VOLUME FIVE
THE MANAGEMENT OF CREDIT

 

 

CHAPTER 8
CREDIT AND ITS MANAGEMENT: GUIDELINES, POLICIES, PROCESSES,
PROCEDURES AND ORGANISATIONAL DELIVERY MECHANISMS

 

 

 

8.12 APPENDICES EXECUTIVE COMMITTEE

 

APPENDIX A

 

 

 

MEMBERS

30 Jun 1984

30 Jun 1985

30 Jun 1986

30 Jun 1987

30 Jun 1988

30 Jun 1989

30 Jun 1990

30 Nov 1990

G D Abbott        

Member

    member
J A Baker  

Member

Member

Member

Member

Member

member Resigned Aug 90
P E Byrnes member member            
T M Clark member member member member member member member member
K L Copley       member member member member member
R S Dent member member member member member      
C W Guille     member member member      
M G Hamilton           member member member
D Hammond               member
J T Hazel     member member member   member member
J B Macky member member member member member member member member
T L Mallett     member member member member member member
J D Malouf               App. Oct 90
D C Masters     member member member      
K S Mathews member member member member member member    
G S Ottaway member member member member member      
S G Paddison   member member member member member member member
V R Pfeiffer     member member member      
K P Rumbelow member member member member member      
S Stone               member
S G Targett               member
I R Tucker     member member member      
G N White member member member member        

 

Note: The Annual Report of the State Bank of South Australia for each of the years 1985 through 1990 show an Organisational Structure except for the 1988 year.

Source: Annual Reports - State Bank of South Australia for the Period 1985 - 1990 and Bank records.

 

 

THE BOARD OF DIRECTORS

APPENDIX B

 

MEMBERS

QUALIFICATION

30 Jun 84

30 Jun 85

30 Jun 86

30 Jun 87

30 Jun 88

30 Jun 89

30 Jun 90

28 Feb 91

30 Jun 91

R D Bakewell B Sc. (Econ)  

Appointed

24/04/85

Director

Director

Director

Deputy Chairman

Deputy Chairman

Resigned/

Reinstated

Retired 30/06/91

L Barrett OBE,FCA,ACIS,FTCL,FAIM

Chairman

Chairman

Chairman

Chairman

Chairman

Retired 30.05.89

     
T M Clark MBA (Harvard)

Managing Director

Managing Director

Managing Director

Managing Director

Managing Director

Grp Managing Director

Grp Managing Director

Resigned

09/02/91

 
Prof K J Hancock B A,PhD,FASSA

Deputy Chairman

Deputy Chairman

Deputy Chairman

Resigned 31/12/86

         
W F Nankivell B AgSc,RDA,JP

Director

Director

Director

Director

Director

Director

Director

Resigned

 
R P Searcy B Ec,FCA

Director

Director

Director

Director

Director

Director

Director

Resigned

 
D W Simmons LLB

Director

Director

Director

Deputy Chairman 26/02/87

Deputy Chairman

Chairman 01/07/89

Chairman

Resigned

 
Hon D W Simmons DFC,BA,BEc,AVA

Director

Director

Director

Died 28/08/86

         
K Smith ARMIT,GRMIT,FAIM

Director

Director

Director

Resigned 23/01/87

         
Mrs Molly Byrne OAM      

Appointed 26/02/87

Director

Director

Director

Resigned

 
R E Hartley        

Appointed 26/02/87

Director

Director

Director

Resigned/

Reinstated

Re-appointed 28/02/91

A R Prowse B Com, M Sc            

Appointed 01/07/90

Resigned/

Reinstated

Re-appointed 28/02/91

A G Summers RDA,AAIV      

Appointed

6/02/87

Director

Director

Director

Resigned

 

 

Note: Australian Board of Advisors was appointed on 1 July 1990 and included Sir Sydney Schubert QLD, Sir Lawrence Govam NZ, R Donald Malcolmson MBE Vic, and John B Studdy AM NSW who was appointed 1 September 1989. All were terminated with effect as of 31 March 1991.

