Bank Alfalah
BRIEF INTRODUCTION
The Caring Bank
Home loan Processing and
Risks
By
Abdul Rauf
Manager CIU- Mortgages
Consumer Finance Group
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Bank Alfalah
CONTENTS
The Caring Bank
A. Case Processing
B. Risk Evaluation
C. Proposal Structuring
D. Credit Analysis
1. Introduction
2. Basic “C’s” of Credits
3. Broader review principles & policies
E. Prudential Regulations
F. Decision
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Bank Alfalah
A – CASE PROCESSING
The Caring Bank
 Documents Checklists - Compliance of basics as per Bank’s
policy (eligibility criteria's, mandatory documents & other requisites)
& Prudential Regulations (should preferably be covered on Application Form)
 Broad Eligibility Criteria
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Pakistani Nationals (Resident & Non-Resident – Both) holders of Pakistan Origin Card
are not eligible since were National and currently not)
Age normally between 23 years to 60 years (vary for salaried and business class and from
bank to bank) at the time of application, subject to maximum age of 65 years at maturity
of finance.
Min. Household Income (Documented & Verifiable) – Minimum take home income
Rs.100,000 p/m- can be changed from time to time.
Job Tenure - Permanent salaried employees having total employment of at least 2 years
and contractual employees having total employment of min 3 years.
Self employed - Practicing and conducting business for at least 3 years with satisfactory
track record.
Business Individuals- Practicing and conducting business for at least 5 years with
satisfactory track record.
Area – Easily marketable.
Property Size – Preferably not below 5 Marla or equivalent and value not below Rs. 5.0
Mln.
Min. Customer Equity – 30% of the evaluated value should be contributed.
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Bank Alfalah
CASE PROCESSING
The Caring Bank
 Documents for Salaried:
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Complete Application (Mandatory)
Processing Fee (Mandatory)
Copy Of CNIC (Mandatory)
2 Latest Photographs (Optional)
Six Months Bank Statements (Mandatory)
Basic Borrower Fact Sheet (In case of Co-borrower) (Mandatory)
Personal Financial Statement (In case of Co-borrower) (Optional)
Employment Certificate with Date of Joining, Current Designation and Gross
monthly salary (Mandatory)
Latest Salary Slip attested by employer (Mandatory)
Employment verification form (Optional)
Repayment Schedule of Term Loans (Optional)
KYC (Optional)
Photocopies of property documents along with agreement to sell (Mandatory)
Property Visit Report (Optional)
Agreement to sell (In case of Purchase case) (Mandatory)
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Bank Alfalah
CASE PROCESSING
The Caring Bank
 Documents for Business Individuals/ Self
Employed Professionals
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Processing Fee (Mandatory)
Complete Application(Mandatory)
Copy Of CNIC (Mandatory)
2 Latest Photographs (Optional)
1 Year Bank Statements (Mandatory)
Copy of NTN Certificate (Mandatory)
3- Years Tax Returns (Mandatory)
Sole Proprietorship Certificate (Mandatory)
Partnership Deed (Mandatory)
Undertaking from Remaining Partners (Mandatory)
Memorandum & Article of association, Form-29, Form-C & Form-A (Latest) in case
of Private Limited (Mandatory)
Copies of CNIC of Directors in case of Private Limited Company (Mandatory)
Signature Verification Form (Optional)
Basic Borrower Fact Sheet-(In case of co-borrower) (Mandatory)
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Bank Alfalah
CASE PROCESSING
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The Caring Bank
Personal Financial Statement-(In case of co-borrower) (Optional)
Repayment Schedule of Term Loans (Optional)
KYC (Optional)
Property Visit Report (Optional)
 Documents for Expatriate Pakistanis
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Complete Application (Mandatory)
Processing Fee (Mandatory)
Copy Of CNIC- attested by Pak. Embassy/Notarized (Mandatory)
Copy of Passport & Visa/Iqama attested by Pak. Embassy/Notarized (Mandatory)
Credit History Report from credit rating agency (Mandatory)
2 Latest Photographs (Optional)
1 Year Original Bank Statement (Salary Account) (Mandatory)
Signature Verification Form (Optional)
3 Year Tax Returns Personal.(Not Applicable in Middle East) (Mandatory)
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Bank Alfalah
CASE PROCESSING
The Caring Bank
 For Rental Income
 Rent Agreement ( duly verified) along with copy of property
documents (Mandatory)
 For Agriculturist
 Copy of Property documents of Agri land along with Agri income
verification (Mandatory)
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Bank Alfalah
CASE PROCESSING
The Caring Bank
 Initial checks initiated
 CNIC verification through NADRA (Verisys)
 E-CIB (Refer Pr Reg Clause OPS – 3)
 Data Check
 Verifications
 Internal – Tele-calls to Residence, Office & 2 references
 External - Genuineness of documents & personal
Information
 Asset related
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Purpose of asset usage should be Personal - (Refer Pr Reg. – Clause A-3-iii)
 Valuation
&
appraisal
of
property
independent external agencies approved by SBP
 Legal opinion of the property
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Bank Alfalah
B- RISK EVALUATION
The Caring Bank
The facilities shall be subject to Bank’s Risk Management process. As per
the Prudential Regulations of the State Bank of Pakistan the process may
include, identifying source of repayment and assessing customer’s
ability to repay, his/ her past dealings with the Bank, the net worth
and information obtained from a Consumer Credit Information Bureau.
