Credit and Operation Risk Management Policies

ABSTRACT

The project will elaborate the Credit and Operation Risk Management Policies of Frontier Provincial Cooperative Bank Ltd. The said Bank was once a profitable institution and used to finance agriculture sector. The bank has many non performing loans on its balance sheet. The said Bank was in the state of Liquidation months back. Liquidator was appointed by the Government but later Government has rejected the proposal of Liquidation. Provincial Assembly has asked the Finance department to inject funds in the bank for its revival. Bank has got Fund of PKR 1 Bn and now is in the phase of revival. The violation of credit policy and not having proper mortgage assessment and documentation has led to increase in the NPLs. The operations risk is the other element that can impact the business of the organization.

We have consulted Primary and Secondary sources to achieve the desired results to be suggested. We have analyzed various possible options during study which address the mentioned issues. 5 Cs of Credit, Heat Map, Key Risk Indicators and criteria for mortgage assessment are among the possible options. We have suggested the Bank about credit risk management department, models to address credit risk, operational risk, and developed criteria for the better documentation and assessment of asset as collateral.

Chapter # 1: Introduction

1.1) Background of Problem

Credit risk is the risk of counterparty to default on periodic interest payments and/or on the principal amount of the loan. Most of the banks face this sort of problem that leads the bank to default or in other terms going bankrupt. Because of the inability to recover the amount from the debtors they face liquidity shortage which lead the creditors, depositors and shareholders to rush to the bank to get their money back. But due to shortage of money with them they could not meet the obligations that result the Bank to the final step of getting liquidated. That is where government intervene either on request or to save its institutions.

The problem originates when Bank manager or the credit advancing authority at bank, advanced loans without assessing credit risk, credit rating and other similar criteria of the counterparty to save itself from NPLs. Most of the banks have their own policies, rules, and regulations and even they have their own Risk Management Departments. The bank under discussion does not even have a proper management and experienced professionals at top positions.

Always in the History of Pakistan we have been gone through very bad experiences while giving chance to the previous corrupt Political Party or to the Current one for the next term. That created a lot of transparency issues in our Executive, Legislative and even in Judiciary. Using a political source a non-professional was hired on the post, where only a professional of the field could head the organization. He advanced such loans in which they did not calculate the Credit Risk. Consequently the bank led to failure because of nonpayment of interest and even not the principal. Although the bank had mortgages as collateral against loans but they were not of the value to recover even one fourth of the principal. This shows mortgages were not properly assessed. So we can say that they do not have proper documentation of mortgages and even do not have Credit Risk Policy.

There are a lot of tools and models to calculate credit risk and to mitigate risk if any. A lot of work is done by current International organizations on the current Financial Crisis to address any risk that Financial Institution can face. Basel Committee on Banking Supervision has different summits and declared the Basel Accord-II in June, 2004 that addresses such risks. The domain for the Accord covers another important risk that is Operational Risk which was not the feature of Basel Accord-I. In the modern world of computer technology there are a lot of software developed to calculate the risk and its intensity. By just entering the values for different given variables and using finger tip on the mouse a person can have intensity and level of credit risk displayed on the screen. Managers can take decisions quickly because of this technology.

The project will address the problem that occurred due to Political Loans and NPLs those not recovered yet. Gov of NWFP wants to revive the bank rather than liquidating it. As we know that Government works for the wellbeing of people, which is why Gov do not want the employees to lose their jobs. Provincial Assembly has asked the Finance department to inject funds in the bank to run bank's operations and keep the personnel employed. Finance dept was initially reluctant as they already financed the bank and because of the failure they have lost almost whole of its investment, now they approved lump sum of PKR 1Bn on the directions of Provincial Assembly.

We are going to study its Management, Treasury, Investment, Risk Management, Credit, and Equity Investment operations. Then we will make a plan for its operations to excel as Finance department is advancing fund of Rs 1 Bn as an interest free loan to the bank.

We will analyze its current operations and will make suggestions and recommendations to better utilize the funds.

1.2) Problem Statement

Establishing and applying better Credit and Operations Risk Controls.

