Bank Alfalah

The Caring Bank

AR > Jan, 14 1

BRIEF INTRODUCTION

ByAbdul Rauf

Manager CIU- Mortgages Consumer Finance Group

Home loan Processing and Risks

Bank Alfalah

The Caring Bank

AR > Jan, 14 2

CONTENTS

A. Case Processing B. Risk EvaluationC. Proposal Structuring

D. Credit Analysis1. Introduction 2. Basic “C’s” of Credits3. Broader review principles & policies

E. Prudential RegulationsF. Decision

Bank Alfalah

The Caring Bank

AR > Jan, 14 3

A – CASE PROCESSING Documents Checklists - Compliance of basics as per Bank’s policy

(eligibility criteria's, mandatory documents & other requisites) & Prudential Regulations (should preferably be covered on Application Form)

Broad Eligibility Criteria Pakistani Nationals (Resident & Non-Resident – Both) holders of Pakistan Origin Card are

not eligible since were National and currently not) Age normally between 23 years to 60 years (vary for salaried and business class and from

bank to bank) at the time of application, subject to maximum age of 65 years at maturity of finance.

Min. Household Income (Documented & Verifiable) – Minimum take home income Rs.100,000 p/m- can be changed from time to time.

Job Tenure - Permanent salaried employees having total employment of at least 2 years and contractual employees having total employment of min 3 years.

Self employed - Practicing and conducting business for at least 3 years with satisfactory track record.

Business Individuals- Practicing and conducting business for at least 5 years with satisfactory track record.

Area – Easily marketable. Property Size – Preferably not below 5 Marla or equivalent and value not below Rs. 5.0

Mln. Min. Customer Equity – 30% of the evaluated value should be contributed.

Bank Alfalah

The Caring BankCASE PROCESSING

Documents for Salaried:

Complete Application (Mandatory)Processing Fee (Mandatory)Copy Of CNIC (Mandatory) 2 Latest Photographs (Optional)Six Months Bank Statements (Mandatory)Basic Borrower Fact Sheet (In case of Co-borrower) (Mandatory)Personal Financial Statement (In case of Co-borrower) (Optional)Employment Certificate with Date of Joining, Current Designation and Gross monthly salary (Mandatory)Latest Salary Slip attested by employer (Mandatory)Employment verification form (Optional)Repayment Schedule of Term Loans (Optional) KYC (Optional)Photocopies of property documents along with agreement to sell (Mandatory) Property Visit Report (Optional)Agreement to sell (In case of Purchase case) (Mandatory)

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Bank Alfalah

The Caring Bank

Documents for Business Individuals/ Self Employed ProfessionalsProcessing Fee (Mandatory)Complete Application(Mandatory)Copy Of CNIC (Mandatory)2 Latest Photographs (Optional)1 Year Bank Statements (Mandatory)Copy of NTN Certificate (Mandatory) 3- Years Tax Returns (Mandatory)Sole Proprietorship Certificate (Mandatory)Partnership Deed (Mandatory)Undertaking from Remaining Partners (Mandatory)Memorandum & Article of association, Form-29, Form-C & Form-A (Latest) in case of Private Limited (Mandatory)Copies of CNIC of Directors in case of Private Limited Company (Mandatory) Signature Verification Form (Optional)Basic Borrower Fact Sheet-(In case of co-borrower) (Mandatory)

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CASE PROCESSING

Bank Alfalah

The Caring Bank

Personal Financial Statement-(In case of co-borrower) (Optional) Repayment Schedule of Term Loans (Optional) KYC (Optional) Property Visit Report (Optional)

Documents for Expatriate Pakistanis

Complete Application (Mandatory) Processing Fee (Mandatory) Copy Of CNIC- attested by Pak. Embassy/Notarized (Mandatory) Copy of Passport & Visa/Iqama attested by Pak. Embassy/Notarized (Mandatory) Credit History Report from credit rating agency (Mandatory) 2 Latest Photographs (Optional) 1 Year Original Bank Statement (Salary Account) (Mandatory) Signature Verification Form (Optional) 3 Year Tax Returns Personal.(Not Applicable in Middle East) (Mandatory)