In addition to above, the primary risks, in the real estate financing are
centered in the title of property, valuation, creation of enforceable
mortgage and erratic price fluctuation in the real estate market. In
order to control and manage the risks, following stipulations but not
confined to the same, may be considered.
 Verification of the borrower's income and other facts given in the
applications
 E-CIB
 Data Check
 Established source(s) of repayment and consistent inflow
 Income Estimation Report where required
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Bank Alfalah
RISK EVALUATION
The Caring Bank
 Cash inflow and capacity to repay may be
ascertained from
 Bank statement and salary slip/certificate (in case of salaried person)
 Bank statement for one year, tax returns etc. for business
individual/professionals
 Confidential report from other bank(s) / verification
through Data Check system / Credit reference Agency
may also be done in addition to above
 Total monthly amortization payments of consumer
loans shall always be subject to SBP regulation
 The facility would be subject to stress test in light of
SBP guidelines
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Bank Alfalah
RISK EVALUATION
The Caring Bank
 Past or present over dues and defaults by the
applicant if any (whether settled or pending) will be
viewed subjectively and if required, customer
explanations and clearance letters would also be
obtained.
 Realistic valuation report from the bank's approved
valuator on the property would be obtained.
 BOQ Report for construction cases.
 An estimate from the customer in case of improvement
is to be obtained and verified by the approved
surveyor/architect.
 Genuineness of the title documents should be
vetted by the approved legal counsel.
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Bank Alfalah
RISK EVALUATION
The Caring Bank
 Property is not in the name of minor. In case of joint owners, none
of them are minor(s) or any other person with no legal recourse.
 Apart from quantitative criteria to be used for evaluating loan
applications, the Bank will also take into consideration subjective
factors (qualitative factors) which may be used to assess the
applications. Quantitative criteria does not necessarily evaluate
profile of applicants, therefore, subjective evaluation (nature of
job, nature of business condition of earnings and near future
threats/prospects for business etc.) of applicant is also
necessary.
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Bank Alfalah
C-PROPOSAL DRAFTING
The Caring Bank
Upon completion of all documentary and
basic processes, the case is compiled for
structuring of the loan proposal
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Bank Alfalah
Proposal Drafting
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The Caring Bank
Points to keep in mind while compiling & drafting loan
proposal:
 Compliance of basic eligibility criteria's
 Compliance of Prudential Regulations
 Type of loan & related aspects
 Verification results / remarks
 Debt Burden cushions
 Credit score - to assess the eligibility scale
 Allowable - Financing tenor enhancement, suitable Mark
up rate options and Grace period options (where
applicable) used to assess the possibility of enhancement
in loan eligibility
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Bank Alfalah
D- UNDERWRITING / CREDIT ANALYSISThe Caring Bank
CREDIT ANALYSIS – Means
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Firstly - Evaluation of a loan application to decide whether it
conforms to all the eligibility criteria’s required for that loan
product &
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to decide on the case based on:
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Verification of Information & Documents
Review of credit history of the borrower
Repayment capacity - current consumer exposures / limits
Nature of asset, its value and Equity injection
The analysts should work independent of sales &
should have the will, power and decision authority over the case.
