence of adequate collateral, if required.
Other
 Persistent negative cashflows;

 Failed syndication or sell-down, reflecting market assessment;
 Weak operational or financial controls and internal MIS;
 Inadequate or outdated financial data;
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 Qualified auditor’s opinion;
 Material litigation;
 Material adverse change vis-à-vis the rationale employed for the original
risk decision (financial performance under plan, change in ways out, loan
to value ratios, collateral, etc.);
 Credit lines frozen at other banks due to deteriorating credits/legal action
etc;
 Bank locked in due to lack of alternative funding source;
 Ineffective creditor coordination;
 Debt restructuring required;
 Bankruptcy, foreclosure, forced liquidation; and/or
 Where mark-up/interest or principal is overdue by 90 days (180 days or
more for SE customers) from the due date.
c) Doubtful
Customers shall be classified as Doubtful where mark-up/interest or principal

is overdue as per the timelines defined in the respective PR. In addition to
time based classification following symptoms may warrant subjective
classification:
 Same characteristics as above but more adverse;

 Auditor’s disclaimer of opinion or qualification as to continued viability;
 Uncertain collateral coverage;
 Negative net worth and working capital;
 Trade credit frozen;
 Full recovery depending upon improbable events;
 Ineffectiveness of borrower’s or creditor’s remedial efforts;
 Consistent failure to meet commitments; and/or
 Where mark-up/interest or principal is overdue by 180 days (1 year or
more for SE customers) from the due date.
d) Loss
Customers shall be classified as Loss where mark-up/interest or principal is

overdue as per the timelines defined in the respective PR. In addition to time
based classification following symptoms may warrant subjective
classification:
 Quantified collateral shortfall;

 Build-up claims and litigation that will limit recovery amount;
 Where mark-up/interest or principal is overdue by one year (18 months or
more for SE customers) from the due date and Trade Bills (Import/Export
--- Page 94 of 113 ---

or Inland Bills) are not paid/adjusted within 180 days of the due date
(trade bills will directly fall under loss category in case of non payments
within 180 days); and/or
 Business continuity is questionable.
7.1.2.2 Subjective Classification:
Bank can subjectively classify a customer or a facility of customer even if it is not

due outstanding for 90 days. This will be CC judgmental call based on
deteriorating factors of credit.
7.2 Classifiable Exposure
Credit classifications are applied to obligor as well as to credit facilities or

portions of credit facilities approved under the rules. Any type of credit facility –
funded or non-funded, may be classified.
7.3 Excluded Credit Exposures
FBP – Bank Risk and settlement risk are not added to total facilities for approval
under the rules. However, these credit exposures are also subject to
classification, if required.
7.4 Initiating or Changing Adverse Classifications
The RM shall initiate a change of classification by preparing a Classification

Memorandum (CM) as per specimen attached (Annexure XXXX B). CM shall be
recommended by the authorities mentioned in the Approval Authority & Structure
and approved by one level higher than relevant level of CC. If the CM is not
raised within 30 days of system based account classification, Subjective
Classification, or ORR downgrading by BRR (7 to 10 and above), then no debit
will be allowed in any of the credit lines being availed by the customer.
While preparing the CM, the RMs must clearly mention all the facilities being
availed by the customer. This will enable the bank to review the credit on a
holistic basis and timely remedial action could be initiated to protect the bank’s
interest.
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RCAD to ensure that:
 CM for any account which is being subjectively classified, should be

approved by GE/GH-R&CP after approval of relevant CC irrespective of
amount of exposure; and
 Copies of all Classification Memos (objective/ subjective) wherein account
has been classified for the first time or account is being further downgraded
should be sent to FINCON upon final sign-off.
7.5 Remedial Action/Strategy
Prior to initiation of classification, the RM will establish an immediate contact

with the customer to obtain necessary information aimed at:
a) Assessing gravity of the situation; and

b) Determining the appropriate classification category.
The RM will be required to exercise due diligence with the assistance of RCAD
in the following sequence:-
 Assess the collateral by arranging its fresh forced sale valuation by a bank’s
approved valuator to determine the residual value;
 Arrange review of the credit documentation/securities by the CLC
nominated/approved legal counsel, if necessary, to determine accuracy and
enforceability of the securities;
 Monitor further facility utilization in the accounts and consider blockage of the
unutilized lines depending upon the situation;
 Obtain fresh credit checking and CIB report in order to verify the position of
customer’s outstanding overdues with other banks; and
 Analyze the latest financial position of the borrower vis-à-vis his overall
liabilities in order to determine his capacity to settle the obligations.
The typical focus of the remedial strategy in each classification category is:
OAEM
Conscious efforts are required to curb delays in payment. Further lending is

