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HOW TO INSTILL ETHICS IN COMMERCIAL LENDING Understanding Due Diligence

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ASPECTS OF DUE DILIGENCE

Due diligence Process

Multiple perspectives

Astute questions

Standards Awareness

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UNDERSTANDING DUE DILIGENCE

Approving and executing high-dollar

loans is a risky responsibility.

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UNDERSTANDING DUE DILIGENCE (CONT.)

To avoid taking on dangerous loans, you must be thorough and detailed in

your analysis of potential relationships.

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UNDERSTANDING DUE DILIGENCE (CONT.)

Due diligence is the process you use gather the information

you need to analyze a borrower's creditworthiness.

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THE DUE DILIGENCE PROCESS

Develop a management, business, and

ownership profile of the company.

Collect financial information to support the

financial analysis.

Perform industry research.

Conduct third-party credit

checks to profile payment history.

Execute lien searches and profiling assets, including

environmental assessments, to support collateral qualification.

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MAINTAIN HIGH ETHICAL STANDARDS

The greatest repayment risks are hidden risks that a thorough investigation

should disclose.

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MAINTAIN HIGH ETHICAL STANDARDS (CONT.)

When poor due diligence allows a risk to remain

undiscovered, your bank has no opportunity to evaluate the risk or

mitigating factors so that they can be managed

through loan structuring.

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MAINTAIN HIGH ETHICAL STANDARDS (CONT.)

Maintaining the highest ethical standards

in performing due diligence is essential to protecting your

bank from unknown but discoverable risks.

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POSSIBLE ETHICAL DILEMMAS IN THE DUE DILIGENCE PROCESS

• Performing due diligence is time consuming and often feels tedious.

Time consuming

• You might feel awkward when pressing business managers and owners for information they may find intrusive or prefer not to reveal.

Relationship discomfort

• Fear of losing amicable relationships or losing deals to competitors invites ethical dilemmas. Fear

• Pressure to meet closing deadlines also invites ethical dilemmas. Pressure

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AWARENESS

The first step in addressing ethical dilemmas within the due diligence process is to simply be aware that

they exist.

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AWARENESS WARDS OFF CATASTROPHE

Practicing these qualities makes the difference between

financial stability and financial catastrophe.

Be attentive

Be inquisitive

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ASK QUESTIONS When faced with a compromising situation, ask yourself a few simple questions to help you decide whether a specific action would be considered an ethical violation.

Is this action honest?

Is this action being taken in the best

interest of the client?

Will this action undermine the authority of my

supervisor?

Will this action undermine the credibility of my

employer?

Is this action in compliance with

legal and regulatory requirements?

Would I be comfortable if this

action were reported in the newspaper?

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MULTIPLE PERSPECTIVES INFLUENCE ETHICAL DECISIONS

Important ethical decisions often hinge on the perspectives

of the people involved.

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TAKE THE ETHICS QUIZ!

Download the short case study (http://landing.rmahq.org/SSQuiz).

It illustrates how different roles approach the same scenario.

Then take our 5-question quiz to see how well

you’d do when faced with an ethical dilemma.

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