BANKING OPERATIONS 263

NAME MATRIX NO. PROGRAMME CODE GROUP LECTURER NAMES : NUR FATIHAH BINTI SAFRI : 2008719689 : BM112 : BMD4Ab : MADAM NORAINI BINTI AMINUDIN

Credit Reference Information System (CCRIS)

One of the tools used by banks to evaluate the credit worthiness of a customer is to refer to the CCRIS report obtained (and maintained) by Bank Negara Malaysia (BNM). Beginning August 2001, CCRIS has become a crucial tool to the decision-making of the bank to approve the customers application. The report provides for real-time and on-line functions for banks to query for computerized customer credit reports as well as reporting relevant credit information to BNM.

CCRIS gives valuable details to the bank such as:

Details of all existing personal credit facilities of a customer, such as type of facility, and ownership of the credit facilities. Details on the total financial commitment, which includes the balance outstanding and the total limit for each of the credit facilities.

Conduct of each credit facility for the past 12 months, including legal status. Other relevant information such as Date of Information Update, Frequency of Payment and Type of Collateral.

However, before you get worried about your credit information being abused, please note that the information can only be accessed by authorized persons in the bank, and is not available to the public in general. The credit report must have :

Can only be obtained by the bank IF a formal CREDIT application is made by you to that particular bank.

Cannot be viewed by other banks, at any time.

Does not show your deposit / investment accounts.

Does not show from which financial institution you borrowed from.

Does not show the tenure of the credit facility enjoyed by you.

Does not show the conduct of facilities for periods above one year.

Generally, when a Bank extracts CCRIS report, it will have access to various credit reports such as : Summary Credit Report Information on the total credit exposure and conduct of account of the customer. Detailed Credit Report Information on the specific outstanding credit facilities and new credit applications of a borrower. Motor Vehicle Report Information of motor vehicles which are used as collateral for credit facilities. Customer Supplementary Information Report Information on the addresses, telephone numbers, employers names and occupation of the customer for the last 3 years.

As a consumer requesting the credit report directly from BNM, a consumer will only be able to obtain the Summary Credit Report, as a reference to the total exposure and conduct of the account.

The report will list down all outstanding loans and applications under the borrowers name, joint borrowings, sole proprietorships as well as associations and partnership borrowings.

CCRIS is used by the bank as a tool for loan decision making as the existing track records indicates the potential risks a bank may face in the future if they approve the new application.

It is not the only tool used by banks to evaluate our credit worthiness, as there are many other risk-mitigation criteria the banks can adopt, such as : Reduced Margin of Financing. Higher Financing Rates.

Good Potential for Higher Capital Appreciation for the Property.

Strong Debt Servicing Ratio (Repayment Capability).

Additional Collaterals / Guarantee / Joint Applicant.

Good Conduct of Other Existing Credit Facilities with own bank. For example are Credit Cards and other loans.

CTOS
CTOS information does not attempt to show the current statuses of legal cases and searches but it is solely meant as a source of first or lead information to aid decision making. It must be read intelligently and skillfully. The type, nature of information, date and times are thus crucial factors to consider, if users feel the case may have a significant impact on the matter under consideration they should conduct further probe on these first information to find out more.

CTOS however does not rank, rate or give opinions as to the credit worthiness, integrity, character of the subject inquired. It merely provides information that are historical that credit grantors want in their bid to know more about their customers better, past track and record.

When we apply for loans, credit cards, hire purchase or leasing facilities, in Malaysia, the chances are the credit grantor will make an enquiry in the CTOS system for information leads.

Information collated is not based on hearsay or speculation but upon some publication or advertisement or based upon searches normally deemed reliable.

They follow up on these either with the subject concerned or with other relevant parties to find out more.

Credit evaluations are made not based on a single factor but upon how an applicant matches up to a set of lending criteria laid down by the credit grantor.

These lending criteria inherently reflect the risk attitudes and risk tolerance levels of the credit grantor concerned. In short, these criteria reflect how the credit grantors want to do business, their business policies, strategies and risks propensity.

The risk attitudes, tolerance, business philosophy, policies and strategies however vary from one credit grantor to the next. What one credit grantor find unacceptable may well be within tolerable limits of another.

Ultimately, credit grantors will only assume risks that they find it comfortable and acceptable within the limits set by their organization. CTOS plays no part in defining these criteria or the factors considered by them.