required to be curtailed and constant follow-ups are to be maintained.
Substandard
Prompt corrective action is required to strengthen the Bank’s position, reduce

exposure wherever possible, and to ensure that adequate remedial measures
are taken by the borrower.
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Doubtful
Vigorous remedial action is required. Result oriented efforts should be effective

within twelve to eighteen months.
Loss
Responsible units should continue a vigorous collections effort until no further

repayment is possible and efforts are formally abandoned.
7.5.1 Formal Action Plan
In the CM, the action plan should be clearly spelled out which should necessarily
address the following:
 An explicit decision to stay or exit;

 Clear benchmarks to trigger reclassifications or declassifications;
 Timeframe for achievement of targeted progress;
 Strengthening of security/support; and
 A realistic repayment schedule agreed by the customer.
7.5.2 Documentation Review
As soon as an account is classified all the related documentation and collateral

be reviewed and necessary formalities be completed as needed by a CLC
nominated/approved legal counsel as a pre-requisite for deciding among
alternative courses of corrective action.
7.5.3 Classified Credit Reviews (CCRs)
If the credit continues to deteriorate, the Business chain including

HCA/CHRA/RCH must follow developments closely, compare them with the
established benchmarks, and take alternative measures. This remedial
management review must be formally documented in a CCR (SCA shall not be
required for such credits unless the account is being restructured), including
downgrades by BRR (as per specimen attached Annexure XXXX C). These
memos should be routed through recommenders mentioned in the Approval
Authority & Structure, for approval of one level higher than relevant level of CC.
CCRs should record the following:
 Amount of classified facilities;

 Reason for classification;
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 Summary of the remedial strategy vis-à-vis the customer;
 Stay/leave decision;
 Action plan to achieve this strategy;
 Current performance against the plan;
 Record legal action taken; and
 Indication of whether the credit has strengthened, weakened, or remained
the same since the last report.
Frequency of reviews
The frequency of formal reviews will be as follows:
a) Accounts managed by Business Units, other than SAM:

Substandard Quarterly
Doubtful Quarterly
Loss Semi-annually
b) Once the account is transferred to SAM in the doubtful/loss category. CCRs

will be submitted for review as under:
NPLs Rs.1.0M to Rs.10M – Annually
NPLs exceeding Rs.10.0 M – Semi-Annually
Preparation of CCRs will not be required for NPLs upto Rs.1.0M which shall be
handled differently for recoveries. However SAM-CAD will submit quarterly
progress report on addition of new NPLs and recoveries to CRM.
Records
To protect Bank’s interests, readily accessible permanent records with the

following information must be kept for all adversely classified credits by RCAD.
 Classification history in chronological order;

 History or exceptions to:
 Target market criteria;
 RAC; and/or
 Credit Policy/Credit Manual;
 Value of collateral/security;
 Gross principal amount due, before any write-offs;
 Amount of any write-offs;
 Net book value;
 Amount of interest/mark-up earned and not collected; and
 Other related expenses.
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7.6 Provisions
Bank will provide for potential losses in the shape of Specific Reserves and
General Reserves:
7.6.1 Specific Reserves
Following shall be the determining factors for final computation of the provisions:
 The relevant classification category;

 The realizable value of liquid assets and FSV of mortgaged/pledged assets;
and
 Percentage of residual value of security.
Treatment of income and computation of provisions will be as per PR guidelines

of SBP/Central Banks of the respective overseas centers.
1. In addition to the time-based criteria, subjective evaluation of performing and

