Asset Based Financing Scheme has been designed to assist high net worth customers who have the ability to service a loan and landed property to offer as security fulfill their personal dreams and ambitions by providing them with top quality financial services in form of medium to long term personal loans .The funds shall be used for legally accepted general purposes.
Interest, Arrangement and Administration fees shall be charged by the Bank and borne by the customer.
The loans shall be granted under the following major conditions:-
- The Loans shall only be considered where the fall back is a legal charge or mortgage.
- Loan repayment period shall be up to 60(sixty) months.
- Maximum loan amount shall be based on borrower’s financial capacity to meet monthly repayments.
- For salaried individuals:
- Monthly loan repayment amount shall not exceed 30% of take home pay being deposited to the Bank account for applicants staying in rented houses and 35% for applicants staying in their own houses, at the time of loan application.
- Employer’s Letter of Undertaking to send employee’s salary to the borrower’s Bank account.
- Customers with businesses as source of income shall be considered provided there is evidence of such income deposits in customer’s operating account and/or any other supporting documents presented as proof of extra income for example tenancy agreements, signed contractual agreements to supply goods.
- Houses offered as security shall be located in areas zoned for city or town status. Such areas include Blantyre, Lilongwe, Mzuzu, Zomba, Mangochi, Kasungu, Karonga etc on condition that the plots where the properties are situated are registered by the Department of Lands and are supported by current title deeds.
- All properties/houses offered as security shall be valued by the Professional Valuers on the Bank’s preapproved list.
- All properties/houses offered as security shall be insured under House Owners All Risks insurance including Fire Cover, preferably under the Bancassurance Scheme.
- Credit Life Insurance, for willing customers, to be arranged preferably under the Bancassurance Scheme.
- Interest rate shall be Base Rate per annum and Base Rate +4% for customers relying on business proceeds to service the loan. Interest is subject to review at any point in time.
- Administration fees shall be charged by the Bank and borne by the customer.
- Applications for these facilities shall be referred to Head of Personal and Business Banking and/or Head of Credit Management Division after ascertaining that repayment of the credit if granted is assured, that all documentation is in order and that the applicant has met all requisite conditions.
- The Head of Personal and Business Banking shall approve facilities of up to MK50,000,000.00.
Asset Based Financing Scheme has been designed to assist customers fulfill their personal dreams and ambitions by providing them with top-quality financial services. The scheme covers loans which can finance any of the following:-
- Household Effects
- Medical Expenses
- Any Legal Ancillary Expenses
The product is designed to offer a quality service at a profit and foster goodwill between the Bank and creditworthy customers. It is from this source that many of our existing and future public sector, business, industrial and community leaders are/will be drawn. It is expected that in having assisted this sector, the Bank will have established a relationship to the long-term mutual benefit of both parties.
The purpose of the Asset Based Financing Scheme is to assist high net worth individuals to access funds in form of a loan repayable over a period of up to sixty months secured by landed property.
The purpose is however not controlled although it should be disclosed on the loan application for Bank records.
The medium to long term loan facility shall be available to the following:
- High net worth individuals whose regular monthly income in form of salary or sole proprietors whose business proceeds are paid direct into their Bank account.
- Non-Resident Malawian nationals who have recorded ability to remit monthly installments provided this does not contravene Exchange Control Regulations or have existing Foreign Currency Denominated accounts from which monthly repayments can be effected.
- Professionals who are paid a confirmed recorded share of the firm’s earnings on a monthly basis.
The loans shall be repaid within sixty months (five years).
TERMS AND CONDITIONS
- The maximum facility amount shall be:
- Up to 85% of the value of the property, for both individual and business applicants.
- Dependent on financial capacity of the borrower.
- Loan tops ups shall be allowed provided the first loan has reduced to 50% of the original loan amount.
- Additional loans, in form of second loans, shall be considered provided the amount sought plus existing loan are within 85% of the market value of the property held as security and the customer’s is within approved income/repayment ratio.
- No borrowing shall be allowed for the purpose of settling an existing loan.
Asset Based Finance Loan shall be extended to holders of Current, Savings and Special Savers accounts whose accounts have operated for at least three months without a single dishonoured paper, on other facilities or unauthorized excesses.