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CASE PROCESSING

Bank Alfalah

The Caring Bank

For Rental Income Rent Agreement ( duly verified) along with copy of property

documents (Mandatory) For Agriculturist Copy of Property documents of Agri land along with Agri income

verification (Mandatory)

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CASE PROCESSING

Bank Alfalah

The Caring BankCASE PROCESSING

Initial checks initiated CNIC verification through NADRA (Verisys) E-CIB (Refer Pr Reg Clause OPS – 3) Data Check

Verifications Internal – Tele-calls to Residence, Office & 2 references External - Genuineness of documents & personal

Information Asset related

Purpose of asset usage should be Personal - (Refer Pr Reg. – Clause A-3-iii) Valuation & appraisal of property through

independent external agencies approved by SBP Legal opinion of the property

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Bank Alfalah

The Caring BankB- RISK EVALUATION The facilities shall be subject to Bank’s Risk Management process. As per the Prudential Regulations of the State Bank of Pakistan the process may include, identifying source of repayment and assessing customer’s ability to repay, his/ her past dealings with the Bank, the net worth and information obtained from a Consumer Credit Information Bureau. In addition to above, the primary risks, in the real estate financing are centered in the title of property, valuation, creation of enforceable mortgage and erratic price fluctuation in the real estate market. In order to control and manage the risks, following stipulations but not confined to the same, may be considered.

Verification of the borrower's income and other facts given in the applicationsE-CIBData CheckEstablished source(s) of repayment and consistent inflow Income Estimation Report where required

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Bank Alfalah

The Caring BankRISK EVALUATION

Cash inflow and capacity to repay may be ascertained from

Bank statement and salary slip/certificate (in case of salaried person) Bank statement for one year, tax returns etc. for business

individual/professionals Confidential report from other bank(s) / verification

through Data Check system / Credit reference Agency may also be done in addition to above

Total monthly amortization payments of consumer loans shall always be subject to SBP regulation

The facility would be subject to stress test in light of SBP guidelines

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Bank Alfalah

The Caring BankRISK EVALUATION

Past or present over dues and defaults by the applicant if any (whether settled or pending) will be viewed subjectively and if required, customer explanations and clearance letters would also be obtained. Realistic valuation report from the bank's approved valuator on the property would be obtained. BOQ Report for construction cases. An estimate from the customer in case of improvement is to be obtained and verified by the approved surveyor/architect. Genuineness of the title documents should be vetted by the approved legal counsel.

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Bank Alfalah

The Caring BankRISK EVALUATION

Property is not in the name of minor. In case of joint owners, none of them are minor(s) or any other person with no legal recourse.

Apart from quantitative criteria to be used for evaluating loan applications, the Bank will also take into consideration subjective factors (qualitative factors) which may be used to assess the applications. Quantitative criteria does not necessarily evaluate profile of applicants, therefore, subjective evaluation (nature of job, nature of business condition of earnings and near future threats/prospects for business etc.) of applicant is also necessary.

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Bank Alfalah

The Caring BankC-PROPOSAL DRAFTING

Upon completion of all documentary and basic processes, the case is

compiled for structuring of the loan proposal

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Bank Alfalah

The Caring Bank

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Proposal Drafting

Points to keep in mind while compiling & drafting loan proposal:

Compliance of basic eligibility criteria's Compliance of Prudential Regulations Type of loan & related aspects Verification results / remarks Debt Burden cushions Credit score - to assess the eligibility scale Allowable - Financing tenor enhancement, suitable Mark

up rate options and Grace period options (where applicable) used to assess the possibility of enhancement in loan eligibility

Bank Alfalah

The Caring Bank

AR > Jan, 14 15

D- UNDERWRITING / CREDIT ANALYSISCREDIT ANALYSIS – Means Firstly - Evaluation of a loan application to decide whether it

conforms to all the eligibility criteria’s required for that loan product &

to decide on the case based on: Verification of Information & Documents Review of credit history of the borrower Repayment capacity - current consumer exposures / limits Nature of asset, its value and Equity injection

The analysts should work independent of sales & should have the will, power and decision authority over the

case.

