CREDIT UNION REGIONAL WORKSHOP STRENGTHENING CREDIT UNION SUPERVISION AND REGULATION IN THE...

CREDIT UNION REGIONAL WORKSHOP

STRENGTHENING CREDIT UNION SUPERVISION AND REGULATION IN THE

CARIBBEAN

St Lucia17 – 20 August

2015

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Supervisory Perspectives on‘Reviewing and Assessing Loans in Credit Unions’

Credit Unions exist in countries to make loans to members.

The legal framework generally imposes limits on loan terms and conditions to assure that loans are of maximum benefit to the borrower and that the credit union’s interests are protected.

Each credit union will therefore fashion its lending program according to the needs of its membership and its financial capacity.

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Supervisory Perspectives on‘Reviewing and Assessing Loans in Credit

Unions’

Such provisions permit the credit union’s Board of Directors to devise lending policies that will take into account a variety of factors, including the needs and financial capabilities of its membership.

Lending policies however, must conform to the relevant laws and regulations, of their respective jurisdictions.

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Supervisory Perspectives on‘Reviewing and Assessing Loans in Credit Unions

Given the objectives of Credit Unions, credit risk is generally the most significant risk, as the credit portfolio traditionally represents between 70 – 80 % of a credit

union’s asset profile. In that regard, the BOJ seeks to determine

that aCredit union’s Credit Risk Management

(CRM)framework iscomprehensive and requires the: -i. Identification of existing or potential credit risks to

which an institution is exposed;

ii. Development and implementation of effective credit granting, documenting and collection processes;

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Supervisory Perspectives on‘Reviewing and Assessing Loans in Credit Unions

iii. Development and implementation of procedures to effectively monitor and control the quality of the credit portfolio.

To facilitate those objectives, there should also be in place:-

Strong credit underwriting processes, that provide for :

formal evaluations; and independent assessments of credit proposals

Accurate and adequate documentation of the terms of each credit; and

Procedures governing the collection of principal, interest and fees.

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Presentation Format

A. Credit Union Oversight in Jamaica Profile of Jamaica’s Credit Union

SectorB. Reviewing and Assessing Loans

o Credit Risk Management Environmento The Credit Granting Processo Credit Risk Administration,

Measurement and Monitoringo Determination of Credit Quality &

PerformanceC.Case Study

A. Profile of Jamaica’s Credit Union Sector

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Presentation Format

A. Credit Union Oversight in Jamaicao Profile of Jamaica’s Credit Union Sector

B. Reviewing and Assessing Loans Credit Risk Management Environmento The Credit Granting Processo Credit Risk Administration, Measurement

and Monitoringo Determination of Credit Quality &

Performance

C.Case Study

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B. Reviewing and Assessing Loans

The Credit Risk Management Environment

THE GOVERNANCE FRAMEWORK

EXAMINATION OBJECTIVES (in relation to Governance Framework)To determine whether the credit union has an appropriate framework for adequate management and oversight of the credit operations having consideration for the size, nature, and complexities of the entity’s credit risk bearing portfolio; and

To assess whether the governance structure and arrangements are consistent with the sound prudential standards issued by the Supervisory Authority, where applicable.

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B. Reviewing and Assessing Loans The Credit Risk Management Environment

EXAMINATION PROCEDURES

(in relation to the Governance Framework)

Include the review and evaluation of :

I.Role of the Board of Directors

II.Credit Union’s Organizational Resources

III.Role of Senior Management

IV.Independent Oversight Functions

V.Credit/Lending Policies & Procedures

VI.Prudential Reporting to the Supervisor

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I. ROLE OF BOARD OF DIRECTORS

Evaluate the qualifications and experience of the board of directors or board committee with responsibility for credit related matters;

Indicate whether the Board has appointed a Committee to review credit related matters in greater depth.