MULTIPLE FACILITIES AND CONVERSION
- A customer shall be allowed to enjoy asset based finance loan to run concurrently with other credit facilities as long as the customer’s income/repayment ratio is within 30%.
- Customers shall not be allowed to convert a loan facility to overdraft as this may mask potential financial problems/inability to service debt.
- There shall be no penalties or cooling off period in cases of early repayment of a loan
- A legal mortgage/charge over the property offered as security.
- House owners all risks insurance including fire cover, preferably under the Bancassurance Scheme with the Bank's interest fully noted in the insurance policies.
- The Bank also encourages the customer to arrange for a mortgage redemption policy or credit life policy in order to cover the loan upon death as additional security, preferably under the Bancassurance Scheme. The Bank’s interest fully noted on this policy.
- For employed applicants; Employer’s Letter of Undertaking
- A Letter of Undertaking (Appendix II) from reputable and creditworthy employers undertaking to send monthly earnings to the applicant’s Bank account until loan is repaid
- Letters of Undertaking should be signed by authorizing officers of the employer and shall be verified with the agent of the employer signing such undertakings by phone. The individual phoning will record on the Letter of Undertaking the name of the agent, date, time and sign as evidence/confirmation.
- Specimen signatures of the authorizing officers of the employer obtained and kept on the Bank file for record and reference purposes.
- Any other soft security or covenants that the Bank may propose.
ACCEPTABLE PROPERTY LOCATION
The Bank shall obtain as security landed properties in areas zoned for city or town status. Such areas include Blantyre, Lilongwe, Mzuzu, Zomba, Mangochi,Kasungu,Karonga etc on condition that the plots where the properties are situated are registered by the Department of Lands and are supported by current title deeds and professional valuation reports from valuers on the Bank’s approved list.
Before taking security over property a search shall be carried out to ensure that there are no onerous conditions of title and that there are no charges registered over the property.
PROPERTY VALUATIONS AND STANDARDS
- Valuations of fixed properties must be undertaken by professional valuers on the Bank’s preapproved list to the Bank and shall be repeated every 5 years at the customer’s expense.
- In addition whenever there is a significant reduction in property values in the market the Bank may require new valuation reports.
- All security to be revalued and physically inspected by management on downgrading of accounts. Security documents to be physically inspected and scrutinized to ensure legal enforceability. A certificate to this effect to be kept in the security dossier. Any anomalies to be reported immediately to Head, Personal and Business Banking Division with a copy to Credit Management Division.
- The house must be of burnt bricks or concrete blocks and IBR/corrugated/tile roofing.
- In case of leased property the lease agreement should have a remaining lease period of at least 15 years.
- A flat arrangement fee and a commitment fee as per tarrif book shall be recovered before disbursement of the loan.
- Interest rate shall be pegged to NBM Base Rate for customers relying on salary and rentals and Base Rate +4% for customers relying on business proceeds, payable monthly.
- Pricing shall be subject to review in response to market trends and the changing economic environment at any time at the Bank's discretion.
APPLICATION AND APPROVAL PROCESS
Individual customers applying for the facility shall complete the loan application form (Appendix I) which shall be submitted together with the following documents:
- Latest copy of the customer's pay slip which is not more than one month old.
- Proof of income in form of signed contracts or tenancy agreements or any other document that may be used by the Bank to verify other sources of income, in case of individuals who are not in employment.
- Employer’s Irrevocable Letter of Undertaking (Appendix II) to continue remitting monthly salary to the Bank so long as the applicant remains in employment.
- Copy of the employment contract if applicable in which case facility tenor will be aligned to 2 months before contract expiry date or undertaking by employer to apply contract proceeds towards settlement of the loan.
- A professional valuation report of the property that is less than five years old, for the property being offered as security. The valuation shall only be undertaken by individuals/companies approved by the Bank and this shall be confirmed by Consultant or ARM.
- Completed form ADV 4 (business and personal) with specific details of identifiable assets such as title (plot) numbers for Landed Property.
- Where the customer is relying on business proceeds fully or as additional source of income:
- Latest trading accounts
- Projected cashflow statement for at least twelve months.
- Bank statements for at least twelve months if business account is held with other banks.