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Bank Alfalah
CREDIT ANALYSIS
The Caring Bank
1. Basic “C’s” of credit
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CREDIBILITY – Willingness to repay
CAPACITY, - Sources to repay
CREDIT- Ability to repay
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COLLATERAL
2. Broader review principles & policies
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Know Your Customer (KYC)
Strong Verifications
Affordability
Credit History
Customer with No Credit History
Net Worth of Individuals
Clearly understanding customer’s requirement
SBP Regulations Comprehension
Recourse on delays / defaults
Educating customer correctly at the initial stage
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Bank Alfalah
D–1-- “C’s of Credit
The Caring Bank
 CEDIBILITY - Does the borrower has the reputation
probability not to repay the loan ? – How to determine this:
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Nature of Profession
Reputation
Foreseeable probability of delay / default
 CAPACITY: Does the borrower has the sources to repay the
loan ? – How to determine this:
 Borrower’s Employment / Profession / Business
 Income,
 Verifiability
Type of Income
Stability
 CREDIT - Does the borrower has the ability to repay the loan
 Review available credit history to know how well a borrower
manages his/her current and prior debts through;
 Existing history with the Bank
E-CIB
 Data Check
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Bank Alfalah
“C’s” of Credit - COLLATERAL
The Caring Bank
 COLLATERAl: What if the borrower does not repay the
mortgage?
 Collateral related recourse / aspects to look for:
 Type of asset,
 Value of the asset
 Market Value,
 Forced Sale Value
 Probable Use of the asset – Personal or Commercial
 Personal Equity / Stake
 A lower equity will erode in a volatile moving market, with
customer equity gone, he might stop paying
 A higher equity may not attract the customer to borrow
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Bank Alfalah
D-2–Broader Review Principles & Policies The Caring Bank
 Customer’s – KYC (Know Your Customer) -
 Strong Verification of Personal & Income details
 SBP Prudential Regulations - requirements should
be thoroughly comprehended,
 Affordability
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Ability to continuously re-pay with potential of consistent
increase in income to offset – Inflation and Mark up rate
increases & should have good cash or liquid investments to cover
the off-season installments
 Credit History 
Market information
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Banks own experience
Direct confirmations
E-CIB & Data Check
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Bank Alfalah
Broader Review Principles & Policies
The Caring Bank
 Customer with no previous Credit History;
 They may be assessed both ways and should be handled
carefully since they might be conscience re-payer but unaware
of consequences
 Net Worth of Individuals
 General Knowledge
Assessment from available documents
 Clearly understanding customer requirement
 If the customer is going to use the property for (personal use,
rent out or use for commercial purposes, etc.)
 Educating and advising customer correctly at
the initial stage
 The sales team should advice the borrowers all the features,
rates, penalties so they can make an informed decision with
regard to entering into financing
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Bank Alfalah
E-Prudential Regulations – Home LoansThe Caring Bank
 R-1- No Preferential terms and conditions allowed
 R – 15 - Total monthly amortization payments of consumer loans,
inclusive of HF, should not exceed 50% of the net disposable income
 R - 15 - Plot + Construct Cases, total Sanctioned limit = Upto 50%
for Plot & remaining for Construction in tranches
 R - 15 - A realistic Construction Schedule obtained prior to allowing
financing for Plot purchase
 R - 15 - Construction financing structured for disbursement in
tranches as per BOQ
 R – 16 - Overall Debt to Equity Ratio doesn't exceed 85 : 15
 R - 18 - Finance secured by Equitable or Registered Mortgage
 Ops-2- Detail of existing Consumer Financing obtained
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Bank Alfalah
E-Prudential Regulations – Home Loans
The Caring Bank
 R - 19 - Property Evaluated by Professionals Agency/ies
 R - 19 - Property title documents assessed by professional lawyers
(listed)
 R - 21 Transaction subjected to Stress Test viz a viz - Interest Rates
 R - 22 Existing Finance, if Overdue, is properly Classified
 A-3-iii- Purpose of financing is residential
 Ops-1- Net worth of the borrower obtained
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Bank Alfalah
F – DECISION
The Caring Bank
 Approve or Decline
 After receiving & reviewing all above related aspects of the
loan, the analyst assesses the risks of the loan as a whole &
decides
IN PRESENCE OF TIGHT CRITERIA FILTERS –
IT BOILS DOWN TO SUBJECTIVE APPROACH –
Which may differ from person to person
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Bank Alfalah
End of Presentation
The Caring Bank
THANK YOU
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