Review minutes of the Board to ascertain the depth of discussions and deliberations regarding credit operations;

Outline and comment on the reports on credit/lending operations which are provided to the board/board committee by management and the independent oversight functions to determine whether the Board is adequately apprised of credit related issues.

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II. ORGANIZATIONAL RESOURCES & ROLE OF SENIOR MANAGEMENT

Ascertain whether the licensee has specialist officers/groups/committees to conduct continued analysis and monitoring of new, renewed, renegotiated and restructured credits.

Identify whether the licensee has an internal workout group with primary responsibility for analysis and monitoring of problem credits to mitigate further migration to a more severe credit risk classification.

Evaluate whether credit related functions are appropriately segregated in the structure for administration and oversight of the credit operations. For example, the credit origination function must be appropriately segregated from the credit approval function.

III. Evaluate the effectiveness of senior management in fulfilling its role in managing and overseeing the credit/lending operations of the entity.

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IV. INDEPENDENT OVERSIGHT Examiners obtain copies of the organizational structure

of, and mandates of persons within the lending function, as well as the Internal Audit and Risk and Compliance functions;

Usually, Examiners comment on the duties, responsibilities and independent authority of these oversight functions;

Examiners also ascertain the quality, scope and frequency of reviews of the credit operations by Internal Audit and review the findings of the most recent report(s);

They also Review the most recent reports prepared by other independent oversight functions.

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B. Reviewing and Assessing Loans Credit Risk Management Environment

V. CREDIT/LENDING POLICIES & PROCEDURESVI. Obtain a copy of the most recent policy document governing the

credit union’s credit/lending operations;

VII. Ascertain whether the credit policy has received the explicit approval of the board and whether its tenets are consistent with the credit union’s board-approved business strategy/plan and credit risk strategy/philosophy;

VIII. Evaluate the compliance of the policy framework with applicable laws and regulations;

IX. Determine the adequacy of the policy framework in covering all aspects of the credit union’s credit/lending operations specifically including the credit granting process, credit risk administration, credit risk monitoring tools and measurement techniques, loan loss provisioning methodology, credit risk control environment and the wider credit governance infrastructure.

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B. Reviewing and Assessing Loans Credit Risk Management Environment

VI. PRUDENTIAL REPORTING TO THE SUPERVISOR

Identify and evaluate the systems in place to ensure that prudential returns are accurate and submitted on a timely basis to the Supervisory Authority.

Based on the continued relationship with the entity and consistent prior off-site review of prudential returns, the examination team should be able to identify instances of untimely submissions/data integrity concerns.

Verify selected prudential return data at examination date with data provided at the on-site examination.

Require amendments to prudential returns where inaccurate data has been identified and conduct the necessary follow-up checks to ensure timely resubmission to the BOJ. .

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Goal Posts


B. Reviewing and Assessing Loanso Credit Risk Management Environment Examiner’s Loan Write-Upo The Credit Granting Processo Credit Risk Administration, Measurement



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Credit Risk Management EnvironmentSUMMARY of On-site FindingsBOP Credit Union Limited – 2014 Management Report as at 30 September 2014

Section 5.0 Management and Board/Committee oversight (extract) Board meetings were regularly held and attendance was seemed satisfactory. A review of minutes revealed that reports covering various aspects of the credit union’s operations were provided to the meeting; including: - Updates on Supervisory Committee activities; - Reports on loan portfolio performance as well as the presentation of waiver requests.

The Examiners were concerned however, that the recorded minutes failed to: Capture the gravamen of issues discussed, the contribution of members, the issues raised in the Board submission and at times, the conclusions arrived at by the Board (as required by Rule 30 (a)(iii) of the credit union’s Rule Book.

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Credit Risk Management EnvironmentSUMMARY of On-site FindingsBOP Credit Union Limited – 2014 Management Report as at 30 September 2014

Section 5.0 Management and Board/Committee oversight

The Examiners were also concerned regarding:Instances in which waivers granted by the board were deemed imprudent by the Examiners. ( e.g. waivers to Mr Camp & Mrs Bell-Camp with debt savings ratios of 55% and 50% respectively, well in excess of internally prescribed limits of 40%.

