Paper 10

CREDIT GOVERNANCE AND COMPLIANCE

The paper is intended to equip the candidate with knowledge, skills and attitudes required to exercise professional judgement relating to governance and compliance within an organisation, in the context of the credit management function.

On completion, a candidate should be able to

Develop major credit policies and action plan to achieve strategic objectives and allocate resources
Measure the performance of the credit asset (debtors, loans, advances) by use of standard metrics
Evaluate the operational compliance of procedures in meeting legal, regulatory, ethical and social requirements
Apply prudential guidelines in lending as provided by regulators of banks, SACCOs, MFIs and other credit providers
Apply principles of good governance in credit management
Uphold professional standards, ethics and values for credit professionals

Content

1
Overview of Regulation of financial institutions
1. 1.1
  Need and objectives of regulation of lending institutions
2. 1.2
  History of regulation
3. 1.3
  Regulation models and strategies
4. 1.4
  The role of regulatory models
5. 1.5
  Regulatory authorities and their structures
2
Credit Policy administration
1. 2.1
  The credit policy
2. 2.2
  Distinction between a policy, procedure and a rule
3. 2.3
  Scope of credit policy
4. 2.4
  Objectives of a credit policy
5. 2.5
  Operating principles of a credit policy
6. 2.6
  Structures and management of credit granting institutions
7. 2.7
  Responsibilities, Authority and decision making
8. 2.8
  The importance of a credit policy
9. 2.9
  Types of credit policies
10. 2.10
  Factors to consider when developing a credit policy
11. 2.11
  Component of a credit manual
12. 2.12
  Formulation and implementation of a credit policy
13. 2.13
  Benefits of credit policy periodic review
3
Prudential Guidelines in lending for banking institutions
1. 3.1
  Meaning of banking business (29)
2. 3.2
  Role of the management and the board in credit risk management
3. 3.3
  Capital Adequacy and sanctions on non-compliance
4. 3.4
  Insider lending and reckless lending
5. 3.5
  Risk Classification of assets
6. 3.6
  Provisioning requirements
7. 3.7
  Management of NPAs and treatment of collateral
8. 3.8
  Credit Compliance reports
9. 3.9
  Administrative measures and penalties for non-compliance
4
Cooperatives/Saccos lending regulations
1. 4.1
  General lending requirements
2. 4.2
  Capital adequacy and sanctions on non-compliance
3. 4.3
  Role of the management and the board in credit risk management
4. 4.4
  Lending disclosures requirements
5. 4.5
  Interest rates, fees & penalties and limit on interest recoverable
6. 4.6
  Security for loans
7. 4.7
  Inter Sacco borrowings
8. 4.8
  Loan product approval
9. 4.9
  External borrowing, limits on loans, reckless lending and Insider lending
10. 4.10
  Credit collection practices
11. 4.11
  Classification requirements, basis of classification and computing delinquency
12. 4.12
  Treatment of collateral
13. 4.13
  Loan loss allowances, loan write-off and risk classification return
14. 4.14
  Cooperative principles and sound corporate governance (DTS)
15. 4.15
  Guiding principles (GP) of good corporate governance (DTS)
16. 4.16
  Credit Compliance reports
17. 4.17
  Administrative measures and penalties for non-compliance
5
Microfinance Institutions lending regulations
1. 5.1
  Capital adequacy and sanctions on non-compliance
2. 5.2
  Understanding Microfinance Banks and Credit only Microfinance Institutions
3. 5.3
  The credit committee of the board
4. 5.4
  Application for loan or credit facility.
5. 5.5
  Limit on loans and credit facilities.
6. 5.6
  Risk classification and provisioning of loans
7. 5.7
  Insider lending reckless lending
8. 5.8
  Credit Compliance reports
9. 5.9
  Administrative measures and penalties for non-compliance
6
Islamic Banking
1. 6.1
  Regulation of Islamic banking
2. 6.2
  Accounting and disclosure
3. 6.3
  Principles of lending
4. 6.4
  Credit products permitted under Islamic (Shariah) law
5. 6.5
  Corporate Governance for Islamic Financial Institutions
6. 6.6
  Islamic Microfinance
7
Measuring performance of credit Assets (30)
1. 7.1
  Purpose of performance measurement
2. 7.2
  Portfolio at risk (PAR); institution PAR Vs Industry PAR
3. 7.3
  Value at risk (VaR)
4. 7.4
  Credit loss ratio, NPLs to gross Loans ratio, etc.
5. 7.5
  Average collection period (ACP)
6. 7.6
  Collections Effective Index (CEI)
7. 7.7
  Risk Migration rates
8
Basel Accords
1. 8.1
  Background of the Accord
2. 8.2
  Basel I -III
3. 8.3
  Basel capital adequacy framework for credit risk
4. 8.4
  Impact of changes to the Basel capital adequacy framework on credit risk
5. 8.5
  Key differences between regulatory capital (under Basel framework) and economic capital
9
Consumer protection
1. 9.1
  Relevant laws, codes of practice and lending policies
2. 9.2
  Moral ethical and cultural considerations
3. 9.3
  Principles of responsible lending
4. 9.4
  Un regulated lending institutions
5. 9.5
  The nature of hire purchase agreements
6. 9.6
  Essentials of hire purchase agreements
7. 9.7
  Implied terms of hire purchase agreements
8. 9.8
  Effects of misrepresentations
10
Corporate Governance in lending institutions
1. 10.1
  Definition of corporate governance
2. 10.2
  Agency and stakeholders’ theories
3. 10.3
  Importance of corporate governance
4. 10.4
  Principles of corporate governance
5. 10.5
  Best practice in corporate governance
6. 10.6
  Developing framework for corporate governance
7. 10.7
  Corporate governance and stakeholders
8. 10.8
  Role of Chairman, CEO and board committees
9. 10.9
  Role of board in risk management
10. 10.10
  Role of other stakeholders
11. 10.11
  Internal control, audit and compliance and governance
12. 10.12
  Risk management and governance
13. 10.13
  Directors remuneration
14. 10.14
  Governance reporting and disclosure
15. 10.15
  Public sector governance
16. 10.16
  Conflict of interest
17. 10.17
  Investors education and protection of shareholders (31)
11
Professional standards, ethics and values
1. 11.1
  Ethical theories
2. 11.2
  The role of ethics in financial services
3. 11.3
  Higher moral authority
4. 11.4
  Natural law, virtue and human rights
5. 11.5
  Ethics in practice
6. 11.6
  Over-indebtedness and responsible lending
7. 11.7
  Different approaches to ethics and values
8. 11.8
  Standards of conduct and personal integrity
9. 11.9
  Professional and public interest
10. 11.10
  Professional practice and code of ethics
11. 11.11
  Conflict of interest and consequences of unethical behavior
12. 11.12
  Social and environmental issues in the conduct of business and of ethical behavior
13. 11.13
  Provisions of the law on values, code of conduct and integrity