Three Basics In Credit Risk Management

Evaluate
i. ii. Verify information about the customer. Know if risk is within your acceptance levels.

Monitor
i. ii. iii. Customer's risk profile can change anytime. Be aware of changing risks. Track all customers and sponsors for adverse changes daily.

Recover
i. ii. iii. iv. v. You are in business for profits not losses. Turn Losses Back To Profits. Successful recovery improves profits & cash flow. Lower debt recovery costs. Enhance debt recovery effectiveness.

Objectives CTOS
There are three main objectives of the CTOS Service Centre:

1. Customer Training People should manage information and not be managed by information. To manage information, one must be skilled in reading and interpretation The CTOS Service Centre conducts training to its customers. The training aims to guide users in a variety of topics including: i. Maximizing Benefits of CTOS System. ii. Reading & Interpreting CTOS Reports. iii. Following Up & Probing Further On Lead Information. iv. Overview Of The Debt Recovery Process.

2. Removal Of Records Resulting From Fraud or Mistake Records resulting from 'fraud or mistakes' can be removed from the CTOS system. Proper documentation must be provided for this to happen.

3. Recording Case Settlement / Conclusion CTOS is essentially an electronic archive of information collated from gazettes, newspapers, court notices, and searches at the relevant statutory bodies. A 'credit lead' information system.

Among of the factors that involves in CTOS are

:
i. Risk Attitude Profile The credit grantors own business strategies, business & credit policies, which reflect his risk attitudes and tolerance levels. ii. iii. iv. v. vi. vii. viii. ix. Purpose Of Advance. Source Of Repayment. Collateral / Security. Financial Health as indicated by financial statements. Management Experience and Capability. Bank and Trade Checking. Business Environment for the trade and general business conditions. Lending Regulation of industry and government.

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The difference between a blacklist and a lead information system

SALIENT FEATURES 1. PURPOSE

BLACKLISTING SYSTEM Exist primarily for the enforcement of certain prohibitions, removal of rights of subject in default. COPS (your outstanding traffic summonses), Official Assignee's list of bankrupts, blacklists maintained by some industry are examples of blacklists.

LEAD INFORMATION To provide 'information lead' for the purpose of discovery and insight to past record to aid in process of decision making. For example, Banks being custodians of public funds must be prudent in lending. They need to 'know their customers'. They need information. In Malaysia, they rely on the CTOS for 'lead' information.

SALIENT FEATURES

BLACKLISTING SYSTEM

LEAD INFORMATION As an electronic archive, the information is only a collation of historical facts. The information does not indicate the cases 'current status' and does not mean that cases are pending, unsettled, etc. Further probes have to conducted by users to ascertain the current status of cases. Does not remove any rights from the subject nor place any prohibitions upon the subject.

2. CASE STATUS The appearance of the subject on a blacklist means the subject IS STILL in a default. The case status is always CURRENT.

3. PROHIBITIONS & RIGHTS

Subject is normally subjected to some prohibitions and some right suspended until default is rectified

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SALIENT FEATURES

BLACKLISTING SYSTEM

LEAD INFORMATION The questions of 'rights restoration & reinstatement or cessation of prohibitions' does not arise as NO rights were removed nor any prohibitions enforced in the first instance by such lead information system. Past history is revealed as the database is essentially an electronic archive.

4. DELISTING & Upon rectification of the RIGHTS default, the subject is RESTORATIONS 'delisted' and all right that were suspended are restored and any prohibitions are uplifted 5. HISTORY A subsequent check after delisting the name will not reveal the subject's past default.

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Dangers and pitfalls

Here are some precautions to take: a) Report lost identify documents immediately Many important documents are lost daily through carelessness, fraud and theft. Lots of credit cards, passport, identity card, birth certificate, driving license or any other identification papers maybe used in a fraud Lodge a report with the relevant authorities immediately for your own protection and safeguard. Keep a list of contact numbers and photocopies of important documents. They are often very helpful when you lodge reports to the authorities. Some credit grantors like banks and credit card issuers have 24 hours toll free numbers specifically for such purpose.

b) When Using Credit Cards Check your statement as soon as it arrives to ensure the charges are correct. Your credit card statements, bank statements contain sensitive information, keep them in a safe place.