The amendment of policy which previously prohibited lending to members with delinquent facilities (over 30 days past due), now allowed for credit to such members, once they can demonstrate an ability to repay, and are considered to be of acceptable risk.

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Goal Post


B. Reviewing and Assessing Loanso Credit Risk Management Environmento Examiner’s Loan write-up The Credit Granting Processo Credit Risk Administration, Measurement



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B. Reviewing and Assessing Loans The Credit Granting Process

EXAMINATION OBJECTIVES (in the Credit Granting

Process)

To determine whether the credit union has sound credit granting processes as the first defence to mitigate credit risk exposures having consideration for the size, nature, and complexities of the entity’s credit risk bearing portfolio; and

To assess the level of compliance of credit granting with applicable laws, regulations, and best practice standards issued by the Supervisor.

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Identify any gaps or policy deviations in the implementation of the credit granting process.

Assess the implementation of the entity’s credit granting process by reviewing a sample of credit files and conducting discussions with relevant personnel involved in the credit granting process.

(Brief perspectives on sampling methodology follow)

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EXAMINATION PROCEDURES (cont’d)

Identify and assess the adequacy of the entity’s minimum eligibility requirements (documentation and approval) for approved credits, taking into consideration the nature and types of credits extended;

Determine the conditions under which credits are renewed, renegotiated, or restructured and review a sample of renewed, renegotiated, or restructured;

Evaluate the quality of credit risk evaluations conducted prior to extending new, renewed, refinanced, renegotiated, and restructured credits.

Assess the quality of the entity’s maintenance of credit files to support the credit granting process.

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Goal Post


B. Reviewing and Assessing Loanso Credit Risk Management Environmento The Credit Granting Process Loan Samplingo Credit Risk Administration,



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Credit Risk Administration, Measurement and Monitoring

EXAMINATION PROCEDURES – SAMPLINGThe entire loan portfolio is not examined, but a sample of credits which are representative of the wider portfolio. The examiner must therefore apply an appropriate sampling technique to achieve this desired result.

An appropriate sampling technique: is less concerned with the aggregate dollar value of the

sample and more with the representational characteristics of the sample

Should be sufficiently broad so as to capture a sample that is reflective of the wider loan portfolio, taking into consideration the size, nature and complexities of the credit portfolio at large.

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Credit Risk Administration, Measurement and Monitoring

EXAMINATION PROCEDURES – SAMPLINGThe final sample should include, at a minimum, the following types of credits which may be representative of the wider loan book:

Large loans (including loans that violate internal or supervisory limits)

Restructured loans Non-performing Loans Non-accrual loans Unsecured Loans Character loans High Risk Loans i.e. loans to high risk borrowers, PEPs

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Goal Posts


B. Reviewing and Assessing Loanso Credit Risk Management Environmento The Credit Granting Process Examiner’s Findings re the Credit

Granting Processo Credit Risk Administration, Measurement



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Credit Granting ProcessSUMMARY of On-site Findings (extract)BOP Credit Union Limited – 2014 Management Report as at 30 September 2014Section 4.0 Credit Policy/Procedures ReviewThe credit union’s lending was governed by its credit administration & Loan Risk policy, which was last reviewed in March 2013. The Examiner’s review of this document revealed that it was fairly comprehensive. Based on the numerous instances of Board waivers noted however, the Examiners questioned the relevance of the current policy.

Several deviations from policy prescriptions were noted, which included: The requirement for the frequent review of high risk loans were not being adhered to; Unsecured lending exceeded the internal policy cap of 15%, and totaled 19% of total assets at review; Internal policy outlined that credit analysis included the application of the 7Cs of lending, and a credit scoring system, however, this practice was not evident from the sample of loans reviewed by the Examiners..

