Loan applications lacked bank statements
The Development Bank of Samoa (D.B.S.) gave loans to clients who did not submit bank statements and did not have bank accounts.
These were some of the findings of an audit of the bank by the Office of Audit for the financial year ended June 30, 2013. The audit report was submitted to the Legislative Assembly last December and was recently tabled.
According to the Auditor’s report, some of the bank’s clients were full-time farmers who did not have bank accounts and there were others who submitted applications to the D.B.S. without attaching bank statements, which is a requirement for loan applications.
But the bank, in response to the findings of the Auditor, stated that those requirements were waived. That is in the event that the client’s record is satisfactory, and revenue generated from the project is considered sufficient to service the loan, on top of contributions from a salary earner to support the farmer.
“This issue has been discussed with the loans division to be more thorough in their appraisal to improve appraisal of loan applications.
“In addition the manager in charge is now responsible to conduct proper checks to ensure all documents required for loan appraisal are complete and properly filed.
“The internal audit division is also tasked to conduct periodic tests on implementation and monitoring of process for immediate remedial action,” the D.B.S. said in response.
Another issue of concern to the Auditor was the practice of the loan officers including overtime pay and unsupported income in calculating the borrowers' net surpluses, which resulted in higher ratios.
But the bank, in response, said the calculation of a borrower's net income did not include overtime. It said income derived from other sources is included and were backed by verified supporting documents. In addition, spot checks are done by the internal auditor to reinforce compliance and timely checks on lending processes and policies.
The bank said there were several instances where loan accounts in arrears were restructured upon the board's approvals, through capitalising interest and or arrears.
The restructure of a loan account would depend on the circumstances affecting the ability of the client to maintain loan servicing obligation, and is done on a case by case basis to provide relief for borrowers in difficult situations to meet revised contractual repayments.
“The restructure enables the client and DBS to agree on an arrangement that will ensure the sustainability of loan servicing until settlement.
The D.B.S. has reviewed its lending policies to address this issue and improve on account management and also there was an inconsistency in how the 20% exposure limit to one loan account was to be applied,” stated the Audit report.