Source: State Bank of South Australia Board Meeting Minutes for the Period 1984 -1991

 

 

THE BOARD OF DIRECTORS

APPENDIX B.2

 

(The Board was restructured in February 1991)

MEMBERS

QUALIFICATION

30 Jun 84

30 Jun 85

30 Jun 86

30 Jun 87

30 Jun 88

30 Jun 89

30 Jun 90

28 Feb 91

30 Jun 91

R D Bakewell B Sc. (Econ)  

Appointed

24/04/85

Director

Director

Director

Deputy

Chairman

Deputy Chairman

Resigned/

Reinstated

Retired

30/06/91

N R Clark B Com, AASA,FAIB              

Appointed Chairman 27/02/91

Chairman

I E Webber B E, M.Aut.E,CIT,FAIB              

Deputy Chairman

Deputy Chairman

J Glidden B Sc,B Econ              

Appointed Director

04/04/91

Director

M S Shanahan                

Appointed 28/02/91

Director

E C J Johnson B Econ, DipBus,AAIB,FAIM              

Appointed Group Managing Director

01/06/91

Group Managing Director

R E Hartley        

Appointed 26/02/87

Director

Director

Director

Resigned & Reappointed 27/02/91

Director

A R Prowse B Com,
M Sc
           

Appointed 01/07/90

Resigned & Reappointed

27/02/91

Director

 

Source: State Bank of South Australia Board Meeting Minutes for the Period 1984 - 1991

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.1

 

EFFECTIVE 29 JUNE 1984

NAME

POSITION

BANK TITLE

P E Byrnes Chairman General Manager, Corporate & International Banking
T M Clark Ex-Officio Managing Director
D C Masters Member Chief Manager, Corporate Banking
K S Matthews Member General Manager, Retail Banking
G S Ottaway Member Chief Manager, Finance
V R Pfeiffer Member Chief Manager, Retail Lending
K P Rumbelow Alternate Chief Manager, Administrative Services
I R Tucker Alternate Chief Manager, Branch Banking

Quorum: Managing Director or a General Manager must be in quorum of four.

Delegations: To be advised to Managing Director for confirmation.

Urgent decisions by Board Sub-Committee require two (2) directors and chairman of LCC.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

 

Note: Delegated Lending Authority: $1.0 M to $2.5 M

Source: Board Minute 84/10 & 84/12, 28 June 1984

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.2

 

EFFECTIVE 30 JUNE 1985

NAME

POSITION

BANK TITLE

P E Byrnes Chairman General Manager, Corporate & International Banking
T M Clark Ex-Officio Managing Director
J T Hazel Member Chief Manager, Foreign Exchange and Money Market
D E Hosking Alternate Chief Manager, International Banking
J B Macky Alternate Chief Manager, Planning
D C Masters Member Chief Manager, Corporate Banking
K S Matthews Member General Manager, Retail Banking
G S Ottaway Member Chief Manager, Finance
V R Pfeiffer Member Chief Manager, Retail Lending
K P Rumbelow Alternate Chief Manager, Administrative Services
I R Tucker Alternate Chief Manager, Branch Banking
R L Wright Alternate Chief Manager, Administration Corporate & International

Quorum: Managing Director or a General Manager must be in quorum of four.

Delegations: To be advised to Managing Director for confirmation.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

 

Note: Delegated Lending Authority: $2.0 M to $5.0 M increased on 28 February 1985

Source: Board Minute 85/56, 28 February 1985

 

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.3

 

EFFECTIVE 30 JUNE 1986

NAME

POSITION

BANK TITLE

T M Clark Ex-Officio Managing Director
J T Hazel Member General Manager, Treasury and Capital Markets
J B Macky Member General Manager, Information Systems & Subsidiary Co.
T L Mallett Member Chief Manager, International Banking
D C Masters Member Chief Manager, Corporate Banking
K S Matthews Chairman Chief General Manager
G S Ottaway Member General Manager, Corporate & International Banking
S G Paddison Member Chief Manager, Retail Banking
V R Pfeiffer Member Chief Manager, Retail Lending

Quorum: Managing Director or a General Manager must be in quorum of four.

Delegations: To be advised to Managing Director for confirmation.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

 

Note: Delegated Lending Authority: $2.0M to $5.0M

Source: Board Minute 85/56, 28 February 1985

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.4

 

EFFECTIVE 30 JUNE 1987

NAME

POSITION

BANK TITLE

T M Clark Ex-Officio Managing Director
C W Guille Member Chief Manager, Personnel
J T Hazel Member General Manager, Treasury & Capital Markets
J B Macky Member General Manager, Information Systems & Subsidiary Co.
T L Mallett Member Chief Manager, International Banking
D C Masters Member Chief Manager, Corporate Banking
K S Matthews Chairman Chief General Manager
G S Ottaway Member General Manager, Corporate & International Banking
S G Paddison Member General Manager, Retail Banking
V R Pfeiffer Member Chief Manager, Retail Lending

Quorum: Managing Director or a General Manager must be in quorum of four.