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Goal Posts


B. Reviewing and Assessing Loanso Credit Risk Management Environmento The Credit Granting Processo Examiner’s Findings re the Credit

Granting Process Credit Risk Administration,



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B. Reviewing and Assessing Loans Credit Risk Administration, Measurement and Monitoring

EXAMINATION OBJECTIVES

To determine whether the credit union has adequate credit risk administration, monitoring, and measurement processes to effectively manage existing and potential credit risk exposures having consideration for the size, nature, and complexities of the entity’s credit risk bearing portfolio; and

To assess the level of compliance of the entity’s credit risk administration, monitoring, and measurement processes with applicable laws, regulations, and best practice standards issued by the Supervisor.

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Review a sample of credit files and conclude on whether these files are appropriately updated and maintained; periodic/current financial statements are obtained on borrowers etc.;

Based on this review of credit files, examiners should identify and list credit administration deficiencies on the LINE-SLIPS to allow the responsible examiner to compile a complete list of deficiencies with specific examples cited for discussion with management;

Check the credit administration process and identify inadequate segregation of duties.

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B. Reviewing and Assessing Loans Credit Risk Administration, Measurement and MonitoringEXAMINATION PROCEDURES (cont’d)

Assess the adequacy of the control environment.

Obtain and review reports prepared by the entity’s independent oversight function(s) (such as Internal Audit, Risk, Compliance, etc.) and deliberations at board/committee meetings;

Document deficiencies identified in the most recent reports by the entity’s independent oversight functions and verify whether such deficiencies have been addressed by board/management or mechanisms are in train to address such deficiencies; and

Assess the effectiveness and timeliness of board/management actions to address deficiencies in the administration of the credit/lending by either the entity’s independent oversight functions or the Supervisor.

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EXAMINATION PROCEDURES(cont’d)

Assess the sufficiency of the entity’s credit risk monitoring systems to effectively track and report on the level of credit risk exposures and credit administration deficiencies.

Identify and describe the mechanisms/tools in place to monitor and track the level of credit risk exposure on an individual and portfolio basis, or by economic sector or product line, or any other basis.

Evaluate the adequacy and effectiveness of such mechanisms/tools to monitor and track credit risk levels and the migration of problem credits.

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EXAMINATION PROCEDURES(cont’d)

Comment on the timeliness of the entity’s monitoring system to produce actionable output.

Verify that management continuously apprises the board of directors on current and potential credit risk exposures including the performance of the entity’s delinquency portfolio and its collection efforts; and

Assess the adequacy of management information systems reports in covering credit risk.

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EXAMINATION PROCEDURES( cont’d) Describe the entity’s methodology to identify and classify potential problem and problem credits, and non-accrual and non-performing credits.

Compare the entity’s methodology with that issued by the Central Bank Supervisors.

Evaluate the effective implementation of the entity’s methodology for identifying and classifying potential problem and problem credits, and non-accrual and non-performing credits.

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Identify whether the entity has an internal credit risk rating system. If so, provide a description of the credit risk rating system in place and assess the extent to which there is sufficient gradation in the rating system to distinguish between relative levels of credit risk.

Ascertain whether the entity engages in scenario analysis and/or stress testing either on an individual and/or portfolio basis.

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Goal Posts


B. Reviewing and Assessing Loanso Credit Risk Management Environmento The Credit Granting Processo Credit Risk Administration, Measurement

and Monitoring Examiners Findings – Credit Risk

Administration o Determination on Credit Quality &

Performance

C.Case Study

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Credit Risk Administration, Measurement and MonitoringSUMMARY of On-site Findings (extract)BOP Credit Union Limited – 2014 Management Report as at 30 September 2014Section 4..3.3 Loan Quality(Credit Administrative deficiencies – usually appended)

o Lack of pertinent information on credit fileso Inability to locate collateral documentationo Absence of up to date information on credit fileso Absence of evidence of current peril insurance for property resulting in undue credit risk exposure to the credit union.o Permanent shares included in collateral being held;o Loans extended for periods in excess of employment contractso Numerous instances of delinquent loans in excess of 360 days past due, not written off.oFiles in need of culling

