HANVIT BANK SMALL BUSINESS COMMERCIAL LOAN APPROVAL PROCESS (Draft) 11/10/99 Prepared by KPMG, LLP Hanvit Bank Small Business Loan Approval Process _ kpmg Draft 2 TABLE OF CONTENTS CREDIT REVIEW AND LOAN APPROVAL FOR SMALL BUSINESS LOANS .3 TABLE 1 - APPLICABILITY OF RETAIL SCORECARD IN BUSINESS LOAN DECISION BY TOTAL LOAN AMOUNTS.3 TABLE 2 - CREDIT REVIEW PROCESS.4 TABLE 3 - APPLICABILITY OF RETAIL SCORECARD IN BUSINESS LOAN DECISION BY BORROWING ENTITY4 LOAN DECISION PROCESS5 STEPS IN CREDIT REVIEW FOR SMALL BUSINESS LOANS6 LIMITS, PRICING, RATING9 NOTE CONCERNING LOAN APPLICATIONS NOT PROCESSED IN CRMS.10 APPENDIX A- USE OF RETAIL SCORECARD VS FINANCIAL ANALYSIS IN COMMERCIAL LENDING.12 APPENDIX B- WHAT THE BANK SHOULD REVIEW.14 Hanvit Bank Small Business Loan Approval Process _ kpmg Draft 3 CREDIT REVIEW AND LOAN APPROVAL FOR SMALL BUSINESS LOANS For purposes of this document, Small Business Loans will be defined as those whose total amount is within the Branch Managers or Relationship Managers lending limit as defined in the Hanvit Bank credit and lending policy manuals. These loans may range from a few thousand Won to as much as 1.5 billion Won (approx. USD1.25 million) for a Class A Commercial Branch Manager. Because of this wide range of loan size, and the corresponding financial size of the businesses, it is difficult to outline a single set of process steps for all such loans. For smaller loans, a simplified procedure will be outlined. For larger loans which begin to approach the W1.5 billion limit, the full CRMS credit analysis should be completed. It is not valid to make an excuse that the borrower does not have accurate financial information which could be used to justify larger loans. While a very small loan could be made based on personal financial information of the business owner, larger loans require financial analysis and the borrower should be required to fill out Hanvit Bank financial statement forms, if no formal financial information is available. 1 Table 1 - Applicability of Retail Scorecard in Business Loan Decision by Total Loan Amounts: Applicability of Retail Scorecard Total LoansBorrowerGuarantor Less than 50 MM Won Adequate if loan is to individual Proprietor - Not applicable for loans to partnerships or corporations Can be used to assess Personal Guarantee W 50MM to W 150MM Adequate for loans to individuals, but separate business financial data should be available Not applicable for loans to partnerships or corporations Can be used to assess Personal Guarantee W 150MM to W 250MM Can provide information on individuals, but separate business financial data should be available Not applicable for loans to partnerships or corporations Can be used to assess Personal Guarantee Over W 250MM Not applicable. Business financial statements from the borrowing entity should be obtained. Can be used to assess Personal Guarantee 1 NOTE: The financial statements should contain a statement to the fact that the financial information is being provided to the bank for the purpose of obtaining credit, that the information is true and correct to the best knowledge of the persons whose financial information is represented on the forms and must require signatures of all persons whose financial information is represented attesting to the truth of the information. Hanvit Bank Small Business Loan Approval Process _ kpmg Draft 4 Table 2 - Credit Review Process New Loan Application Total LoansFinancial StatementsRun Scorecard Risk RatingCredit Memo Less than 50 MM Won Not requiredYesLowest Pass Grade None W 50MM to W 150MM Recommended. Review based on results of scorecard YesLowest Pass Grade Summary W 150MM to W 250MM2 Required. Informal financial statement review or spreadsheet analysis YesLowest Pass Grade Summary W 250MM W 500MM Required. 3 Informal financial statement review or use of CRMS Modules Yes, for guarantee Lowest Pass Grade Detailed W 500MM W 1.0 bn Required. Use CRMS ModulesYes, for guarantee BRR from CRMS Modules CRMS Report W 1.0 bn W 1.5 bn Required. Use CRMS ModulesYes, for guarantee BRR, FRR from CRMS Modules CRMS Report Table 3 - Applicability of Retail Scorecard in Business Loan Decision by Borrowing Entity:4 Business Borrowing Entity Use of ScorecardUse of Business Financial Statements Basis for Loan Decision Individual (One person entity) Can be primary source of loan decision for small loans (See above). Use if available.Net income of the individual (from personal financial statements). Sole Proprietorship (Small Business with employees) Can be primary source of loan decision (See above). Strongly recommended.Net income of the business, (from personal or business financial statements). PartnershipTo value str