non-performing credit portfolio shall be made for risk assessment and where
considered necessary the category of classification determined based on
time-based criteria shall be further downgraded. Such evaluation shall be
carried out, among others based on adequacy of security inclusive of its
realizable value, cash flow of borrower, operation in the account,
documentation covering advances and credit worthiness of the borrower, etc;
2. The rescheduling/restructuring of NPLs shall not change the status of
classification of loans/advances etc. to regular, unless the terms and
conditions of rescheduling/restructuring are fully met for a period of at least
one year (excluding grace period, if any) from the date of such
rescheduling/restructuring accordingly or as per requirements of SBP/
Central Banks of respective overseas centers. The status of classification as
well as provisioning will not be changed merely because of the fact that a
loan has been restructured or rescheduled. However, if a loan has been
frequently rescheduled/restructured it can be subjectively classified or the
classification can be further downgraded by one level CC, if deemed
necessary. Rescheduling/restructuring must not only be done for adjustment
purpose;
3. If no restructuring/rescheduling is done for a classified loan/borrower such
loan/borrower will become regular upon clearing of all past dues as per PR;
and
4. Bank will be guided by the following uniform criteria for determining the
realizable value of liquid assets and FSV of mortgaged/pledged assets.
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Only assets having registered mortgage, equitable mortgage, (where NOC
for creating further charge has not been issued by Bank) pledged assets and
liquid securities shall be considered. Assets having pari-passu charge shall
be considered on proportionate basis.
Hypothecated assets and assets with second charge and floating charge
shall not be considered.
An independent professional valuator, who should be listed on the panel of

valuator maintained by the bank, shall carry out valuation.
For provisioning requirements the guidelines provided by SBP/Central Banks

of respective overseas centers are required to be followed as a minimum
both for level of classification and benefit of collateral/security FSV.
Head RCAD will nominate, amongst the approved valuators and assign
valuation of assets, where necessary to valuators with the instructions that
their report must take care of all essential aspects for determining the FSV.
For this purpose, the valuators must verify relevant aspects such as nature of
locality, salability, encroachments, etc. and not merely apply the discount
factor.
If it is impossible for the valuator to obtain the right to enter the premises due
to non-cooperation of the borrower then the last available valid evaluation will
be used.
The categories of mortgaged/pledged assets to be considered for valuation

along with discounting factors to be applied would be as under (no other
assets shall be taken into consideration): -
a) Liquid Assets:
Valuation of Liquid Assets, excluding pledged stocks which are dealt with
at (d) below, shall be determined by the bank. However in the case of
pledged shares of listed companies, value will be taken at market value
as per active list of Stock Exchange on the balance sheet date.
Moreover, valuation of shares pledged against loans/advances shall be
considered only if these are with CDC, otherwise these will not be
admissible for deduction as liquid assets while determining required
provisions.
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b) Land and Building:
Valuation of land and buildings would be accepted as determined by the

Valuators in accordance with the criteria given at point (4) above and no
further discounting factor would be applied on FSV determined by them.
c) Plant and Machinery:
FSV for Plant and Machinery may be determined for provisioning as per
guidelines issued by SBP.
d) Pledged Stocks:
In case of pledged stocks of perishable and non-perishable goods, FSV

will be assessed by valuators, which will not be more than six months old,
at each balance sheet date. The goods will be perfectly pledged, the
operation of the godowns will be in the control of the bank muccaddum
and regular valid insurance and other documents will be available. In
case of perishable goods the valuator will also give the approximate date
when these are expected to be of no value.
For valuation of mortgaged/pledged assets, the SBP prudential guidelines

shall be adhered.
Investment and Other Assets
Subjective evaluation of investment portfolio and other assets shall be carried

out by the bank. Classification of such assets and provision required shall be
determined keeping in view the risk involved and the requirements of the
International Accounting Standard and SBP prudential guidelines/Central Banks
of respective overseas centers.
Note:
Classified loans/advances that have been guaranteed by the Federal

government would not require provisioning. However, mark-up/interest on such
accounts shall be taken to suspense account (memo account) instead of income
account and only be accounted in income once realized.
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7.6.2 General Reserves
In addition to ‘Specific’ and other statutory reserves, the President and the BOD
will consider creation of ‘General reserves’ depending upon following broad
factors: -
 The level of growth of assets;

 Higher than normal profits generated;
 Adverse change in the loss norms; and
 Degree of volatility at the Macroeconomic level.
7.6.3 Frequency
‘Specific’ reserves will be created in the Bank’s books by Finance Division on

quarterly basis/or as per the SBP prudential guidelines/Central Banks of
respective overseas centers, on receipt of quarterly summary of required
provisions from the Country Head CAD.
The level of ‘General’ Reserves will be determined by the President and

approved by BOD on annual basis or as and when required. Finance Division
will pass relevant accounting entries and ensure their reflection in the Bank’s
financials.
7.7 Responsibility/Reporting
 RCADs will maintain and update information in respect of the classified