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Goal Posts

A. Credit Union Oversight in Jamaicao Profile of Jamaica’s Credit Union

SectorB. Reviewing and Assessing Loans

o Credit Risk Management Environmento The Credit Granting Processo Credit Risk Administration,

Measurement and Monitoring Determination on Credit Quality &

Performance

C.Case Study

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B. Reviewing and Assessing Loans Credit Quality and Performance

EXAMINATION OBJECTIVES

To evaluate/assess the quality of the credit portfolio of the entity and conclude on whether it meets prudential quantitative benchmarks.

To assess whether provisions and capital levels are adequate for the level of credit risk exposures.

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Extract a representative sample of credits for review from the entity’s credit portfolioObtain a list(s) of the entity’s entire credit portfolio and extract a sample of loans to be reviewed The list(s) should include:Names of the borrower(s)Approved loan amountsDates on which the loan was approved and disbursedRepayment terms Principal and interest outstanding at examination date etc.

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Evaluate the quality of the entity’s credit portfolioConduct a detailed review of the sample of credit files extracted and document all findings on the Credit Line Slip. Ensure that Credit Line Slips are complete as far as possible. Where pertinent information is not available on credit files, liaise with the responsible credit officer;

Determine on the type and acceptability of collateral assigned, and confirm that the entity’s legal and insurance interests are noted on the asset’s title and insurance certificate, respectively.

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EXAMINATION PROCEDURES - Sampling BOP Credit Union Ltd. as at 30 September 2014

Sample Characteristics

Aggregate Sample

J$

% Aggregate

Loans

% of Capital Base

Personal Loans 298.9 4.59 34

Motor Vehicle Loans 81.4 1.25 9

Mortgage Loans 153 2.35 17

Past Due Loans 351.6 5.4 39

Non- accrual Loans 67.1 1.03 8

Renegotiated Loans 116.6 1.79 13

Loans approved within the last Year

185.6 2.85 21

Total 1,254.8 19.3

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Assess the adequacy of the entity’s allowance for loan lossesBased on the findings, indicate whether provisioning levels are consistent with the minimum requirements of the Bank.

Determine the timeliness and frequency with which the entity adjusts its allowance for loan losses to ensure it meets the minimum requirements established by the Bank.

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Identify evidence of concentration risk and evaluate the adequacy of management’s plans to address this; and

Evaluate the consistency of the profile of credits with the entity’s credit strategy/business plan.

The Examiners will then generate tables on which they will document their findings with regard to loan composition, loan variances, trend data etc.

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EXAMINATION PROCEDURES BOP Credit Union Ltd. as at 30 September 2014

.Loan Type

Sub-LedgersJ$ mn

General LedgerJ$mn

% of Total Loans

% of Total Assets

% of Capital Base

Personal Loans

2,400,429 2,401,529 37 25.8

Motor Vehicle 1,497,516 1,497,567 23 16.1

Mortgage 1,221,636 1,202,657 19 13.2

Home Equity 741,430 739,436 11 7.9

Other Loans* 650,701 650,722 10 7

Total Loans 6,511,712 6,491,911 100 70

* Includes staff Loans

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EXAMINATION PROCEDURES ( cont’d)

Assess the performance of the entity’s credit portfolio as at examination date.

Examiners should generate tables which highlight trends, where applicable;

Indicate whether the entity has achieved the prudential benchmark minima;

Compare the entity’s credit risk indicators with those that prevail in the entity’s sub-sector and the wider deposit-taking system; and

Assess the sufficiency of capital levels to offset the entity’s existing and potential credit risk exposures.

