Question

CASE ANALYSIS: Corona Commercial Bank Inc. (CCBI)

Corona Commercial Bank Inc. is a commercial bank incorporated more than 20 years ago, with a total of
100 branches, 30 of which were strategically located in Metro Manila, 25 in Luzon, 25 in the Visayas, and
20 in Mindanao. To cope with stiff competition from various universal banks, they decided to
decentralize their commercial loan operation, with the ultimate purpose of increasing their profitability
and at the same time, improving the processing time by granting approving authority to the branches'
regional office aside from the Credit Committee and Executive Committee at Head Office (HO).

Below are the excerpts of the Board Meeting relative to the significant and crucial changes in the bank's
core business:

Chairman and President: "Guys, relative to our plan to be more competitive, as I mentioned during our
Annual Stockholder's meeting, its high time for us to be now competing with the giants in the industry
(meaning the universal banks). With our more than two (2) decades in operation, our people have been
trained so well and had become seasoned bankers. Thus, it is now time to grant our branches approving
authority on loans, especially for Small-Medium Enterprises (SMEs) and the Region Heads, to tap the
middle markets further. This is so that our HO-Commercial Division can focus on large accounts and be
competitive in interest rates, and have a balanced portfolio."

Vice-chairman: "I seconded this direction from our Chairman. But we need a little more training for our
Branch Manager's on the quality and criteria of accounts they will solicit so that there will be no
corresponding increase in our past-due loans. Also, we should push them to go for retail, where interest
rates need not be very low, to cushion the impact of giving prime and preferential rates to large
accounts which we intend to get from top banks."

Director and Treasurer: "We will see to it that the branches and the regions will be given proper training
and full support from our Commercial Loans Dept at HO. We may even deploy some of our Account
Officers and Loan Assistants to their respective areas."
Independent Director: "As Chair of the Audit Committee, we will schedule a meeting with the Heads of
Commercial Loan Division and Branches Division to formulate an approving authority on Interest rates
and amount of Loans to be granted particularly to Branch Level, Regional level, Credit Committee,
Executive Committee together with the corresponding processes, workflow, and monitoring systems
which will be presented for approval to next en banc board meeting."

Chairman and President: "Guys, Keep it up. This is a breakthrough in our bank; I am just too excited to
relay this new direction to our Stakeholders. With nothing to discuss anymore, let this meeting be
adjourned."

Required:

Do the following:

1. Propose a special approving authority limits on lending rates(based on the present prevailing interest
rate in the market) and the amount of loans based on the following headings:

Authority Limits Interest Rate Approving Committee

A. Branch Credit Committee

B. Regional Credit Committee

C. HO-Credit Committee

D. Executive Committee

2. Justify your proposed credit authorities in three (3) to five (5) sentences.

3. Suggest at least three (3) credit policy guidelines related to Internal Control as to the approval,
processing, release, documentation, and accommodation on Loan transactions of the bank.

Comments (2)

Answered by Expert Tutors

Lending limit refers to the maximum amount of money that a particular bank can lend to a person or a
company. The limit is usually articulated as a percentage of a bank's capital and profit and which is
supervised by various institutions of the government.

Step-by-step explanation

Q1.Authority Limits Interest Rate Approving Committee

A. Branch Credit Committee

This would be the lowest committee in the banks ranks and which will automatically serve people
located within the region. The branch managers are expected to do a background checkup on the
borrowers to ensure that they will have the capacity to repay back the money

B. Regional Credit Committee

The regional credit committee will be responsible of overseeing the activities of the Branch credit
committee however this committee will have a bigger mandate in ensuring that the Banks safety is
protected and no one issued excess loans and to persons who are not financially stable (Rojc, 1985).

C. HO-Credit Committee

This committee is usually the central one which combines both Branch and Regional. This committee can
issue any particular amount of loans as far as a person has met the required guidelines. The amount of
loan at Head office should be determined by the amount of savings and the rapport a person has with
the bank ( Prado, Saffi, & Sturgess, 2016).

D. Executive Committee

This is the topmost committee and which usually deals with companies or persons who are interested in
a huge amount of money. The company's assets or person assets will as well determine the amount of
loan to receive. The committee is expected to ensure that the soundness and safety of the bank is
protected and facilitate efficient and equitable access to banking services.
Q2. The above credit authorities will ensure that all the procedures needed for example drafting
agreements between the bank and the borrower and ensuring that the same is adhered to( Hsu, & Li,
2020). The Committees will ensure that borrowers pay their arrears as and when required.

Q3. A bank must ensure that it offers quality and efficient services to its customers by applying the
following;

 Having a complete risk management process by evaluating, identifying and monitoring all the
risks and putting in place the required measures.
 Adapting to the use of technology on various services.
 Conducting performance evaluation and receiving feedback from their customers.

References

Rojc, K. (1985). National Bank Lending Limits—A New Framework. The Business Lawyer, 40(3), 903-931.

Prado, M., Saffi, P., & Sturgess, J. (2016). Ownership Structure, Limits to Arbitrage, and Stock Returns:
Evidence from Equity Lending Markets. The Review of Financial Studies, 29(12), 3211-3244.

Hsu, S., & Li, J. (2020). Credit Reporting and Key Financial Technologies. In China's Fintech Explosion:
Disruption, Innovation, and Survival (pp. 221-251). New York: Columbia University Press.
doi:10.7312/hsu-19656.13

introduction

Loan lending authority is given by the board of directors. The approving authority is granted
depending on the level of branches. This increases the number of profits gained and ensures the
processing time is reduced. (Santoso, Trinugroho, et al. (2020). The bank is then able to offer more loans
at different levels and to various customers with loan credibility. Those with a lot of experience are
granted the authority to approve big loans.

Step-by-step explanation

Branch Credit Committee

 These should be given the authority to approve loans with the lowest risk. The committee
should loan with the smallest interest rates in the market. The loans should also be very big. This
authority enhances efficiency in loan distribution at a lower level.

Regional Credit Committee

The committee should approve loans with higher interest rates than those approved by the
Branch Credit committee. The loan amount should be comparatively lower.

HO-Credit Committee

This the committee is given the authority to approve loans with a higher interest rate compared
to those approved by the Regional credit committee. In contrast, the loan amount should be lower.

Executive Committee

This the committee should handle loans with the highest interest rates. These loans are very
sensitive and should be accorded great care to ensure maximum profit gain. Normally the loans are in
lower amounts but the interests are high.

Justification to the proposed credit authorities

(i).A the bank ensures maximum profitability by offering a loan with the largest interest rates.
The creditors are charged more money over a given period of time.

(ii). Granting authority to different levels ensures bank resources are well utilized. Bank's
performance is improved and less time consumed.

(iii). Small loans pose a great risk to the banks hence they require careful handling.

Credit policy guidelines

(i)Creditor should present a guarantor to enable them to secure the loan. The borrower should
also be legible without any prior cases of loan default

(ii)The creditors should repay loans at the right time and with the correct amount of interest
applied. Failure to repay, the creditor faces other consequences.
(iii)Loan defaulters should be declared bankrupt.