Delegations: To be advised to Managing Director for confirmation.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

 

Note: Delegated Lending Authority: $2.0M to $10.0M increased on 28 August 1986

Source: Board Minute 86/285, 28 AUgust 1988

 

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.5

 

EFFECTIVE 30 JUNE 1988

NAME

POSITION

BANK TITLE

T M Clark Ex-Officio Managing Director
J B Macky Member General Manager, Group Information Systems
T L Mallett Member General Manager,Treasury and International
D C Masters Member General Manager, Corporate Banking
K S Matthews Chairman Chief General Manager
G S Ottaway Deputy Chairman General Manager, Group Services
S G Paddison Member General Manager, Personal and Business Banking
V R Pfeiffer Member Chief Manager, Retail Lending
I R Tucker Member Chief Manager, Branch Banking
R L Wright Member Chief Manager, Institutional Banking

Quorum: Any four members can form a quorum.

Delegations: To be advised to Managing Director for confirmation.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

 

Note: Delegated Lending Authority:

- $3.0M to $15.0M increased on 28 July 1987; and

- $3.0M to $20.0M increased on 28 April 1988.

Source: Board Minute 87/204, 23 July 1987; and

Board Minute 88/94, 28 April 1988.

 

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.6

 

EFFECTIVE 30 JUNE 1989

NAME

POSITION

BANK TITLE

T M Clark Ex-Officio Group Managing Director
J B Macky Member General Manager, Group Information Systems
T L Mallett Member General Manager, Treasury and International
D C Masters Member General Manager, Corporate Banking
K S Matthews Chairman Chief General Manager
P F Mullins Member Chief Manager, Corporate Banking
G S Ottaway Member General Manager, Group Service
S G Paddison Member General Manager, Personal and Business Banking
V R Pfeiffer Member Chief Manager, Personnel and Business Lending
I R Tucker Alternate Chief Manager, Branch Banking
R L Wright Member Chief Manager, Institutional Banking

Quorum: Any four members can form a quorum.

Delegations: To be advised to Managing Director for confirmation.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

 

Note: Delegated Lending Authority: $3.0M to $25.0M increased on 22 December 1988

Source: Board Minute 88/504, 22 December 1988

 

 

LENDING CREDIT COMMITTEE

APPENDIX C.7

 

EFFECTIVE 30 JUNE 1990

NAME

POSITION

BANK TITLE

T M Clark Ex-Officio Group Managing Director
J T Hazel Member Chief General Manager, Financial Services
J B Macky Member Chief General Manager, Group Management Services
T L Mallett Member Chief General Manager, International Banking
D C Masters Member General Manager, SA/NT Corporate and Commercial
P F Mullins Member Chief Manager, Corporate Banking
S G Paddison Member Chief General Manager, Australian Banking
R L Wright Member Chief Manager & Project Leader, Wholesale & Credit Review

Quorum: Any four members can form a quorum.

Delegations: To be advised to Managing Director for confirmation.

Minutes: Distributed to Executive Committee members for information.

Membership: Future appointments to be approved by Board.

Note: Delegated Lending Authority: $3.0M to $25M since 22 December 1988

Source: Board Minute: 88/504, 22 December 1988

 

 

LENDING CREDIT COMMITTEE

APPENDIX D

 

(Established 28 June 1984 to 28 February 1991)

memberS

1984

1985

1986

1987

1988

1989

1990

'91

 

SEP

DEC MAR JUN SEP DEC MAR JUN SEP DEC MAR JUN SEP DEC MAR JUN SEP DEC MAR JUN SEP DEC MAR JUN SEP DEC FEB
P E Byrnes                                                      
T M Clark                                                      
C W Guille                                                      
M G Hamilton                                                      
J T Hazel                                                      
D E Hosking                                                      
J B Macky                                                      
J D Malouf                                                      
T L Mallett                                                      
D C Masters                                                      
K S Matthews                                                      
P F Mullins                                                      
G S Ottaway                                                      
S G Paddison                                                      
V R Pfeiffer                                                      
K P Rumbelow                                                      
S J Stone                                                      
I R Tucker                                                      
R L Wright                                                      

Note:members of the Lending Credit Committee held variously the titles of Chief Manager, General Manager and Chief General Manager and represented the Retail and Corporate and International Banking Divisions and Treasury.