1.3) Objectives of the Study

It will contribute positively in enhancing our current knowledge of subject and addressing the issues to some extent as well. The project will achieve following objectives,

• Understanding credit risk.
• How to develop Credit and Operational Risk Management policies?
• Understanding how to develop limit while extending advances.
• Main factors of default causing credit risk.
• Assessment procedure and eligibility criteria for mortgages as collateral.
• Issues in accepting mortgages as collateral.
• How to manage internal and external factors that can cause operational risk?
• What modern techniques should be beneficial for Modern Agricultural Banking?

1.4) Research Methodology

1.4.a) Target Industry

Banking Industry in Pakistan is our main focus of study.

1.4.b) Population/Sample

Agricultural Specialized Banks is the population here while Frontier Provincial Cooperative Bank Limited is the sample of the study. FPCB is based at Peshawar.

1.4.c) Research Type

The study is based on creating solutions for the real time problem at the Bank. The problem needs solutions and recommendations which will help the bank to perform its operations better to get it out of the swirl of liquidation. According to theory the research type we are studying is Applied Research.

1.4.d) Research Design

This section will give a designed path way of conducting the research on the subject

1.4.d.i) Purpose of Study

It is Descriptive study type as problem is known and needs a detailed work. We then will arrive at the right solution to the problem.

Another purpose of study is to implement our theoretical knowledge on a financial institution to help better understand the theoretical knowledge and to see its practical implementation.

1.4.d.ii) Extent of Researcher Interference

Our intervention in the research environment and study situations will be less, which means interference will be Minimal (studying events as they normally occur).

1.4.d.iii) Study Settings

We cannot and will not make any artificial study settings to better understand the situation because it is out of our bound to do so therefore the type of setting will be non-contrived.

1.4.d.iv) Data Collection Method

We will use both primary and secondary sources as data collection procedure. Primary sources include interviewing; discussion with supervisor, discussion with professional personnel having banking knowledge (could be the seniors, executives at different financial institutions etc. Secondary source includes the internet, News papers, financial journals, and any other publications related to the subject.

i) Interview

Interview is the best source of getting detailed knowledge and data on the subject which is not publicly open to all. We will conduct an unstructured interview with Mr Sarfraz Khan (Secretary Liquidation Board Serving as Recovery Officer) at the bank appointed by the Gov. The interview will cover areas discussed above i.e. Credit Risk and the problems faced throughout its past up till today.

ii) Internet

It is the most important and an efficient source of getting information nowadays. So we will use it to explain certain phenomenon, rules and regulations, and other related knowledge on banking in Pakistan. Moreover we will get information on the Cooperative banks currently working in the world.

iii) Discussion

To keep us on the right track (i.e. clear and concise to the problem) we will discuss the progress on the project after every 2 weeks with respected supervisor. Because it is very important to have feedback on the progress to better understand the project's material.

1.4.d.v) Time Horizon

This study is cross-sectional study means one shot in which we will do research and give solutions to the problem once and will not conduct the research afterwards to assess its results.

1.5) Instruments and Measures

We shall discuss the whole project in the light of the theory studied in Majors of Finance. We did the project on Financial Crisis in the World and its impact in Pakistan. During the study we went through a lot of concepts mostly related to the Risks. The project then helped us a lot in understanding the situation that why banks mostly collapse. That also helped us in understanding the prevailing models that are used to mitigate such risks. Then G20 summit tried to formulate the model to mitigate such risks while keeping modern Financial System in view.

Another milestone that tried to improve credit quality and credit risk mitigation was done by Basel Committee on Banking Supervision. They developed after a lot of study a detailed framework for avoiding banks from collapse. The two such sorts of Accords are well known to the financial system. One is Basel Accord I and other is Basel Accord II. Both will be discussed in the following coming part. We shall discuss the project in the light of 5 C's of Credit Financing, Credit Default Swaps, Black Swamps, and Basel Accords.

