|
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.
|