- Business registration certificate.
- On receipt of these documents, the customer's application shall then be assessed.
- If the application looks positive i.e. the applicant is eligible for the facility sought, then the property being offered must be visited to ascertain its ownership, existence and assess its condition/estimate its conservative value.
i) At least two members of staff to visit the property, one of them being the Manager. A detailed report (on ADV 10 securities) of the property should be compiled. Thus assessment of the application shall among other things be based on the applicant's financial capability, the value and condition of the property in relation to the amount sought.
DRAW-DOWN OF THE FACILITY
- An Offer Letter shall be issued for acknowledgement by the customer. Among other things the Offer Letter should clearly state that failure to service the facility will lead to repossession of the property by the Bank (appendix III). The acknowledged sanction letter should be submitted to the Bank together with a signed customer’s standing order form duly completed.
- The acknowledged offer letter shall form part of security
- Once the Offer Letter is accepted, through Credit Management Division, the Bank's Legal Department shall prepare documents to create a legal mortgage/charge over the property being financed. The following documents shall be forwarded to Legal Department through Credit Management Division,
- Original Title Deed
- Acknowledged Offer Letter
- Search Certificate
- City/Ground rates Clearance Certificate
- Evidence of insurance with BIN
- MRA Tax Compliance Certificate
- ADV 10 securities
- Copy approval
- No drawdown before a charge is registered
- However, in view of the delays associated with registration of charged properties, the Bank may exceptionally, on a case by case basis, authorize the disbursement of loan proceeds after execution of the security documents by all the concerned parties. In such cases the Bank shall first register a caution over the property in order to protect its position.
- Before releasing any funds, lending units must ensure that title is clear, property is fully insured with BIN, City/ground Rates fully paid and up to date
- Drawdown before Charge/Legal Mortgage registration to be sanctioned by Credit Management Division against a registered caution as well as execution of title documents and up to 50% of the facility sought.
- The responsibility of obtaining the consent from the relevant authorities rests with the customer.
- All legal costs shall be for the customer/borrower's account.
The ARM is accountable for monitoring the performance of the customer's loan account and the conduct of it with the Bank.
HANDLING OF NON-PERFORMING DEBTS AND REPOSSESSION OF PROPERTY
Where there is doubt as to whether a loan debt is to be recovered by the Bank, the account shall be classified as irregular and treated in the following manner:
- First default – issue a reminder letter to the customer. (This must be done without fail and without waiting for a reminder from the Head Office and it applies to all loans and unathorised excesses )
- Second default - issue a demand letter to the customer for clearance of the arrears with a copy to CMD and downgrade account in the system as per laid down procedures and submit form ADV41 to CMD within 5 working days.
In this regard, interest is automatically suspended and the accounts downgraded to P8.
Lending team shall alpha search or customer ID /balance list check to ensure that no other account belonging to the customer which has credit balances has been overlooked and needs to be blocked.
Upon the death of a customer, downgrading of the account must be made immediately for the outstanding balance. While surviving spouses are treated with sympathy and consideration, the Bank will emphasize the need to maintain contractual or full repayments. In the event of death, interest shall still continue to charge unless waived by CMD and this applies to all credit facilities.
Where the customer was covered for death and permanent disability under the Bancassurance Scheme the ARM shall:
- Complete a Notification of Death form, showing outstanding loan balance (inclusive of interest) at the time of death.
- Obtain a death report/Certificate or Affidavit of death signed by the District Commissioner .
- Complete a Notification of Injury form, showing outstanding loan balance (inclusive of interest) at the time of the injury.
- Obtain a medical examination report/ Certificate by a certified medical doctor.
The documents shall be sent to Marsh Malawi Ltd for facilitation of loan clearance. Pay out on claims by Marsh Malawi Ltd shall be within 30days of lodgment of the above documents.
Within 5 working days of the downgrade a form ADV 41 should be forwarded to Credit Management Division with a copy to Personal and Business Banking Division to enable provision. Attached to the copy to Credit Management Division should be a copies of the offer letter, letter of undertaking Adv 4, loan application form, and utility bills to facilitate litigation/serving of warrants in need. The ADV 41 should stipulate a recovery plan/way forward. Where the facility was granted through WBD, a copy of the form ADV 41 should also be forwarded to WBD.