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Credit Risk Indicators

Prudential

Benchmarks

Entity Entity’s Sub-sector

Total System

NPL/Capital Base & Provisioning

20% 63% 18% 15%

NPL/Total Loans 10% 7.3% 3.62% 3.5%

NPL/Total Assets 5.15% 2.42% 1.5%

Provisioning/NPL

12.8% 78.6% 75%

Provisioning /Total Loans

0.9% 2.3% 2.5%

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Assess key performance trends of the credit portfolio over the prior four (4) quarters, at least, based on prudential data submitted to the Supervisor and as at the previous examination date.

Complete the following table of credit risk indicators for the prior 4 quarters and as at the previous examination date; and

Assess the performance trend in the entity’s credit risk indicators and management’s actions to arrest deteriorating changes in risk indicators.

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Credit Risk Indicators

Previous Exam Date

March 2013

Q1Sept-

13

Q2Dec-13

Q3Mar- 14

Q4Jun- 14

NPL/Capital Base & Provisioning

18.3% 28% 42% 48% 52%

NPL/Total Loans

3.62% 3.9% 4.9% 5.6% 6.2%

NPL/Total Assets

2.42% 2.8% 3.1% 3.8% 4.2%

Provisioning/NPL

25.6% 23.2% 16.1% 14.8% 13%

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Goal Posts


B. Reviewing and Assessing Loanso Credit Risk Management Environmento The Credit Granting Processo Credit Risk Administration, Measurement

and Monitoringo Determination on Credit Quality &

Performance Examiners Findings Credit Quality/

Performance

C.Case Study

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Credit Quality and PerformanceSUMMARY of On-site Findings (extract)BOP Credit Union Limited – 2014 Management Report as at 30 September 2014Section 4.3.3 Loan Quality

o Reported past due loans (3 months and over) of J$970mn represented

14.9% of total loans.o Based on the sample of loans reviewed, which amounted to J$1.2bn or

19% of the loan book, the Examiners classified additional facilities totaling

J$84mn.o Consequently, the recomputed figure for adversely rated loan was

J$1,054mn (or 16% of the loan book), and xx% of capital base and

provisioning.o Reported loan loss provision of $0.84mn provided coverage for xx% of

total classified loans. This was assessed as inadequate by the Examiners, as

based on the sample reviewed, as additional provisioning of $41.2mn was

required.

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SUPERVISORY RESPONSEMatters Requiring Immediate Board/

Management AttentionExecutive Summary of Exit Discussion Notes/Management Report

The Board & Management of BOP Credit Union are required to :Address the credit administration, renegotiation and other deficiencies identified by the Examiners in the management and monitoring of the loan portfolio;Put measures in place to :

o improve the quality of its minuteso ensure the Board is being apprised of important matters

relating

to the credit union’s operationso Formulate / strengthen as appropriate the Credit Risk

management Policy framework.

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Onsite Examination of BOP Co-operative Credit Union

Limitedas at 30 September 2014

CASE STUDY St. Lucia - 2015

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Mr. and Mrs. Camp were longstanding members of BOP CCUL, one of the 10 largest credit unions in Islandia.

Mr. Nigel Camp is 50 years old and his wife, 40 year old Natalie Bell-Camp, are joint partners in a law firm for approximately seven years.

In December 2010, Mr. Camp applied for and was granted a loan for $250,000 to purchase property, which formed part of the collateral. His share deposits of $62,500 were also pledged as security. The facility was approved with tenure of 35 years at 11% resulting in monthly repayment of $2,350. His debt-service-ratio (DSR) computed at 55% is in excess of the 40% limit stipulated by the credit union’s internal policy

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Mrs. Bell-Camp, a known socialite, also applied for and obtained a separate loan for $150,000 to purchase property which required a share deposit of $37,500 at similar terms resulting in monthly repayment (35 years at 11%) or $1,250. Her DSR was computed at 50%.

The property jointly purchased by the couple, was an office unit in a commercial complex, and repayment was via salary obtained from their firm.