credits including the outstanding amount advised by the respective Branch
operations and share with Business on regular basis;
 Head RCADs will arrange fresh valuation of securities held, in line with the
SBP directives;
 Based on approved CM and on the valuation of securities provided by
RCAD, Finance Division will compute the amount of provision required and
work – out the net NPLs;
 RCADs will submit consolidated classified exposure report on prescribed
format (Annexure XXXXI) to Finance Division quarterly;
 Finance Division will pass the relevant accounting entries;
 Finance Division will submit consolidated quarterly statement to The Banking
Supervision Department of the SBP on the prescribed format in addition to
the party wise annual statements; and
 Finance Division will arrange external audit of the provisions for incorporation
in the annual audited accounts of the Bank as per SBP directives.
--- Page 102 of 113 ---

7.8 Special Assets Management
7.8.1 Transfer of Accounts to SAM/SAM RCADs
All relationships with higher degree of risks classified as “Doubtful” or “Loss”, are
required to be transferred to SAM when it is determined by CRM and Business
Group responsible for the account, that the group is no longer in a position to
manage these non- performing loans in the manner originally intended.
Timelines for transfer shall be jointly agreed by business group (where it is
residing) and CRM. However, in some cases business may decide to retain
NPLs, where they feel that they will be able to recover outstanding dues
themselves. Classified cases (Doubtful and Loss accounts) which are retained
by business must be reported on quarterly basis for review of Head CRM, and
DHCP/HCP.
The purpose of such transfer to SAM is to:
 Implement the Remedial Management guidelines provided by the Bank’s

Credit Policy/Manual;
 Best utilize the credit/workout expertise available with SAM;
 Enable key Business Groups to focus on the business development; and
 Centralization of NPLs and Security Support Documents in designated
branches and SAM-CADs respectively.
7.8.1.1 Procedure for Transfer of NPLs
 All relationship Classified as "Doubtful” or "Loss" will be transferred to SAM

as per policy;
 Filing of recovery suit and criminal complaint (if required) should be done in
consultation with Legal Division;
 RCAD to ensure completion and perfection of facility and security documents
before filing legal suit;
 Relationship Transfer Memo (RTM) only for principal amount of an NPL, duly
supported by CM and other related formats shall be raised and jointly signed
by recommending authorities mentioned in Approval Authority & Structure
including GH-Sales/GE-Corporate & Commercial. These will be submitted to
Divisional Head (DH) SAM and GE- SAM for acceptance and subsequent
concurrence of Head CRM. RTM and other formats are attached (Annexure
XXXXII);
 Principal amount would include amount of finance actually outstanding and
perforce payments (like SBP Penalty etc.) if any;
--- Page 103 of 113 ---

 Markup outstanding (if any) and markup in memo account shall be reversed
at the Branch concerned after receipt of IBCA for principal amount from the
relevant SAM Branch;
 Classification of all relationships to be reviewed as per SBP PR and also
reconciled with classification as per internal / external / SBP Auditors, BRR
etc. and where downgrading is required it should be done immediately; and
 A checklist along with Statement of Account, Security Documents and
Customer File will be sent to respective RCAD SAM for issuance of IBCA.
7.8.1.2 SAM and SAM-RCAD shall be responsible for following:
 To recover bank’s outstanding amount in maximum possible way;

 Review of Security Support Documents and Identification of discrepancies by
respective SAM-RCADs;
 Accounts will be handled by RCADs where SAM has no presence. SAM
Recovery Officers / Managers / Court Coordinators will attend the Courts for
cases. However, RCAD Staff to attend court proceedings at locations where
SAM has no presence;
 Submission of Monthly Reports for the progress of the cases to SAM / Legal
Division;
 Proper nomination of counsels for each sub judice case by the Legal
Division. Ensure attendance of the courts by dealing counsel on each
hearing and submission of progress report;
 Close Liaison with dealing lawyer and review of the Cause List containing
details of next hearing;
 Compliance of the Courts’ requirements;
 Release of Original Documents for production and examination by the Court;
 Preparation of list of all NPLs identifying cases where suits have not been
filed and to arrange filing of suits for such cases after obtaining due approval
from CC/ SAM Division;
 To perform function as custodians of Credit Files and Documentation;
 To monitor release of documents as per Bank’s Policy;
 To prepare MIS Data of all SAM Accounts as per prescribed formats;
 SAM to handle, negotiate and settle NPLs of Yellow Cab / Ex-Staff. However,
RCAD to perform the said function where SAM has no presence; and
 A checklist along with Statement(s) of Account, Security Documents and
Customer File will be sent to respective SAM- RCAD for issuance of IBCA.
7.8.1.2.1 Other Functions
 Extension of support and assistance to Consumer Collection for the

achievements of their goals and assignments;
 Update PAD Returns on quarterly basis;
--- Page 104 of 113 ---