Source: Lending Credit Committee Meeting Minutes for the Period 1984 - 1991

 

 

CORPORATE AND INTERNATIONAL BANKING

APPENDIX E

 

DELEGATED LENDING AUTHORITIES RECORD OF CHANGES

Date of Change

Board Sub-Committee

$'000

Lending Credit Committee

$'000

Chief General Manager Inter'l

$'000

General Manager Inter'l

$'000

General Manager Corporate

$'000

Chief Manager Corporate & Inter'l

$'000

Senior Manager

$'000

Corporate Manager

$'000

21/05/85  

5,000

 

2,000

2,000

500

 

250

25/08/85  

5,000

 

2,000

2,000

1,000

500

250

28/08/86

40,000

10,000

 

3,000

3,000

1,500

500

250

28/07/87

50,000

15,000

 

3,000

3,000

1,500

800

250

28/04/88

50,000

20,000

 

5,000

5,000

2,000

1,000

1,000

22/12/88

60,000

25,000

 

5,000

5,000

2,000

1,000

1,000

17/10/89

60,000

25,000

16,000

5,000

5,000

2,000

1,000

1,000

06/12/90

60,000

25,000

 

5,000

5,000

2,000

1,000

1,000

 

 

DELEGATED LENDING AUTHORITIES FOR THE REVIEW OF FACILITIES RECORD OF CHANGES

Date of Change

Board

$'000

Lending Credit Committee

$'000

Chief General Manager Inter'l

$'000

General Manager Inter'l

$'000

General Manager Corporate

$'000

Chief Manager Corporate & Inter'l

$'000

Senior Manager

$'000

Corporate Manager

$'000

21May85 a)

b)

>10,000

>15,000

10,000

   

15,000

5,000

5,000

 

2,000

25Jul85 a)

b)

>10,000

>15,000

10,000

   

15,000

5,000

5,000

 

2,000

28Aug86 a)

b)

>10,000

>15,000

10,000

   

15,000

5,000

5,000

 

2,000

27Jul88 a)

b)

>10,000

>15,000

10,000

   

15,000

5,000

5,000

 

2,000

5Dec89 a)

b)

>10,000

>15,000

10,000

 

30,000

5,000

15,000

5,000

5,000

 

2,000

17Sep90 a)

b)

>10,000

>15,000

10,000

 

30,000

5,000

15,000

5,000

5,000

 

2,000

6Dec90 a)

b)

>10,000

>15,000

10,000

 

30,000

5,000

15,000

5,000

5,000

 

2,000

 

a) All arrangements approved have been honoured, no deterioration in financial position is evident, no deterioration in security is evident and risk assessment is same or better than when original exposure was approved.

b) Arrangements have not been honoured, or financials show deterioration from previous year, or security has deteriorated from original approval, or since last review.

 

 

DETAILED ANALYSIS OF INDIVIDUAL LOANS FILES

APPENDIX F

 

 

MANAGEMENT

INITIATION

APPROVAL

SECURITY

ADVANCEMENT

PERFORMING

NON-PERFORMING

A LTD

A LTD

A LTD

A LTD

A LTD

A LTD

CELTAINER

 

CELTAINER

CELTAINER

CELTAINER

CELTAINER

COLLINSVILLE STUD

COLLINSVILLE STUD

COLLINSVILLE STUD

COLLINSVILLE STUD

COLLINSVILLE STUD

COLLINSVILLE STUD

B LTD

         

HALWOOD CORPORATION

HALWOOD CORPORATION

HALWOOD CORPORATION

     

- ASPENAIR PTY LTD

 

- ASPENAIR PTY LTD

ASPENAIR PTY LTD

   
   

- BLANCHE PTY LTD

BLANCHE PTY LTD

   

C LTD

 

C LTD

 

C LTD

C LTD

INTERWEST (SOMERLEY)

     

INTERWEST (SOMERLEY)

INTERWEST (SOMERLEY)

D LTD

   

D LTD

D LTD

D LTD

E LTD

E LTD

E LTD

E LTD

E LTD

E LTD

F LTD

 

F LTD

F LTD

F LTD

F LTD

G LTD

 

G LTD

G LTD

G LTD

 

H LTD

H LTD

H LTD

H LTD

H LTD

H LTD

   

I LTD

I LTD

I LTD

I LTD

J LTD

 

J LTD

J LTD

J LTD

J LTD

K LTD

   

K LTD

   

L LTD

L LTD

L LTD

 

L LTD

L LTD

M LTD

M LTD

M LTD

M LTD

M LTD

M LTD

 

MANAGEMENT

ACCOUNT NAME

INITIATION

APPROVAL

SECURITY

ADVANCEMENT

PERFORMING

NON-PERFORMING

A LTD
  • . No detailed cashflows presented with application to LCC;

    . no sensitivity analysis undertaken of advertising revenues; and

    . failure to assess means by which loan principal would be repaid.

  • . Actual exposure in May 1989 of $116.2M exceeded Bank's policy of $100.0M absolute cashing or 20% of shareholders' funds, if less.
  • . Security of $0.152M released without notification to LCC or the Board.
  • . No settlement guide produced;

    . equity commitment pre-condition waived after funds drawn down; and

    . Lending Credit Committee pre-conditions either not satisfied or outcomes not communicated to LCC.