Bank Alfalah

The Caring Bank

AR > Jan, 14 16

CREDIT ANALYSIS1. Basic “C’s” of credit

CREDIBILITY – Willingness to repay CAPACITY, - Sources to repay CREDIT- Ability to repay COLLATERAL

2. Broader review principles & policies Know Your Customer (KYC) Strong Verifications Affordability Credit History Customer with No Credit History Net Worth of

Individuals Clearly understanding customer’s requirement SBP Regulations Comprehension Recourse on delays / defaults Educating customer correctly at the initial stage

Bank Alfalah

The Caring Bank

AR > Jan, 14 17

D–1-- “C’s of Credit CEDIBILITY - Does the borrower has the reputation or

probability not to repay the loan ? – How to determine this: Nature of Profession Reputation Foreseeable probability of delay / default

CAPACITY: Does the borrower has the sources to repay the loan ? – How to determine this: Borrower’s Employment / Profession / Business Income,

Verifiability Type of Income Stability CREDIT - Does the borrower has the ability to repay the loan Review available credit history to know how well a borrower

manages his/her current and prior debts through; Existing history with the Bank E-CIB Data Check

Bank Alfalah

The Caring Bank

AR > Jan, 14 18

“C’s” of Credit - COLLATERAL

COLLATERAl: What if the borrower does not repay the mortgage?

Collateral related recourse / aspects to look for: Type of asset, Value of the asset

Market Value, Forced Sale Value

Probable Use of the asset – Personal or Commercial Personal Equity / Stake

A lower equity will erode in a volatile moving market, with customer equity gone, he might stop paying

A higher equity may not attract the customer to borrow

Bank Alfalah

The Caring Bank

AR > Jan, 14 19

D-2–Broader Review Principles & PoliciesCustomer’s – KYC (Know Your Customer) -Strong Verification of Personal & Income details

SBP Prudential Regulations - requirements should be thoroughly comprehended,

Affordability Ability to continuously re-pay with potential of consistent

increase in income to offset – Inflation and Mark up rate increases & should have good cash or liquid investments to cover the off-season installments

Credit History - Banks own experience Market information Direct confirmations E-CIB & Data Check

Bank Alfalah

The Caring Bank

AR > Jan, 14 20

Broader Review Principles & Policies

Customer with no previous Credit History; They may be assessed both ways and should be handled

carefully since they might be conscience re-payer but unaware of consequences

Net Worth of Individuals General Knowledge Assessment from available documents

Clearly understanding customer requirement If the customer is going to use the property for (personal use,

rent out or use for commercial purposes, etc.)Educating and advising customer correctly at

the initial stage The sales team should advice the borrowers all the features,

rates, penalties so they can make an informed decision with regard to entering into financing

Bank Alfalah

The Caring BankE-Prudential Regulations – Home Loans

R-1- No Preferential terms and conditions allowed R – 15 - Total monthly amortization payments of consumer loans,

inclusive of HF, should not exceed 50% of the net disposable income R - 15 - Plot + Construct Cases, total Sanctioned limit = Upto 50% for

Plot & remaining for Construction in tranches R - 15 - A realistic Construction Schedule obtained prior to allowing

financing for Plot purchase R - 15 - Construction financing structured for disbursement in

tranches as per BOQ R – 16 - Overall Debt to Equity Ratio doesn't exceed 85 : 15 R - 18 - Finance secured by Equitable or Registered Mortgage Ops-2- Detail of existing Consumer Financing obtained

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Bank Alfalah

The Caring BankE-Prudential Regulations – Home Loans

R - 19 - Property Evaluated by Professionals Agency/ies R - 19 - Property title documents assessed by professional lawyers

(listed) R - 21 Transaction subjected to Stress Test viz a viz - Interest Rates R - 22 Existing Finance, if Overdue, is properly Classified A-3-iii- Purpose of financing is residential Ops-1- Net worth of the borrower obtained

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Bank Alfalah

The Caring Bank

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F – DECISION Approve or Decline After receiving & reviewing all above related aspects of the

loan, the analyst assesses the risks of the loan as a whole & decides

IN PRESENCE OF TIGHT CRITERIA FILTERS – IT BOILS DOWN TO SUBJECTIVE APPROACH –

Which may differ from person to person

Bank Alfalah

The Caring Bank

AR > Jan, 14 24

End of Presentation

THANK YOU