 Tracking of recoveries coming through courts;
 Preparation of write-off proposal for abandoned cases;
 Filing of Suits by respective segments for fresh NPLs after due approval of
the Senior Risk Manager and clearance of CLC; and
 Compliance/Implementation of CAD related Policy matters regarding
Remedial Management;
7.8.1.3 Actions to be taken by SAM and SAM CAD:
 After approval of RTM, SAM CAD shall take custody of all original
documents, credit files and relevant records etc. and should authorize the
SAM Branch to park the liabilities and issue IBCA in favor of the Branch
concerned;
 Once the liabilities are transferred and parked at SAM Branch, SAM shall
advise FINCON to transfer the Specific Provision held to SAM Branch
immediately;
 Upon transfer of the accounts at SAM Branch, SAM would directly approach
the borrowers and devise strategy for expeditious recovery / settlement;
 PAD position issued by FINCON will be reviewed on quarterly basis for
conducting the exercise of specific provision required matching to the
outstanding liabilities as per PR. Excess provisioning due to recoveries made
at SAM shall be transferred to RB as ‘Reversal of Provision’ through and with
the approval of FINCON. However, for other business groups all recoveries
will remain with SAM;
 Recoveries made by SAM would first be appropriated towards adjustment of
the liabilities outstanding at SAM Branch. All recoveries made by SAM in
excess of the liabilities booked at SAM Branch would be transferred back to
RB instead of taking such recoveries to SAM mark-up income account or
Gain on NPLs; and
 SAM would make all out efforts to recover entire amount of dues legally
recoverable from the borrowers including tracing out their realizable hidden
assets for attachment and their execution. However, any shortfall or benefit
in provisioning or loss on NPLs at the time of conclusion of the case would
be passed on to the RB through and with the approval of FINCON. However,
for other business groups all recoveries and losses will remain with SAM.
7.9 Recovery Process
Immediately after problem recognition, it will be determined whether causes of

the problem are based on willful or non-willful intentions of the customer. In the
case of willful default (as determined by business and CC) the ‘exit’ strategy will
be compulsorily pursued which would necessarily entail recalling of the
--- Page 105 of 113 ---

outstanding and initiation of legal action (civil suit or criminal action) in case of
failure of the customer to:
 Partially settle up-front;

 Agree on acceptable repayment schedule;
 Agree to rectify the causes of problem; and
 Locate absconding defaulters and/or trace hidden assets of the borrower.
The ‘exit strategy’ would involve the recalling of the outstanding and initiation of
legal action including filing of references of willful default under National
Accountability Bureau (NAB) ordinance through SBP.
In cases of non-willful inherent intentions, efforts will be directed towards revival

of the account. This process will broadly include:
1. Recovery of overdue mark-up and/or principal;
2. Strengthening of security/support; and
3. Ensuring adequacy of cash flows to keep the account current in future
through close monitoring of the account and if required re-
scheduling/restructuring may be considered.
The recovery process for each account will be reviewed and approved by
relevant CC.
7.9.1 Traditional Work Out Modes
To achieve the objective of early realization of problem credits bank may opt for
rescheduling/restructuring based on the nature and gravity of the situation, best
suited to protect the Bank’s interest.
7.9.1.1 Rescheduling/Restructuring
Policy
The Bank’s policy of rescheduling/restructuring of loans is based on the principle

of granting concessions/reprieve that it would not otherwise consider in respect
of borrowers whose accounts present problems due to economic or legal
reasons. However, before setting out to consider any concessions following
needs to be ascertained first:
 The default is not willful, i.e. the borrower is not misrepresenting actual facts
with the purpose of securing concessions;
 The borrower has a viable business plan for the future, as demonstrated by
financial projections; such projections are to be thoroughly examined to
--- Page 106 of 113 ---

