MORNBFI Vol. 1 - Planters Development Bank

GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANSAND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCEFOR PROBABLE LOSSES(Appendix to Sec. 4302Q)APP. Q-1008.12.31I. Classification of loans. In addition toclassifying loans as either current or pastdue, the same should be qualitativelyappraised and grouped as Unclassified orClassified.A. Unclassified loans. These are loansthat do not have a greater-than-normal riskand do not possess the characteristics ofclassified loans as defined below. Theborrower has the apparent ability to satisfyhis obligations in full and therefore no lossin ultimate collection is anticipated. Thefollowing loans, among others, shall notbe subject to classification:1. Loans or portions thereof securedby hold-outs on deposit substitutesmaintained in the lending institutions,margin deposits, or government-supportedsecurities;2. Loans with technical defects anddeficiencies in documentation and/orcollateral requirements. These deficienciesare isolated cases where the exceptionsinvolved are not material nor is the QB’schance to be repaid or the borrower’sability to liquidate the loan in an orderlymanner undermined. These exceptionsshould be brought to management’sattention for corrective action during theexamination and those not correctedshall be included in the Report ofExamination under “MiscellaneousExceptions – Loans”. Moreover,deficiencies which remained uncorrectedin the following examination shall beclassified as “Loans EspeciallyMentioned”.The following are examples of loans tobe cited under “Miscellaneous Exceptions– Loans”:a. Loans with unregistered mortgageinstrument which is not in compliance withthe loan approval;b. Loans with improperly executedsupporting deed of assignment/pledgeagreement/chattel mortgage/real estatemortgage;c. Loans with unnotarized mortgageinstruments/agreements;d. Loans with collaterals not coveredby appraisal reports or appraisal reports notupdated;e. Loan availments against expiredcredit line; availments in excess of creditline; availments against credit line withoutprior approval by appropriate authority;f. Loans with collaterals not insuredor with inadequate/expired insurancepolicies or the insurance policy is notendorsed in favor of the QB;g. Loans granted beyond the limits ofapproving authority;h. Loans granted without compliancewith conditions stated in the approval; andi. Loans secured by property the titleto which bears an uncancelled annotationor lien or encumbrance.B. Classified loans. These are loans whichpossess the characteristics outlinedhereunder. Classified loans are subdividedinto (1) loans especially mentioned;(2) substandard; (3) doubtful; and (4) loss.1. Loans especially mentioned. Theseare loans that have potential weaknessesthat deserve management’s closeattention. These potential weaknesses, ifleft uncorrected, may affect the repaymentof the loan and thus increase credit risk tothe QB. Their basic characteristics are asfollows:Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-10 - Page 1