Do not sign blank charge slips and draw a line above the total line to prevent unauthorized additions to the bill. 13

 Destroy all carbons copies. Do not just leave our copy of the charge slips anywhere. They have all the needed particulars like our card number, expiry date and needed to facilitate a fraud transaction. If our statement does not arrive, call our credit card issuer. c) When using our ATM & PINS Choose a PIN that is unique; try not to use birthday, identity card number, or other obvious numbers. Do not write our PIN on the card.

Do not let anyone know our PIN. If we feel or know that our PIN has been compromised, change it. d) When we discover our identity is fraudulently used You must report to the Police. We may then also check with CTOS to see if there are any records on the database. If we suspect that any of the records on the database is a result of fraud, do let us know so that we can carry out due investigations and tell you what to do to get the record removed from the database.

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Cheque Information
A cheque or check is a piece of paper usually that orders a payment of money. The person writing the cheque, the drawer, usually has a chequing account where their money is deposited. The drawer writes the various details including the money amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawer, to pay this person or company the amount of money stated. Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry around large amounts of gold and silver. Paper money also evolved from bills of exchange, and is similar to cheques in that they are a written order to pay the given amount to whoever had it in their possession (the "bearer"). Technically, a cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified demand account held in the drawer/depositor's name with that institution. Both the drawer and payee may be natural persons or legal entities. Although cheques have been around since at least 9th century, it was during the 20th century that cheques became a highly popular non-cash method for making payments and the usage of cheques peaked. Cheque processing became automated, billions were issued each year with volumes peaking in or around the early 1990s. Since that time cheque usage has seen significant decline as electronic payment systems started to replace physical cheques. In a number of countries cheques have become a marginal payment system or have been phased out completely. 17

The four main items on a cheque are: i. Drawer, the person or entity that makes the cheque.

ii. iii.

Payee, the recipient of the money. Drawer, the bank or other financial institution where the cheque can be presented for payment. Amount, the currency amount.

iv.

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Usage
Parties to regular cheques generally include a ' drawer, the depositor writing a cheque; a drawee, the financial institution where the cheque can be presented for payment; and a payee, the entity to whom the drawer issues the cheque. The drawer drafts or draws a cheque, which is also called cutting a check. There may also be a beneficiary for example, in depositing a cheque with a custodian of a brokerage account, the payee will be the custodian, but the cheque may be marked "F/B/O" ("for the benefit of") the beneficiary. Ultimately, there is also at least one endorsee which would typically be the financial institution servicing the payee's account, or in some circumstances may be a third party to whom the payee owes or wishes to give money. Cheques may be valid regardless of denomination and are used within numerous scenarios in place of cash. A payee that accepts a cheque will typically deposit it in an account at the payee's bank, and have the bank process the cheque. In some cases, the payee will take the cheque to a branch of the drawee bank, and cash the cheque there. If a cheque is refused at the drawee bank (or the drawee bank returns the cheque to the bank that it was deposited at) because there are insufficient funds for the cheque to clear, it is said that the cheque has bounced. Once a cheque is approved and all appropriate accounts involved have been credited, the cheque is stamped with some kind of cancellation mark, such as a "paid" stamp. 19

Cancelled cheques are placed in the account holder's file. The account holder can request a copy of a cancelled cheque as proof of a payment. This is known as the cheque clearing cycle. Cheques can be lost or go astray within the cycle, or be delayed if further verification is needed in the case of suspected fraud. A cheque may thus bounce some time after it has been deposited. An advantage to the drawer of using cheques instead of debit card transactions in that they know the drawer's bank will not release the money until several days later. Paying with a cheque and making a deposit before it clears the drawer's bank is called "kiting" or "floating" and is generally illegal in the United States, but rarely enforced unless the drawer uses multiple chequing accounts with multiple institutions to increase the delay or to steal the funds.

Declining Use
Cheques have been in decline for many years, both for point of sale transactions (for which credit cards and debit cards are increasingly preferred) and for third party payments (e.g. bill payments), where the decline has been accelerated by the emergence of telephone banking and online banking. Being paper-based, cheques are costly for banks to process in comparison to electronic payments, so banks in many countries now discourage the use of cheques, either by charging for cheques or by making the alternatives more attractive to customers.

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Cheques are also more costly for the issuer and receiver of a cheque. In particular the handling of money transfer requires more effort and is time consuming. The cheque has to be handed over on a personal meeting or has to be sent by mail. The rise of automated teller machines (ATMs) has led to an era of easy access to cash, which make the necessity of writing a cheque to someone because the banks were closed a thing of the past.