assess the validity of assumptions used and the veracity of cash flows
projected;
 The management, despite the initial setback (due, normally, to external
factors) has a demonstrated competence/ability to run the business profitably
in the future;
 Willingness and ability of the sponsors to participate in a rescue program
preferably by injecting fresh equity or sponsors/subordinated loans to
demonstrate commitment to the business, and make the whole exercise a
meaningful one;
 Where other FIs are involved, or in case of a syndicated loan, other lenders
must agree, in writing, to the proposed rescheduling/ restructuring;
 There should be reasonable down payment to indicate the seriousness of the
management towards the proposed plan;
 It is emphasized that rescheduling/restructuring is not intended to defer
identification of problems and consequent misrepresentation/
misclassification of risk and it should not be done simply to break time frame
and to allow unwarranted improvement in the classified category of the loan;
and
 Normally, rescheduling/restructuring proposals will not be considered unless
the proposed plan results in substantive improvement in the Bank’s risk. This
may be achieved through enhancement of security/collateral or through
injection of fresh equity (or equivalent) or a combination of these.
General Guidelines:
 Revaluation of assets, even when conducted by SBP approved firms, does

not in any manner make it imperative upon the Bank to accept thus
‘improved’ financials. Risk Managers, while conducting their analyses, should
in any case base these upon realistic values and not merely upon
‘accounting’ values;
 Wherever, necessary and efficient, services of specialists (chartered
accountants, surveyors, technical experts) may be outsourced to
complement expertise available within the Bank to arrive at a decision. In
other cases, the repayment schedule agreed upon should be based upon the
cash generation capacity of the unit, sponsor’s ability to inject funds into the
business, and the remaining economic life of the business (plant and
machine, in case of manufacturing concerns);
 When rescheduling/restructuring packages are being put in place, perfection
of legal documentation and rectification of flaws in charges/mortgages (if
required) by the obligor should be made a precondition;
 Where the restructuring package for a business involves a change in
sponsors/management, due care should be exercised to ensure that the
incoming management has integrity, the capability to successfully manage
the business and is considered credit-worthy;
--- Page 107 of 113 ---

 Personal Guarantees of outgoing directors should not be released until and
unless proper security for the outstanding amount of the loan including
Personal Guarantees of the incoming directors is obtained;
 Rescheduling/restructuring in ‘litigation’ cases should be implemented
through the court except otherwise advised by the lawyer due to legal or
other reasons (in the interest of the Bank); and
 At all times relevant SBP PR must be adhered to unless specific waivers are
obtained from the SBP or exceptions approved by competent authority. Even
when such waivers are available, unless they are specifically stated to be
given for an indefinite period of time, the Bank’s position/ liability after expiry
of the said waiver and in the event that the borrower is unable to rectify the
breach must be clearly determined and the extent of risk clearly identified
and approved at the appropriate level.
No incremental financial accommodation (fund based or non-fund based) shall

be granted to the borrower who has been given financial relief in the shape of
mark-up waiver for more than three years as part of the restructuring package.
Any exceptions would require the approval of the President in addition to
relevant CC, DHCP/HCP and GE/GH-R&CP.
7.9.2 Non Traditional Work Out Modes
The bank may come across situations when pursuit of non-traditional workout
strategies such as Debt Asset Swap (DAS) may be preferable to achieve the
desired results. Such options will be exercised subject to presence of the
preconditions including the following:
 The repayment of the loan is behind schedule;

 The reasons for non-repayment are genuine and considered temporary; and
 Strong possibility of improved profitability and cash flows in future.
7.9.2.1 Debt Asset Swap
Approval process
As a pre-requisite all DAS transactions need to be approved by Real Estate

Committee (REC) after approval from CC.
Thorough due diligence is to be conducted prior to execution of DAS. After CC

approval for DAS mode of work-out, the case is to be presented to the REC for
approval. The Real Estate Department shall be responsible for coordinating for
final REC approval and execution of DAS. Subsequent to CC and REC
approvals, the case shall be presented to BRMC and BOD for approval.
--- Page 108 of 113 ---