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Office Complex Housing Camp & Bell Attorneys-at-Law Unit

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At the September 2014 review, the following information was obtained from a review of the credit files:

Mr. Camp: Outstanding principal was $249,500, balance on share deposit was $35,000. The net exposure represented 14.5% of the credit union’s capital base.

Mrs. Bell-Camp:Outstanding principal was $148,400, balance on share deposit was $25,000. The net exposure represented 8.5% of the credit union’s capital base.

The facilities were 10 and 8 months past due respectively. Outstanding interest amounted to more than $28,000, yet it was not reported as such. The combined exposure to Mr. & Mrs. Camp accounted for 21% of the credit union’s capital base, which was in excess of the 20% limit established by the Supervisors.

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It was noted that the combined exposure exceeded the maximum amount and tenure for loan disbursement of $300,000 and 15 years (as stated in the Credit Policy), and benefitted from several Board waivers.

The collateral originally included combined cash of $100,000 1st Legal mortgage over property purchased, which was last valued in April 2008. At that time, the market value of the property was $500,000 its forced sale value $450,000 and the title was stamped to cover $400,000. The property’s peril insurance expired in August 2011.

Personal financial data presented were unaudited, outdated (2009/2008) and inadequate (no Balance sheet obtained), notwithstanding the income statements reflected as follows:

Bell & CampAttorneys at law

September 2010

March 2010 March 2009

Income $19,507 $22,362 $46,647Expenses $ 8,276 $ 9,802 $ 7,484Net Income $ 11,231 $13,560 $38,793

Case Study Activity

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As Lead Examiner for this on-site Examination of BOP Co-operative Credit Union Limited, you are required to:

1.Identify the Supervisory concerns that arise from your review of this loan file;

2.Complete your credit Line Slip;

3.Outline your approach for appraising the Board and Senior Management of the concerns arising from your loan review.


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Examiners’ AssessmentsAnswer Key

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Classification

The facilities were rated sub-standard based on the following:

1.They were both six (6) months past due2. Share deposit balances were less than initially pledged3.Property valuation report was outdated

Credit Administrative Deficiencies

1.Share balances were being used to service the loans2.Imprudently high debt service ratio3.Inadequate financial assessment4.No evidence that consideration was given to the fact that the tenure of the loans excessed the borrowers’ normal working life .


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Breach of draft Legislation Section 25 (1)(f) which prohibits the granting of secured credit facilities to any member if the facility exceeds 20% of statutory capital base, except where the facility is fully cash secured.

Policy DeviationThe amount and tenure of the loan exceeded the maximum amount and tenure for loan disbursement of $10mn and 15 years (as stated in the Credit Policy), and thus necessitated Board waivers


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The Examiners noted that Mr. Bell-camp and his wife, Natalie, received a loan of $25mn and $15mn, respectively in December 2010 with tenure of 35 years. At review date, each of the Bell-camps’ net exposure totaled $39.1mn (that is, outstanding loan balances less amount secured by cash) and accounted for 10.5% (combined 21%) of capital base. The Examiners noted that:

While the loans were booked separately for accounting purposes, from a legal perspective, the documentation suggested that the loans could be treated as a single credit facility as the credit union registered one mortgage against the members’ property for the aggregate disbursement ($40mn) instead of separate amounts for each loan;

This exceeded the maximum amount and tenure for loan disbursement of $10mn and 15 years (as stated in the Credit Policy), and thus necessitated Board waivers.


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Secondly, as Managing Partners of the legal firm Bell-camp & Co.

(from which they derived monthly income and share net profits

equally), their cash flow would be impaired simultaneously in the

event the firm encounters financial difficulties. In substance

therefore, the facilities should be treated as a single loan and

when compared to capital base results in a ratio of 21 % which

exceeds the 20% limit espoused by the draft Regulations;

Additionally, even where the loans are considered separately, the

existence of such large exposures for thirty-five (35) years to a

single couple clearly places the credit union at undue risk.

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