I have been with a local bank for more than 30 years. My carrer started as Trainee Executive in 1977 and will be ended as Chief Internal Auditor.
I will use this blog to document all my experiences since I joined the Bank. I have gained a lot of knowledge and experience when working with this bank. Economic and agricultural research, loan management, branch management, corporate planning and auditing are areas where I was attached.
New officers who join the bank as a credit officer will learn about 5C. What is 5C? 5 C stands for:
(1) Capacity (2) Capital (3) Collateral (4) Conditions, and (5) Character
1. Capacity
Is is an evaluation of the customer ability to repay the loan. This is the most important C to the bank. Because, at the end of the day, the bank wants back its money it lends to customers.
Capacity is evaluated by several components. There are:
2. Capital
Typically, a company’s owner must have his own funds invested in the company before a bank will be willing to risk their own investment. Capital is an owner’s personal investment in his business which could be lost if the business is a failure. There is no fixed ringgit amount or percentage that the owner must be vested in his own company before he is eligible for a business loan.
However, most banks want to see at least 25% of a company’s funding coming from the owner before they apply a loan. Nevertheless, in the past 10 years, banks are willing to take more risk where margin of financing goes up to 95% of the total project cost.
3. Collateral
Lands, landed properties, machinery, shares and other assets that can be sold if a borrower fails to repay the loan are considered collateral. Collateral always is an issue between a bank and a borrower, especially to the first time customer.
4. Condition
Conditions refer to overall evaluation on the proposed business or project. Analysis includes business objectives and purpose of the loan. We need to analyse that the loan can help the business to grow and not a burden to the borrower. Other conditions that we should consider are marketing, technical aspects of the project, economic and overall business conditions such as laws and regulations.
5. Character
Basically it is an evaluation of business owner’s personal history and his background. For a company is the history of the owners, the boards and the key management.
Banks have to believe that a business owner is a reliable individual who can be depended on to repay the loan. Background information such as credit history, education, work experience are the factors in credit analysis.
Internal audit department should have good audit governance. Audit governance comprises audit charter, audit plan, audit manual and audit program.
Audit Charter
A formal written document that states internal audit’s purpose, authority, scope, independence and responsibility. Audit Charter must be approved by the Audit Committee and endorsed by the board of director.
Audit Plan
It is a means of directing and controlling the audit work. The plan for a particular of time such as a year sets out audit objectives, auditable areas, scope of coverage, frequency of audits, resources required and the duration of audit. The audit plan must must be endorsed by the Audit Committee (AC) and should be flexible to respond to changing needs.
Audit Manual
It is a set of uniform audit standards for guidance and reference. It contains written audit policies, objectives, standard procedures and programs.
Audit Program
Audit program is a set of detailed step-by-step procedures for each auditable area and is usually supplemented by the ICQ (internal control questionnaire).
There are several types of internal audits. There are financial audit, operational audit, management audit, compliance audit, IS audit and investigation audit. Each audit has different purpose and characteristic.
Financial Audit
The purpose is express opinion on financial condition based on analysis, comparisons and test of accuracy. Its scope is on the financial records. The expected results from this audit is to give opinion on the accuracy and reliability of the financial statements.
Operational Audit
The purpose is to analyse and improve methods of operations and performance. Its scope on the operational activities of a unit or department. The expected results from this audit is to give recommendations to management for the improvement of operations.
Management Audit
The purpose is to review and evaluate business and management issues to enhance profitability. Its scope is on the business support activities of a unit or the entire organisation. The expected results from this audit is to give opinion on strategic issues and recommendations or solutions.
Compliance Audit
The purpose is to express opinion as to adherence to internal policies and regulatory rules and requirements and applicable laws. Its scope on the specific aspects of operations and business. The expected results from this audit to make immediate rectification and compliance thereafter.
IS/IT Audit
The purpose is to audit on the computer systems and the provision and management of information. Its scope is on the technical reviews on computer systems and their peripherals . The expected results from this audit is to give recommendations on computerisation and information systems related.
Investigation Audit
The purpose is to audit in dept into irregularities such as misappropriation of bank’s assets or reported fraud or allegations. Its scope is in the area specified to determine modus operandi. The expected results from this audit is to give conclusion to findings with recommendations to prevent recurrence.
When I was a Corporate Planner, I was responsible to publish Annual Report for the company. About a few years I was involved in this project. I would like to share experience with you on how I organize my team to produce an annual report.