To further strengthen enforceability, DAS may also be carried out through a
Consent Decree with properly worded default clause in case of a buyback
arrangement.
Requirements
Full Scope evaluation by at least two independent pre-qualified property

valuators, on the panel of the Bank (to be arranged by business) shall be
considered for ascertaining the purchase price. Valuation reports must not be
more than 6 months old. In some instances, the bank may pay for the cost of
title transfer in bank’s name. This estimated amount shall be included in
approval presentations. In case of disparity in evaluation by more than 15% a
third independent valuator on UBL’s panel may be called and the decision shall
be based on best two outcomes.
Properties with complete chain of documents, transferable title, free from all
kinds of liens, encumbrances, litigation and third party claims, shall be
considered by the CC for recommendations to REC. Additionally CC may
however, recommend proposals where liens, encumbrances and litigation of
other lenders are removable (Subject to clearance – with consent of other
lending).
Legal opinion
The actual transfer of property and due diligence should be supported by input
of CLC which will refer to all rules and regulations issued by SECP, Companies
Ordinance and Banking Ordinance for compliance.
Monitoring
Buyback agreements
Post agreements, updates on activities are to be monitored by RCAD and Asset
Management Division and exception to the agreed arrangement shall be
highlighted to GE/GH-R&CP immediately.
Every case should have a timeline and any deviation shall be highlighted to
GE/GH-R&CP.
Defaults post agreements
Defaults post agreements (in case of buyback) will require proper

reasoning/justification from the customer and may require the bank to reinstate
bank’s right on all obligations prior to the arrangement.
--- Page 109 of 113 ---

7.9.3 Litigation
Process Flow
If all efforts fail, the bank may opt for litigation. Following procedure shall be
followed prior to litigation:
 Negotiate/persuade the borrower to repay;

 Warn the borrowers of our intention to initiate litigation including filing of
criminal complaint/FIR and explain its consequences;
 Assess legal standing and possibility of recovery;
 Arrange issuance of legal notice within stipulated time from default;
 File recovery suit at the appropriate legal forum through bank’s approved
lawyer;
 Involve guarantors in the legal suit if their personal guarantees are available;
and
 RCAD to ensure completion and perfection of facility and security documents
before filing legal suit.
7.10 Write-offs
7.10.1 Write-off Mechanism
The concerned RM/Business Unit and SAM/RCAD will initiate the write-off
proposal highlighting therein:
a) Historical background of the events including classification forming basis for

the write-off; and
b) Amount of provision already set aside in respect of the particular statement
and the amount proposed to be charged to the income statement due to
short provisioning, if any. The facts on the proposal will be verified by the
bank’s internal auditor as per SBP/Regulator direction and the write-offs will
be approved by the relevant level of CC.
7.10.1.1 Points to be taken into consideration at the time of write off:
 Concept of time value of money to be considered in write-offs;

 The credits approved for write-offs will be offset by passing appropriate
internal accounting entries;
 The position of write-offs allowed will be reported to SBP/Regulators on the
prescribed format and permanent record shall be maintained by Finance
Division;
 The credit files and other documents will be consigned to records; and
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 All write-offs cases will be submitted to BOD for information.
7.11 Condonation and waivers
Under various settlement arrangements with the borrower, who is classified,

condonations/waivers are required. Relevant CC will approve these
condonations/waivers along with approval of write offs.
These condonations will include:
1. Waiver of markup not in books (in memo account); and

2. Cost of funds to be applicable as permitted by the court i.e. remaining costs
to be waived as per court order.
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List of Annexures
Section Description Annexure No.
1.1.4 List Of Approved PPMs I
1.2.4.2 Standard Text Of LGs II
1.2.4.3 Letter To Beneficiary Of The LG III
1.2.4.3 Final Letter To Beneficiary Of The LG IV
1.2.4.3 Letter To Applicant Of The LG V
1.2.4.3 Undertaking Cum Indemnity VI
2.1.1 Standard Credit Application Package VII
2.1.2 Simplified Credit Application Package VIII
Minimum Acceptable Current Ratio Benchmark For Various
2.1.2 IX
Industry Sectors
2.1.2 Credit Proposal Package For FIRMU X
2.2 Security Classes XI
2.3.1 Sub-Allocation Memo XII
2.4.1.1 ORR - Corporate & Commercial XIII
2.4.1.1 ORR – SE & ME XIV
2.4.1.1 ORR – Individual XV
2.4.1.1 Mechanism For Obligor Risk Rating (ORR) For FIRMU XVI
2.4.1.1 ORR Calculation And Methodology XVII
2.6 Facility Risk Rating (FRR) XVIII
3.4 Credit Approval Authority And Structure XIX
Approval Of Continuation Of Issuance Of Approved Trade Limits
3.12 XX
In The Presence Of Overdue
4.2.3 Documentation - Temporary Release Form XXI A
4.2.4 Documentation - Permanent Release Form XXI B
4.2.11 List Of Mandatory, Crucial And Semi Crucial Documents XXII A
4.2.11 Document Deferral / Waiver Memo XXII B
4.2.12 Facility Offer Letter XXIII
5.3.1.1 Enlistment Of Vendors - Deviation Approval Matrix (DAM) XXIV
5.3.1.2 Standard Application For Enlistment Of Vendors XXV
5.3.1.2 Schedule Of Charges XXVI
5.3.1.2 Security Deposit XXVII
5.3.1.2 Site Visit Report XXVIII
Vendors Probation Period Time Line & Upper Cap On Their
5.3.1.3 XXIX
Assignments
5.3.1.5 Agreement For Hiring The Services Of Vendors XXX
--- Page 112 of 113 ---