  • . Breaches of certain facility conditions and covenants not reported to LCC and Board on a timely basis;

    . history sheet not maintained in relation to facility; and

    . downward trends in borrower's profit forecasts not critically reviewed from submission to submission.

  • . Although customer rated a category 5c risk in February 1990, increase in facility proposed to LCC;

    . notwithstanding customer down grading to category 5c, security not revalued until September 1990 and loan-to-value ratios calculated by reference to June 1989 figures until August 1990;

    . security evaluations not notified to Board for six weeks after revaluations completed and potential conflict of interest on the part of the valuer not queried by LCC or Board; and

    . further loan of $3.0M made in January 1991 not approved by the Board.

  • CELTAINER LTD
  • . Credit application contained no assessment of borrower's ability to repay the loan, nor was the term specified;

    . no assessment of borrower's cashflows and budgets, which were inconsistent in some respects;

    . Celtainer's business was heavily dependent upon a single customer; and

    . inappropriate facility structure resulted in overdrawing of limits.

  •  
  • . No evidence that security documents were duly stamped.
  • . No settlement guide produced; and

    . analysis of financial statements of Celtainer for year ended 30 June 1987 was flawed. Celtainer did not satisfy loan covenant when money advanced, implying that it should not have been lent.

  • . Overdraft facility excesses were largely offset against unused trade finance line - assessed as a low risk line. Until re-allocation of facility limits in March/April 1988, overdraft excess should have been reported to a higher authority;

    . no evidence of monthly monitoring of negative pledge covenants;

    . Celtainer was not notified of overdraft excesses, nor were penalty provisions invoked;

    . exposure monitoring was hampered by late delivery of financial information by Celtainer; and

    . when original facility formally amended in 1990 existing multi-currency line of $1.2M which should have been deleted was overlooked.

  • . Overdraft excesses approved after exposure classified as non-performing were improperly authorised; and

    . no formal corrective action plan, as required by Bank policy, was established.

  • COLLINSVILLE STUD GROUP
  • . Notes of initial interview were not kept by the Bank;

    . no examination of cashflow projections by the Bank - reliance was placed on Ayers Finniss Information Memorandum, which did not contain a rigorous analysis of Collinsville's cashflow projections;

    . detailed cashflows and balance sheets were not presented to the LCC, nor were material asset revaluations explained;

    . no ratio analysis of the Group was performed;

    . security information was not included on form of application;

  • . Decision to place $2.0M overdraft facility in name of Collinsville Stud and not Ambia Pty Ltd exceeded delegated lending authority of the officer concerned and should have been approved by Board Sub-Committee.
  • . Security obtained differed from what was specified in the letter of offer, without approval having been given to the alteration; and

    . valuations of asset securities included two parcels of land which were not in fact obtained as security.

  • . Although required by the letter of offer, keyman and livestock insurance were either not effected until some months after settlement (in the case of keyman insurance) or at all (in the case of livestock); and

    . utilisation of funds was not in accordance with the approved submission.

  • . Board was not notified of increased exposure to the Group, and decisions to permit increased exposure exceeded delegated lending authority of officers concerned;

    . crucial information was withheld in reporting to the Board in June 1990;

    . livestock insurance not effected, resulting in an uninsured exposure of up to $20.25M; and

    . no top-up security was sought when facility security became inadequate in January 1990.

  • . information was not supplied to the LCC in August 1990 which, had it been provided, would have caused the facilities to be classified as non-accrual, rather than non-performing; and

    . a provision for loss should have been made at June 1990.

  • COLLINSVILLE STUD GROUP

    (CONT'D)

  • . other formalities not completed on Application and Specification of Securities forms; and

    . no external credit assessment performed on companies in the Group.

  •          
    B LTD
  • . B Ltd had no track record against which to compare its cashflow projections and profit and loss forecasts;

    . relevant information about a key B Ltd executive was not brought out in initial submission to LCC; and

    . net lending Margin of Security was calculated at $2.4M - below proposed loan of $5.0M.

  •          
    HALWOOD CORPORATION LIMITED (including)
  • - BLANCHE PTY LTD

    - ASPENAIR PTY LTD

  • Halwood
  • . No evidence that the Bank received an Information Memorandum from the State Bank of New South Wales or that financial data was subject to analysis by the Bank;

    . no evidence of independent verification of Societe Generale Information Memorandum; and

    . listing of directors of the borrower not included in syndicate submission.

  • Aspenair

  • . Major shareholders not disclosed.
  • Halwood
  • . No consideration of the means for withdrawing the facility in line with the Bank's policy on negative pledge lending; and

    . advances to Hooker Fidelity Trust in June 1988 and to Aspenair Pty Ltd in February 1989 should have been confirmed by the Board due to the overall level of group exposure.