1. Develop Your Team
As a leader to this project you will become a chairman with help of the secretariat. The secretariat is a group of your staff that will help you to manage this project. The first thing you have to do is prepare a plan or road map to publish the report. A road map will guide you on the following subjects: (a) contents of the report
(b) related departments and representatives
(c) task flows
(d) date line to accomplish each tasks
I will get Management approval the road map. An endorsement from Management will ensure the project will be completed in time.
2. Kick-off Meeting
After you prepare the plan, I will call a meeting by inviting all the persons who represent his to department to attend a kick-off meeting. During the meeting you will table the plan when the jobs of preparing annual will be started and when it should be completed. Next, you will explain what roles for each person will do. For example, financial statement will be prepared by Finance Department and when the document should be sent to the secretariat. The same goes to perapring of the Chairman Statement, corporate information, board committee, activities reports, financial performance, calendar of events, statement of internal control, risk management and compliance.
You should give a date line when all the department send their reports to the secretariat. Let say you give them two weeks to submit the report to the secretariat.
3. Edit First Draft Report
After you receive reports from all the departments, you should check, edit and compile them and become the first draft of annual report. The first draft should be sent to all departments for them to check. The representatives are expected to discuss the contents with his head and get any feedback from him. You as a chairman will them that you will be calling a second meeting to finalise the draft report.
4. Second Meeting for the Team
Next, you will be calling a second meeting. All the representatives will come and give their comments to the first draft. During the meeting, information are added, deleted or modified. If everything is okay, you be should be able to prepare the final draft.
5. Table Final Draft to Management
A copy of the final draft will be sent to the CEO and all the management. You will a fix a date for meeting to table the report and get Management to approve it. During the meeting, the secretariat will take any comments from the management. When management approves the report, it becomes the final report.
6. Get Approval From Audit Committee and Board
The next step is to table the final annual report to the Audit Committee and the Board of Director. Nevertheless, it depend on the company’s policy whether whether you should table it to both committees.
7. Designing and Printing of Annual report
When both committees approve the annual report, it is the duty of Corporate Communication Department to design a concept of the new annual report . The report will be be sent for printing and then distribute to the shareholders and other parties.
KPI or key performance indicator is a set of targets to be achieved in certain period of time by the Organisation, Department, Division, and employees. This article is about to develop KPI for a department.
1. Formulate Department’s Objectives
A manager of the department must formulate the objectives of his department. The department’s objective should be in line with the organisation’s vision, missions, strategies and objectives. The KPIs for the department are the normally the KPIs for the manager.
2. Component of KPI
The manager should now the components of KPI. KPI is comprised four components. There are (i) Objective, (ii) measurement, (iii) target, and (iv) initiative.
(a) “Objective” tells what the department want to achieve. Example: to increase deposit, to increase customer satisfaction, to increase profits, to send staff for training, to reduce expenses and to improve loan processing.
(b) “Measurement” is what measurement we use. Example: Percentage, number of days, dollars, and kilometer.
(c) “Target” is what to achieve and “when”. Example: increase deposit growth 20% this year; and to reduce customer waiting time from 5 minutes to 3 minutes within 2 months.
(d) “Initiative” is a set of actions to achieve the target. Examples: (i) Improve customer service (ii) Increase promotion (iii) reduce lending rate (iv) to increase staff training.
3. Cascade the KPIs
The Manager should cascade his KPIs to his subordinates. Let say, if the manager’s KPI is to achieve $20 million value of loan, how does his KPI be translated to 5 marketing assistants? In this example, KPI for each marketing assistant is $4 million! So, the achievement of the manager’s KPI is the achievement of his subordinates’ KPIs. The only different is the function. The function of the manager is to lead his subordinates whereas the function of his subordinates is to meet customers.
4. Monitor the KPI
The KPI should be monitored regularly, say weekly or monthly. Normally a tracking system is develop to monitor the achievement of KPIs of the department (directly the manager) and his subordinates.
Achievement of KPI can be rated into scales. This is an example:
5=outstanding
4=exceed requirement
3=meet requirement
2=does not meet requirement
1=unsatisfactory.
Use of KPI
Achievement of KPI is used by a manager to give reward to his subordinates such as bonus, letter of recognition, send staff to oversea trip, and yearly increment and promotion.
As a manager, we do make decisions everyday. There are many methods or ways how we make a decision. In 1970’s, when I was a young executive in a bank, I was given a training on ‘Systematic Managerial Analysis’. The course’s leader was from Manila, the Philippenes. This is a good and simple concept, and practical. I would like to share with you on how to make a decision based on this concept.
1. Systematic Decision Analysis
A decision is made based on the criteria you set. Under the “systematic managerial analysis”, a decision is made based on the ’must criteria’ and ‘want criteria’.