Alternatives to cheques
In addition to Cash there are number of other payment systems that have emerged to compete against cheques; Debit Card payments. Credit Card payments. Direct debit (initiated by payee). Direct credit (initiated by payer), ACH in US, Giro in Europe. Wire transfer (local and international). Electronic bill payments using Internet banking.

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Variations on regular cheques

In addition to regular cheques, a number of variations were developed to address specific needs or to address issues when using a regular cheque. Cashiers cheques and Bank drafts Certified cheque Payroll cheque Warrants Travellers cheque Money or Postal order Oversized cheques Payment vouchers

Cheque Fraud
Cheques have been a tempting target for criminals to steal money or goods from the drawer, payee or the banks. A number of measures have been introduced to combat fraud over the years. These range from things like writing a cheque so its hard for to be altered after it is drawn to mechanisms like crossing a cheque so that it can only be paid into another banks account providing some traceability. However, the inherent security weaknesses of cheques as a payment method, such as having only the signature as the main authentication method and not knowing if funds will be received until the clearing cycle to complete, have made them vulnerable to a number of different types of fraud;

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i. Embezzlement Taking advantage of the float period (cheque kiting) to delay the notice of non-existent funds. This often involves trying to convince a merchant or other recipient, hoping the recipient will not suspect that the cheque will not clear, giving time for the fraudster to disappear.

ii. Forgery Sometimes, forgery is the method of choice in defrauding a bank. One form of forgery involves the use of a victim's legitimate cheques, that have either been stolen and then cashed, or altering a cheque that has been legitimately written to the perpetrator, by adding words and/or digits in order to inflate the amount.

iii. Identity theft Since cheques include significant personal information (name, account number, signature and in some countries driver's license number, the address and/or phone number of the account holder), they can be used for fraud, specifically identity theft.

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iv.

Dishonored cheques A dishonoured cheque cannot be redeemed for its value and is worthless; they are also known as an RDI (returned deposit item), or NSF (non-sufficient funds) cheque. Cheques are usually dishonoured because the drawer's account has been frozen or limited, or because there are insufficient funds in the drawer's account when the cheque was redeemed. A cheque drawn on an account with insufficient funds is said to have bounced and may be called a rubber cheque. Banks will typically charge customers for issuing a dishonoured cheque, and in some jurisdictions such an act is a criminal action. A drawer may also issue a stop on a cheque, instructing the financial institution not to honour a particular cheque.

v.

Lock box Typically when customers pay bills with cheques (like gas or water bills), the mail will go to a 'lock box' at the post office. There a bank will pick up all the mail, sort it, open it, take the cheques and remittance advice out, process it all through electronic machinery, and post the funds to the proper accounts.

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Parts of a cheque

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Anti-money laundering
Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities.

Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act.

Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must perform due diligence by verifying a customer's identity and monitor transactions for suspicious activity. To do this, many financial institutions utilize the services of special software, and use the services of companies such as C6 to gather information about high risk individuals and organization. Money Laundering deprives Governments of tax revenues thereby raising the relative burden of honest citizens. Because of rapid movements of large amounts of money there occurs destabilization of financial institutions which in turn jeopardizes funds of innocent citizens.

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Anti-Money Laundering Policy

The Anti-Money Laundering Policy follows the standards of the AntiMoney Laundering and Combating Terrorism Financing (hereinafter collectively referred to as AML) procedures within the Alfa Banking Group.

In any country/jurisdiction where the requirements of applicable antimoney laundering laws and regulations act to establish higher standards, the Groups companies must meet those standards.

Adherence to this policy is absolutely essential for ensuring that all Group companies, regardless of geographic location, fully comply with applicable anti-money laundering legislation.

The Group is committed to examining its anti-money laundering strategies, goals and objectives on an ongoing basis and to maintaining an effective AML Policy for the Groups business.

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Malaysia

Anti Money Laundering Act 2001 The Act criminalizes money laundering stating that any person who engages in a transaction that involves proceeds of any specified unlawful activity commits an offence. It also provides for an investigation, freezing, seizure and forfeiture of the proceeds of money laundering and terrorist financing offences, suspicious transactions reporting, record keeping and the establishment and functions of the Financial Intelligence Unit.

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References

Rosli Mahmood 1994 Konsep buku perbankan Wikipedia, the free encyclopedia

www.creaditbureau.bnm.gov.my www.ctos.bnm.gov.my