  • Halwood
  • . Security of HCL debenture stock did not meet the required lending margin for such stock. No evidence that the stock was ever received.
  • Blanche

  • . The lending margin for Australia's Centre facility was greater than permitted by Bank policy - an HCL guarantee was accepted as adequate to cover the shortfall in security.
  • Aspenair

  • . Same comments apply as to Blanche facility in regard to Boulevard Burnside financing.
  • Blanche
  • . Bank advanced more than $9.0M before Blanche had obtained vacant possession of land; and

    . security documents not forwarded to the Bank until four months after initial facility drawdown.

  • Aspenair

  • . Security and related documents were not received by the Bank until six weeks after the initial drawdown of the facility.
  •    
    C LTD
  • . Initial information provided by State Bank of New South Wales not subject to independent verification or review by the Bank; and

    . no review undertaken of the basis upon which car park lease valuations had been prepared.

  •  
  • . The Bank's security was not perfected when loan advanced;

    . review of car park lease valuations in 1989 and 1990 would have indicated a decline in the value of loan security; and

    . registered first mortgage between borrowers and "X" Pty Ltd was not adequately evaluated.

  •  
  • . Although the Bank was aware of poor results for the car park in June 1989, the August 1989 valuation was not queried, nor was an independent valuation commissioned.
  • . Loan downgraded to 5d in June 1990, but the Bank did not know that base rental had remained at $3.5M and was not $7.0M.
  • INTERWEST - SOMERLEY
  • . No compliance with the standard bank practice of ensuring security valuation at both market and liquidation values.
  •      
  • . Approval for continued participation in the syndicated loan should have been obtained from the LCC - it was outside the delegated lending authority of the General Manager, Corporate Banking.
  • . Contrary to Bank policy, a provision for loss was not established until four months after recognition of a possible loss.
  • D LTD
  • . Analysis of the borrower's cashflow and profit and loss statements indicates that the company did not have sufficient cashflow to service its borrowings;

    . contrary to Bank policy, a registered mortgage debenture was taken as primary security without an audit of asset values shown in the company's balance sheet;

    . in a direct departure from Bank processes, no industry analysis was performed on the facility;

    . no assessment of company management and its operations was made;

    . the degree of analysis applied to financial information was less than required by Bank process; and

  •    
  • . Bank policy requiring assets used as security to be insured against loss was not adhered to.
  • . Category 1 irregularities should have been reported to General Manager, Corporate Banking in January 1990. No report was made until May 1990, in contravention of established processes; and

    . diversion of funds by the borrower in contravention of loan covenants was not notified on a timely basis to senior management.

  • . A provision for loss was not made until November 1990 although the conditions necessary to raise a provision existed at 30 June 1990;

    . irregularity in the facility was not reported to the LCC for ten months from its first occurrence;

    . the LCC was not informed of or asked to approve the appointments of a Receiver and Manager in May 1990; and

    . the facility should have been classified as non-accrual in June 1990; it was not so regarded until August 1990.

  • D LTD (CONT'D)
  • . no evaluation was undertaken of the current market value or liquidation value of any assets over which security was held.
  •          
    E LTD
  • . No documentation supporting initial advance of $0.45M, other than Application for Advance;

    . integrity of financial information in the application not checked by reference to signed audited accounts;

    . ratio analysis was limited;

    . establishment record not prepared;

    . no external credit assessment was prepared on group companies or directors; and

    . Specification of Securities form is incomplete and there is no evidence that insurance cover was checked.

  • . Incomplete file records and no Credit Assessment form located; and

    . no indication as to why the Bank had been requested to offer the facilities in lieu of the Company's usual banker, Westpac.

  • . Incomplete corporate records held on file and section 230(8) certificates not provided until December 1988;

    . no evidence of stamping of security documents in Specification of Securities form; and

    . upstamping was not timely and the borrower in any event regularly exceeded its credit limits.

  • . Monies were advanced for the purchase of "Y" Pty Ltd in October 1987, but relevant security documents were not executed until December 1988. A similar anomaly occurred with the advance to purchase "Z" Pty Ltd;

    . no file copy of approval letter, either for initial advance or the assumption of Westpac facilities; and

    . no evidence of involvement at settlement by Securities Section.

  • . No evidence that detailed reviews were undertaken of financial information supplied by the borrower;

    . the borrower regularly exceeded authorised facility limits through February 1989, suggesting that the loan could have been classified as non-performing earlier than it was;

    . 1988 Credit Review should have been actioned earlier and referred to LCC for ratification;

    . no review of insurance policies undertaken until June 1990; and

    . loan files were incomplete and poorly maintained.