‘Must criteria’ are criterias that you must fill first and it cannot be compromised. Let say you want to buy a hand phone. You set a budget $500 as a must criteria. It means you will buy a hand phone which the cost is below $500.
3. Want Criteria3
4. Evaluate the Criteria
One of my function is prepare papers for our boss, management or the board. These people are busy and may have enough time to read papers when attending a meeting. Some papers may have 20-30 pages and we don’t expect they will read all the pages. Normally, I will write an executive summary. An executive should be simple and interesting to read. The main issues and recommendations should be in the executive summary.
1. TITTLE OF THE PAPER
You should write the tittle at the top. You should use capital letters for the key words.
Example: How to Write a Good Report.
Suggestion: One or two sentences.
2. OBJECTIVE
You should state what you want your boss to do with your paper when he read it? For example the paper needs decisions or just for information.
Suggestion: One paragraph with one or two sentences with not more than 5 lines.
3. ISSUE
You should write clearly what are issues that he should know. The most important issue should be written first, follow by the second most important issue…and so on.
Suggestion: 5-7 lines.
4. EVALUATION
You should analyse for each issue. The main issue should be analysed first, follow by the second issue, and so on…
Suggestion: 10-15 lines.
5. RECOMMENDATION
Write your recommendations. Each line is for one recommendation. Put a number for each recommendation.
Suggestion: not more than 5-6 lines.
6. CONCLUSION
You should conclude the benefits the company will get from the recommendations.
For example, it would save company’s money; increase customer base; and make employees are happy.
Suggestion: 2-3 lines.
I must thanks to the Agrobank giving me many chances to visit many countries for official purposes. The Phillippines was the first country I went. The organisation sent me to Manila attending Basic Management in Asian Institute of Management (AIM) in Makati, Manila. The course was about one month.
Iran was the second country I visited. The bank sent me to Agricultute Bank of Iran. I went with a few staff from Bank Pertanian (now is Agrobank of Malaysia) The Agriculture Bank of Iran is located in Tehran. We went about a week.
The third place I went was Osaka, Japan. I went under the program of Malaysia Look East Policy. The objective of the program was to learn about good practices in Japan, and when we back home, we should be able to apply what good things we learnt. There were nealy 45 goverment officers was attended the program. We learnt about Japanese culture, work ethics and business culture.
I have a chanced to visit Taiwan. The trip was about two weeks. In that trip I was one of the Malaysian delegation to attend workshop on agriculture finance. The other representives from Malaysia were from Agriculture Department, Fishery Department, Development Bank of Malaysia (know is known as Infrastructure Bank).
During my service in the Bank, I had an opportunity to pursue my post graduate in the United States. I went to University of Detroit Mercy and did my Master Degree in Economics. I was in 1990-1992.
The last country I visited is Netherlands. There we 5 of us included 2 of board members. We leaent about risk management, corporate governance, branc operation and credit management.
When I went back to Malaysia in 1992, again I was posted to Research and Planning Department as head of the Department. Since I joined the deparment in 1992, it was evolved a few times. It was known as Economy Division, Research and Planning Division and Corporate Planning Division.
As a the head the department, I was responsible and involved in many policy matters which deal directly with top management, the Board, the Ministry of Agriculture (MOA), Ministry of Finance, Bank Negara Malaysia, Prime Minister Department and almost departments in the MOA (such as Agriculture Department, Fishery Department, LPP and FAMA.
As a corporate planner most of my times were involved in planning and managing plan of the Bank. These include strategic plan (3-5 years) and yearly plan. As a goverment body (when it was Bank Pertanian, Bank Pertanian was involved in preparing Government’s 5 Years Development Plan.
One of the major assignments was related restructuring and to corporatisation of Bank Pertanian Malaysia. Bank Pertanian Malaysia was established under the Act Parliment 1969. It was a 100% government body where its staff salary scheme, yearly budget and business direction are followed the goverment. But its nature of operation was 100% like an private sector.
As result of the development, Government has decided to corporatised Bank Pertanian Malaysia. The journey to corporatise Bank Pertanian was initiated by Bank Negara Malaysia in 2005. A Steering Commitee chaired by Governor was established in 2005. The members were from Economic Planning Unit, Ministry of Agriculture, Ministry of Finance, Public Service Department and Bank Pertanian Malaysia (the Chairman was the member). This steering committee was aided by Policy Committe and Technical Committee. As a head of Corporate Planning, my involment was in the paper writings and did a secretariat job. We did many presentation to Bank Negara, Ministry of Agriculture and Economic Planning Unit (EPU).
