Credit and Lending (including SME and Consumer Finance)
Credit and Lending tests whether a banker can assess repayment capacity, apply SBP prudential rules, structure facilities and monitor a portfolio across corporate, SME and consumer segments.
Core rules
- Credit appraisal uses the 5 Cs - character, capacity, capital, collateral, conditions - plus repayment capacity from verified cash flows.
- SBP Prudential Regulations set exposure limits, classification and provisioning norms, and consumer-finance caps such as debt burden ratio (DBR) and loan-to-value (LTV). Bank policy cannot be looser than these.
- eCIB must be checked before approval and at renewal to capture existing exposure and repayment history.
- SME finance relies on cash-flow lending, not only collateral; SBP encourages cluster and value-chain lending and guarantee schemes.
- Consumer products - auto, housing, personal loans and cards - need income verification, DBR calculation on net disposable income, and clear disclosure of pricing and fees.
Worked example
An applicant’s net monthly income is PKR 120,000. Existing instalment is PKR 25,000; proposed instalment is PKR 20,000. Total DBR = (25,000 + 20,000) / 120,000 = 37.5%. If the applicable cap is 40%, the request passes the DBR test. The officer still checks eCIB, verifies salary credits for six months, values collateral and confirms the tenor is within policy. Approval is documented with the rationale; a DBR above the cap needs a documented exception under delegated authority.
Traps
- Using gross salary rather than net disposable income.
- Ignoring a co-obligor’s existing exposure in eCIB.
- Evergreening: renewing a weak loan to avoid classification.
- Relying on forced-sale collateral value without a valuation.
- Approving consumer finance without disclosing the total cost.