  • . Tardy implementation of policy requiring that no further excesses be permitted on irregular accounts and that interest margins be increased;

    . classification as a non-accrual loan did not occur in accordance with policy;

    . no detailed action plan on file in July 1991;

    . no submission exists on file dealing with the loan or its likely outcome; and

    . although around $4.8M remains outstanding, financial statements are not expected from the borrower for 1991.

  • F LTD

    G LTD

    F Ltd
  • . No credit paper prepared when loan initially approved;

    . no assessment of F Ltd's financial position or ability to repay loan principal; and

    . no independent valuation of a yacht offered as loan security.

  • G Ltd

  • . No assessment of the Company's ability to repay principal;

    . financial position of loan guarantors was not fully established; and

    . no review of cashflows was prepared.

  •   F Ltd
  • . Approved facility exceeded Bank's lending margin.
  • G Ltd

  • . Calculation of extended loanable value was erroneous;

    . receivable did not eliminate inter-company balances;

    . advance to security ratio was wrongly understated;

    . finance lease liabilities were not considered until brought on balance sheet by introduction of new accounting standards;

    . non-standard lending margins were applied to trade receivable;

    . lending margin was lower than the approved facility; and

    . mortgage debenture was improperly

  • F Ltd
  • . Loan was approved on the basis of security being obtained, but was advanced on an unsecured basis. Security was not obtained until the first annual review of the loan.
  • G Ltd

  • . Guarantees were changed from unlimited joint and several to proportional to shareholding in the company subsequent to initial approval but prior to letter of offer to G Ltd.
  • F Ltd
  • . No annual review was performed in 1990; and

    . Manager, Commercial Advances approved a facility increase outside his approval limits.

  • G Ltd

  • . Facilities due for annual review in February 1988 were extended in March 1988 to April 1988; no evidence that the annual review was conducted.
  • F Ltd
  • . Account frequently operated outside approved limits;

    . facility was not reviewed when classified as non-performing; and

    . no action taken to review file until after Retail Credit Inspection in April 1991.

  • H LTD
  • . No initial interview notes maintained as a record of preliminary discussions;

    . financial information provided by the borrowers not properly considered or independently verified;

    . no ratio analysis undertaken;

    . establishment record not properly completed;

    . no external credit assessment performed on the prospective borrowers;

    . specification of securities forms deficient, especially in detailing insurance cover; and

    . no consideration of the effect of a downturn in the property market or of poor tenancy mix at borrower's shopping centre.

  • . No Credit Assessment form located; and

    . no consideration as to why financing being transferred from another bank.

  • . Not formally determined that parties offering security legal capable of doing so;

    . specification of Securities forms do not evidence timely stamping;

    . overdraft facility for $20,000 granted in November 1987 was unsecured; and

    . exceeding of facility limits did leave the Bank vulnerable to being under-secured.

  • . The Bank did not receive executed securities for two weeks after settlement on the Malvern shopping complex;

    . no evidence of a check that rates and taxes had ben paid to the settlement date; and

    . some documents which should have been reviewed by Securities section not held on file.

  • . Financial information provided by borrowers not reviewed in detail, nor was information checked for substantiation;

    . loan should have been classified as non-performing at an earlier stage; and

    . files do not show when loan was to be regarded as non-performing.

  • . Insufficient pressure was put on the borrowers to service the loan. Reliance was placed on eventual sale of the property to cover principal and interest;

    . procedures applicable to the management of irregular accounts were not invoked on a timely basis;

    . regional office was not provided with regular Arrears reports;

    . the loan was classified as non-accrual later than Bank procedures required;

    . no detailed action plan noted on file at 18 June 1991;

    . situation has been allowed to deteriorate while new equity is sought;

  • H LTD

    (CON'D)

             
  • . no evidence of a review of budgeted and actual cashflows; and

    . no file record of likely outcome of a falling property market.

  • I LTD    
  • . No evidence in the Specification of Securities form that security documents were stamped;

    . facility draw downs were not accompanied by regular upstamping; and

    . there is a lack of correspondence between security taken and what was approved by the Board.

  • . Settlement guide cannot be located.
  • . Facility extension requests were approved by the Group Credit Committee when they should have been approved by the Board; and

    . no History Sheet has been maintained for the account.

  • . Status of stamping of securities and the consequences of under-stamping have not been considered; and

    . no evidence that provision of $5.0M against this account has been ratified by the Board.

  • J LTD
  • *. Guarantees were based upon unsubstantiated and outdated financial statements provided by the directors;

    . no independent valuations of security offered;

    . limited value in cashflow and financial projections prepared; and

    . no long term forecasts were prepared to support the ability of the borrower to repay the loan.