It is also at this juncture that such data will be submitted to the Credit Reference Bureau once it is operational. Meanwhile there is need to ensure that the following phrase appears on the loan application forms and the offer letters relating to credit facilities:
“I/ We consent to National Bank of Malawi providing any relevant details pertaining to the operation and conduct of my/our account(s) to the Credit Reference Bureau (CRB) for purposes of assessing credit applications. I will not hold NBM liable for the provision of such information”
Service centers should not wait for Head Office to chase them to downgrade and suspend interest on non performing loans and overdrafts.
They should however not provide for these accounts until authorized to do so by Credit Management Division.
It is however very important that such provision and amendment of risk grade to P9 be made before the last working day of the month in which the instruction is received to ensure that the Bank is not in breach of Reserve Bank of Malawi’s Directives on Asset Qualification.
As at end of March, June, September and December reports on forms QIR should be submitted to Credit Management Division with copies to Personal and Business Banking Division and where applicable to WBD for all substandard debts of MK 50,000 and over by 10th day of the month following the quarter end.
The rest of the non performing debts should be advised under the quarterly return of substandard debts below MK 50,000 by the 20th day of the month following the quarter end and should also be pursued for recovery.
EXCEPTION TO PRODUCT PROGRAMME
When a lending officer believes that an application for an Asset Based Finance Loan application has merit although not conforming to the product programme, the proposal shall highlight the exception and mitigating factors in place.
OTHER TERMS AND CONDITIONS
- Repayment Mode
- Repayment shall be by Banker's Stop Order/Repayment Schedule to the debit of an existing borrower’s account on monthly basis. The repayments shall cover principal and interest payments which will be debited to the borrower's account.
- Bullet payment from time/term deposit accounts provided they are formally pledged/liened to the bank and on condition that by time of maturity the funds therein will be more than the balance of the loan plus accrued interest interest with a headroom of 10%.
- Repayments inclusive of interest will commence as follows:
- for facilities drawn between 1st and 20th should commence within the same month.
- for facilities drawn between 21st and 31st should commence the following month.
- Reconciliation and Reporting
Monitoring reports shall be produced monthly for credit control purposes.
- Revenue - The product is an instalment loan with equal repayments every month. Interest revenue is derived throughout the life of the loan on a decreasing basis. Interest income is computed based on the equal monthly instalments.
- Risk Management - Management of risk will cover the following:
- Liquidity Risk - The whole concept of which liabilities should fund what assets has not been developed by the Bank. However, the risk is minimised by the fact that our deposits are very stable and the ratio of our credit to resources is at acceptable level.
- Operational Risk - Operational Risk is defined as loss resulting from inadequate or failed processes, employees, and systems or from external events.
The operational risks shall be mitigated as follows:
- System failures – proper transactions, regular documentation and account reconciliation by lending teams.
- Internal processes – strict adherence to agreed turnaround times and properly defines roles in the work chain.
- Fraudulent documents – lending teams to obtain original documents from the customer and verify authenticity.
- Employees – to be well trained in credit management and strictly abiding by the checklists provided for guidance in processing loans.
- External events – abide by changes in the regulatory and control environment within the financial industry.
The following considerations will be taken into account before a decision to approve or reject a loan application is arrived at:
- Ability to generate income and repay loan – enough to meet loan obligation.
- Account history – good conduct of account and borrowing repayment history.
- Personal stability – length of service on current job and movements from one employer to another.
- Quality of security offered – accessibility, general outlook, location and market value per valuation report submitted.
Interest to be paid monthly.
The Bank may at any time at which there is a default, exercise its right to set off any outstanding sums against any funds held in any other account of the customer.
- Early Repayment - No penalty charge.
- Joint Accounts - The Bank cannot create a joint charge. Where there are disagreements and when the two disband ownership becomes an issue difficult to resolve. Notwithstanding loan repayments can come from a joint account upon written authority of the other joint party.
There will be cases when customers are unable to repay their loans due to a change in circumstances. In such cases, the entire loan balance may be at risk and the Bank will have to take legal action to recover the debt hence the need to get all procedures right.