At its core, banking is not simply about profit but also about personal relationships… Felix Rohatyn
A friend recently made a very profound statement….”As for you bankers, you act so aggressively when you are selling your products to us – and then suddenly go cold and unapproachable when the deal is closed”. He continued: “Is it just our money you want, and not a relationship with us?”
It really hit me hard, because what he was saying is true! Having changed positions from a bank staff to a bank customer, I started reflecting on these words and realised that – apart from the fact that it is true, it is actually a reflection of our human nature.
I smiled to myself as I remembered my own aggression anytime I pray to God to help solve my problems! However, once I get the solution my prayers become dull with very little vim. I confess to that.
The Banker’s Duty of Care
Anyway, thinking of it in my mature years, I have grown to realise how caring for customers makes a difference to them as well as to the bank’s bottom line. Many loan defaulters have an easy playing field when they are left to themselves after the funds have been disbursed. When this happens, loan officers are unable to detect early signs of default. So it goes both ways: Investment/Sales Executives sometimes desert their customers after the deal is closed.
We don’t know that subsequent visits or calls can make the customer feel a greater sense of belonging, and can even bring more funds from overseas to be added to the existing funds. Loan Officers sometimes also neglect their customers when the loan is approved and disbursed. In both circumstances, we should know that customer-visits or calls, as well as-face-to-face meetings go a long way to impact the bank’s profitability. How do we minimise the risk of bank loan defaults and customer attrition?
Know Your Customer (KYC)
How close are you to your customer? When the account was being opened you sharpened your instincts, listened carefully to every word from the customer, looking out for any danger signals and risk-profiling them to ensure their KYC is up to date….We found out if they were who they claim to be (checking for proof of ID), their addresses were at where they claimed to be (checking their proof of residence) and their businesses were duly registered (checking their registration documents.
After collecting this information, how are we sure that the expected turnovers or account operation is in line with the initial expectations? You will be surprised to find out that a student’s savings account will suddenly show unexpected transactions such as an inward remittance of forty thousand euros from Germany! Sure. That is when we get alarmed and start investigations and filing suspicious transaction reports to the Financial Intelligence Centre.
Supervision and Follow-up of Loans
This week, I will concentrate on visits to borrowing customers. The basic objective of supervision and a follow-up system is to ensure that the advances granted by a bank are safe. The funds lent by banks belong to the depositors and bank staff have responsibility in safeguarding the interests of millions of depositors. Supervision of loans starts right from the stage of selecting a borrower, whereas following-up loans starts immediately after disbursement of the loan.
The branch is the unit from which the proposal is made for any advance, and disbursement is channeled through. The borrowers’ maintained accounts are with the branch; operations are conducted through the account; reports and returns are submitted by the borrower to the branch and loans officers. Success therefore depends on how effectively the branch and loans department ensure supervision and follow-up of the credit.
Visits by Loan Officers
Let me share some real life cases that may not be found in books:
Case One: A key distributor for Unilever products who benefitted from a guarantee to his supplier (Unilever) diverted the sales proceeds into building a warehouse. The bank which had guaranteed payment of cheques had to continue the misfortune of honouring the cheques until the amounts were crystalised into an actual loan, running into several hundreds of thousands of cedis.
Didn’t the Loan Officer make regular visits to the shop(s)? What about the account operation? Was there no evidence of less turnovers, diversion of payments to builders or suppliers of building raw materials? Dear Loans Officers, please do not leave the monitoring of account operations to the branch operations staff alone. In banks where the loan processing rests only at the Business or Retail departments, they sometimes may not have full details of the loan agreement and will only honour cheques that are funded!
Case Two: A customer who has been financed to sell alcoholic beverages suddenly displays a variety of other items such as rice, sugar, oil etc. A loan officer may admire the customer’s ingenuity and business acumen, but for all you know he/she has defaulted in paying the beverages’ supplier and has therefore diverted to try other items which he/she has no experience to deal in! Mr. Loan Officer, please visit your customers – and check their books, as well. It falls within your right.
Case Three: A customer who was financed to complete a government building contract suddenly moved house into a posh residential area, and ‘acquired a new wife’ as well as a brand-new luxury car! The building site was deserted. He put 90% of the blame on non-payment by government because he is not a ‘card-bearing’ member of the current ruling government’s party! This one, too, they bring politics inside! Haba!
Case Four: How do you check your borrowing customers’ standing in the community? One does not need to work in the Bureau of National Investigation to find this out. There is a tendency for some customers to offer ten percent of bank loans disbursed as a tithe!! Can you imagine? Yes, the tithe-giving message has been taken to extreme levels. I have seen contractors take their cheques to their pastors to be prayed over, with some of the funds being siphoned away by the charlatan pastors!
Funds meant for business should be used for business to enable them make profit and repay the loans – and then pay genuine tithes! Please make it a point to monitor the account operations, call your customers and visit them. If you are good at a little psychology, you can read in between the lines when customers are edgy and not able to explain certain expenditure patterns. Don’t behave as if you are a know it all, but do it in a very discrete way and make your suspicions known to your supervisor.
Sometimes face-to-face meetings within the bank premises make them see the seriousness of the situation. I remember decades ago when I used to monitor customers who had been assisted with purchasing huge consignments of imported frozen fish at the Tema fishing harbour. I had to go to there every other day to monitor their transactions. At a point in time, the bank-vehicle meandering its way between the small lanes in the harbour as well as the cold-stores became notoriously known as ‘Madam Fish’.
There were times I found it difficult, but eventually it became mutually satisfying for both the bank and the customers. Even with my eagle-eyes, a few of them managed to divert some sale proceeds into buying other types of fish for sale before eventually repaying the loan. Entering various cold-stores in the harbour, without a jacket, to check customers’ stock balances was among some of the unforgettable experiences.
Case Five: Sometimes a call or visit can even help identify sick or even deceased customers! Relatives of borrowing customers are usually the last to inform the bank about his/her death. You might not know, but a family member may be operating a deceased’s sole proprietor’s account without the bankers’ knowledge. The KYC on customers should be continued until the account is terminated.
Obligations and Responsibilities of Loan Officers
Now, let me end this session with the issues that can be found in books:
- To ensure that operations of accounts are regular, bad indications warrant greater supervision.
- To keep watch over the inflow and outflow of Fund.
- To verify proper end-use of funds for the purpose for which loan was given, and the progress made in construction and operations.
- Ascertain reasons for default or delayed payment of loan installments.
- Ascertain financial positions of the borrowing concern from time to time, through the study of audited Balance sheet/Financial statement.
- To see that the project is carried out as it was intended, or modified in the light of changing circumstances.
- To see that the conditions of lending are complied with by the borrowers.
- To ensure that proceeds of the loans are made available to the borrower according to project need, and to see that the funds so released is utilised for the intended purpose.
- To ensure adequate feedback to management and appraisal teams in matters of cost over-runs, financing deficiencies and project implementation delays, if any.
- To obtain payment of installments promptly, and to prevent occurrence of arrears in the normal course.
- To maintain a satisfactory relationship with the customer with a view to promoting a well-balanced attitude of helpfulness and understanding.
I hope these tips are useful. Next week we will look at the role of Investment, Marketing or Sales Executives.
To be continued…..
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of two books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.