    * Procedure manuals had not been issued - comments are related to perceived weaknesses supported by review of manuals issued subsequently.

  •  
  • *. Deed of priority recorded as executed in favour of the Bank cannot be found;

    . permitted lending margin exceeded in December 1988 when facilities were extended;

    . security for overdraft and interest accounts is under-stamped; and

    . specification of Securities forms were not completed.

  • *. Funds advanced before security documents and guarantees had been signed;

    . insurance confirmations not held for all periods in which advances were made; and

    . there is no evidence that some conditions precedent to advancement were satisfied.

  • . No annual reviews after 1987 of either insurance cover or security valuations;

    . interest capitalisation was back dated to 1 October 1990, but doubt as to authority to do this;

    . feasibility of revised cashflows provided in support of overdraft facility increases was not ascertained; and

    . excessive reliance was placed upon the personal worth of the guarantors.

  • . Account graded as Grade E yet no action plan prepared for the account;

    . no evidence located concerning the size of the provision approved by LCC;

    . no arrears reports advised to Regional Office even though a loss was expected;

    . no formal valuation of loan securities made since December 1987; and

    . No action taken to enforce the security or guarantees.

  • K LTD
  • . Inadequate verification of the customer's financial ability to service the borrowing; and

    . specification of Securities forms were not properly completed.

  •    
  • . Letter of offer was issued by an officer without authority to do so.
  •    
    L LTD
  • . Personal details of most directors omitted from submission of 13 June 1988;

    . non-disclosure of the role of Kabani Pty Ltd to the LCC;

    . ability of the borrower to repay not analysed in the context of a stoppage or deferral of redevelopment;

    . limited financial analysis of the group;

    . borrower advised of valuation required to support the loan prior to valuation being prepared; and

    . the Bank's exposure only to the customer was noted in the submission; the exposure of Beneficial Finance was ignored.

  • . The Board reviewed the application without reference to the exposure of Beneficial Finance.
  • . No evidence that company constituent documents had been reviewed to ensure capacity existed to charge assets, although may have been done by Beneficial Finance which co-ordinated loan securities; and

    . specification of Securities forms cannot be located and details of stamping of documents are piecemeal.

  •  
  • . Initial monitoring was left to Beneficial Finance, but as Bank's monitoring increased co-operation between Beneficial Finance and the Bank in regard to the account reduced;

    . from February 1989 to May 1989 the term of the facility was extended, apparently without approval. This was repeated in November/December 1989 and July/September 1990;

    . LCC approved a facility increase in 1989 without Board ratification, as the Bank's procedures required; and

    . as a problem loan, the October 1990 request for extension should have been referred to the Board for approval but was not.

  • . Independent review of security documents should have been done earlier; and

    . files do not evidence any consideration of the Bank's role in advising loan default.

  • M LTD
  • . No independent assessment was made of key customer personnel;

    . financial information received from the customer was not independently verified or critically analysed to determine ability to repay either from the project or other income sources of borrowers;

    . tenancy problems inherent the project were not considered with by the Bank or sufficiently by its valuer;

  • . No credit assessment form located;

    . no effort made to find out why National Australia Bank, which financed land purchase, was not involved in financing the development;

    . economic and industry specific considerations were not taken into account; and

  • . Specification of Securities forms do not evidence timely stamping of securities; and

    . no evidence that mortgage documents stamped to a particular value.

  • . Funds were advanced prior to the perfection of securities; and

    . funds were advanced in accordance with work completed, but reports to the Bank did not advise of construction difficulties or likely overruns until December 1989.

  • . No critical analysis of financial information provided by the customer;

    . no critical assessment of budgeted against actual costs;

    . dispute between architect and developers was not monitored or its possible impact assessed; and

  • . No analysis done of the borrowers' financial positions to assess their ability to contribute additional capital to project completion or to meet loan repayment commitments;

    . additional financing was approved in March 1990 even though project was then financed at close to market value and the Bank know of borrowers; weakening cash position;

    . effects of a falling property market were not fully appreciated;

  • M LTD

    (CONT'D)

  • . no consideration of the risk inherent in a downturn of the property market;

    . limited use of ratio analysis to assess project viability; and

    . specification of Securities form not wholly completed.

  • . reservations expressed by Lending Examiner in May 1990 were seemingly ignored.
  •    
  • . proper annual reviews were not performed.
  • . contrary to policy, no monthly review of budgeted against actual cashflows was done;

    . no High Risk Credit Reports nor a Credit Paper recommending risk down grading were prepared;

    . no action plan had been prepared to 5 July 1991; and

    . the provision raised is inadequate.