Handling problem loans in banks

---

Mamun Rashid
There was a group audit for corporate banking division at Standard Chartered Bank in 1998. Sadly though, the division failed that audit drawing some serious comments regarding the way the country corporate banking portfolio was being managed with disconnects in approval covenant monitoring, inadequate risk analysis, inappropriate loan structuring, security and collateral shortfall, name lending, holding on to the legacy low earning accounts and recurring past dues with few commercial relationships. The audit team identified many relationships which warranted immediate restructuring, close nursing and monitoring. Besides, a large number of relationships not being in conformity with the bank's credit policy or revenue threshold, were put on `exit' list. The regional management felt the necessity to bundle these together and put under `remedial management' known as ` Global special asset management' (GSAM).
I was then doing the high flying job of a country treasurer with the bank. One late afternoon, I received a call from nobody less than the regional general manager for Middle East and South Asia (MESA) - John Filmeridis, a person respected high for `talking less of English and more of numbers'. John told me- in consideration of my registered interest with human resource division what I also had shared with him; they have decided to put me in charge of GSAM in Bangladesh. He told me that, upon successful completion of that transition role, they would consider putting me in corporate banking. If agreeable, I was told to contact a gentleman named -Colin Avery, the regional head of GSAM in MESA.
A highly esteemed risk manager and a fascinating coach Colin Avery taught me- how to behave when the grass is not greener on the other side of the window. He said- `when the going is good, the clients would love you; run after you; buy you gifts; entertain you in the restaurants and so on and when the going is bad, they would forget you; if you are too pushy, they would also try to push you hard; therefore you got to be very careful'. `Life of a remedial account manager is always very tough', `you got to keep the original client account or relationship manager as well as the client in good humour', ` review the existing security and collateral arrangement and try your best to restructure the loan by improving the security and collateral position', `make sure the repayment schedule is in line with the trade or business cycle', `as well as get into a new repayment agreement with the client'- he added. In order to do a good job as a `remedial 'or `recovery' manager apart from patience, one has to have very good knowledge in risk management, legal affairs, local regulations and inter-personal relationship, Colin Avery further mentioned. He thought, at times the GSAM Manager has to be very flexible having a fair visibility about the destination and at times, he or she got to be ruthless. If the situation warrants, the recovery manager, who should be adequately empowered, must be ready to accept an extensive `hair cut' or provide discounts for the interest of the bank.
Right from the beginning, I was much focused and took the job very seriously. Most of the relationship managers, the then corporate banking head and even the country risk manager didn't cooperate much with me, which I thought was quite natural. I didn't have a proper room, dedicated telephone or even a secretary for me. The clients, whose accounts were put under remedial management or on exit, were not happy with me either. At the beginning, they were not granting me even audience since our relationship managers, who booked the account or relationship, were not accompanying me or helping me with the appointments. I decided not to give up. I used my all public relations and networking capability to get close to the clients and let them appreciate my situation too.
With my tremendous engagement, the ice started to melt. I became successful in recovering a large sum of defaulted loans or impaired assets and got rid of almost 36 non-core relationships. In a repeat audit, the auditors were too happy to see my performance. What deemed to be a `thankless job' brought me a lot of `thanks' from my seniors. In between there was an `accountability audit' done by an independent risk manager and that found the then corporate banking head responsible for creating the mess. Two high flying relationship managers had to go much before, just after the audit. I was announced the new head of corporate and institutional banking in late 1999. When Standard Chartered Bank acquired ANZ Grindlays Bank in October 2000 and portfolio of both the banks were merged together in April 2001, I was named the head of corporate and institutions for the combined bank, not my senior with much longer corporate banking experience from the ANZ Grindlays bank.
Today when I look back or review the increasing debt default in the commercial banks, I don't have an iota of doubt about the need for putting the best manager or risk manager, who has 'passion in the heart and fire in the belly' in charge of the loan restructuring and recovery department. I strongly feel the person should be adequately empowered, given enough authority to decide and at attractive compensation package . His or her objectives should be discussed and approved by the board. Upon successful achievement of the objectives, he or she should be given exemplary rewards, so that other people also come forward for this type of job and try their best to safeguard the bank from loan losses. One Taka realized from the classified or bad loans, especially against which provision had been made, is more important than four taka gross revenue earned. Not to mention about the loss of reputation out of weak portfolio management.
(Mamun Rashid is a banker and economic
analyst. E-mail:
mrashid1961@gmail.com)