5.5.1 Performance Rating Models XXXI
5.5.1 Tracking MIS XXXII
5.6 Approved List Of Vendors XXXIII
6.1.1 Request For Trade/Credit Checking XXXIV
6.1.1 Letter Of Disclaimer XXXV
6.1.1 Stock Inspection Report XXXVI
6.1.1 Premium Paid Receipt XXXVII A
6.1.1 Cover Note XXXVII B
Format Of Desktop Valuation For Land/Building/Plant &
6.1.1 XXXVIII A
Machinery (For RM)
Format Of Desktop Valuation For Land/Building/Plant &
6.1.1 XXXVIII B
Machinery (For External Valuator)
6.2 Temporary Extension Memo XXXIX
7.1.1 Watchlist Classification Report XXXX A
7.4 Classification Memorandum XXXX B
7.5.3 Classified Credit Review XXXX C
7.7 Classified Exposure Report XXXXI
7.8.1.1 Transfer Of Classified Accounts To SAM/RCAD XXXXII
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Credit Manual

United Bank Limited

B/L Bill Of Lading

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Ownership, Maintenance and Approval

Credit Policy Division will propose changes or additions in this document, if

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Industry Concentration – Credit Policy Division looks after portfolio management

Screening – For individual Industry Segment, a workable and appropriate Risk

--- Page 2 of 113 ---

1.1.1 Target Market Corporate and Commercial Bank

 Sales/Turnover to be more than Rs. 1.5 Billion, or

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Commercial Bank is present across the country in many regions in form of

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 Business groups will formulate target markets in accordance with the

For the standardized products business groups will be responsible to develop

For matters relating to the Credit Administration Department (CAD), Operations,

Development of PPMs is an ongoing process, made all the more necessary as

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1.2.1 Short Term Credit Facilities

Bank may extend financial accommodation through negotiation and/or

1.2.1.2 Payment against Documents – under sight L/C (PADs)

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1.2.1.3 Finance/Loan against Imported Merchandise (FIM/LIM)

1. Relationship Managers (RMs) are required to inform their customers in

Exceptions to be reported to Country Head CAD and DHCP /HCP.

1.2.1.4 Booking – FIM Liability

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 From port; and

1.2.2 Term Credit Facilities

Following procedure shall be followed while extending long term loan/financing

1.2.2.1 Commercial and Industrial Loans:

Exceptions (for 1 and 2) if any, shall be approved by the GE/GH-R&CP.

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1. Borrower’s failure to service two consecutive monthly installments or one

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In case of syndicated loans, exceptions, if any, shall require approval of relevant

RCAD to ensure documents required under the provisions of term loan

Bank’s commitment must contain a specific maximum monetary liability.

Other Rules Governing Term Loans/Facilities

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The stakeholders/signatories of an ECA shall comprise the following:

 Corporate Bank: as transaction initiator- Regional Corporate Head and GE-

The ECA shall typically cover the following important aspects:

 Purpose of financing: a brief on the rationale of financing and expected

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All large transactions involving syndications, Greenfield limited recourse project

 Inform all relevant internal stakeholders of a potential debt-based transaction

ECA shall not be:

 Meant to replace the firm approval process/SCA; or

The stakeholders/signatories of an ECA comprise the following:

 IBG: as joint transaction initiator. GH-IBG is the required signatory;

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 Purpose of financing: a brief on the rationale of financing and the benefit(s)

1.2.2.4.1 Primary Distribution

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Relevant asset writer will be responsible for:

 All credit related matters pertaining to a syndication;

Relevant asset writer will be jointly responsible for term sheet/mandate

When pitching for a Syndication mandate or considering participation in a

A complete SCA is required to be prepared and submitted for approval covering