Chapter # 02: Contemporary Research

According to an article written by Kevin, Andrew and Ron, in 2009, If firms can value and transfer risks, they can focus on managing and acquiring risks for which have a competitive advantage. Risk management is not just a question of top-level analysis. Risk is inherent in every decision, and the risk-aware company requires some assessment of it in every decision that managers make. TXU Corporation illustrates the benefit of using risk as an organizing principle for strategy. Its approach can be replicated in your company through a five-step process.

Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary. (Douglas Hubbard “The Failure of Risk Management: Why It's Broken and How to Fix It” pg. 46, John Wiley & Sons, 2009)

Agricultural sector is the backbone of the national Economy and it is the most neglected sector and it is the dire need of the time to focus on it (Mazhar-ul-Haq Siddiqui, Chancellor of University of Sindh, 2008).

The poor countries have mainly agriculture based economies. To make the farmers self sufficient the countries like us have to formulate and establish an Effective and Efficient Agriculture credit system. A research says that problem is not with the pricing but with the access to Credit of Small and Medium Farmers. He was of the view that the small and medium level farmers are the key to the development of Agriculture in the country. They should be focused as the first target market for the Agricultural Credit. Banks both commercial and Specialized Banks along with Micro Credit and Cooperatives should reach to these segments. He also said that the recommendations shall be welcomed and ensured that he will respond positively to his part in the SBP. (Financial Sector Conference on Agriculture Organized by ADBP June, 2002)

Agriculture Cooperatives are the best source of equity to promote large scale agriculture in the area. But they also cause the differentiation by exploiting of poor and landless communities of peasants and laborers. (Alnoor Ebrahim, 2000). According to Attwood and Baviskar (1988:2), “Cooperatives have been expected to achieve a number of economic and social goals. In addition to increasing production and mobilizing underutilized resources, they have also been expected to increase social justice and equality of opportunity, to reinforce social solidarity, and to rebuild communities supposedly fragmented by the impact of colonial regimes, market expansion, and new technologies”.

But according to Tridip Suhrud (2003) “The cooperative banking system in Gujarat (India), which was part of the larger cooperative movement in the state, began to be undermined when its financial resources became a means of dispensing political patronage. With the collapse of several banks, the de-legitimization of the cooperative movement in the state is complete, shutting out the possibility of wealth creation and social participation for marginalized communities”.

There are certain mistakes that Executives make in Risk Management. Few researchers think that instead of trying to anticipate low probability, high impact events executives should reduce business vulnerability to them. Executives should change their way to think about risk and must avoid making six mistakes. Like as they think that, 1) We think we can manage risk by predicting extreme events; 2) We are convinced that by studying the past will help us manage risk; 3) we don't listen to advice about what we should not do; 4) we assume that risk can be measured by standard deviation; 5) we do not appreciate that what is mathematically equivalent is not psychologically so; 6) we are taught that efficiency and maximizing share holders value do not tolerate redundancy. (Nassim N. Taleb, Daniel G. Goldstine, Mark W. Spitznagel, 2009)

Agricultural Mortgage Companies are such companies which lends money to the farmers and cooperative societies to develop rural economy. While forwarding loan they mortgage property from the borrower, which covers the amount of their loan. (Kaushik Mukherjee).

Credit Risk is the risk that a bank or an organization faces when the counterparty or the debtor could not meet the agreed terms, either does not comply with periodic interest payment or principal amount. (Banking for International settlement, 2000)

Another definition is “The probability that some of a financial institution assets specially its loans will decline in value and perhaps become worthless”. (Bank management and Financial Services by Peter S. Rose & Sylvia C. Hudgins)

The Credit risk management makes Banks and other Financial Institutions, how to maximize their risk adjusted rate of return and manage the acceptable level of risk. Banks should consider risk of individual as well as portfolio investment. They should also analyze the impact of credit risk on other risks. (Principles for the Management of Credit Risk, Banking for International settlement, 2000)

Credit Risk Management is crucial for any bank or investment company because they extend loans, allocate investments and capital. The most important risk they can face is the default risk that they could decrease or eliminate to its lower extent possible by complying with the criteria defined by Basel II accord and other Regulatory bodies. (The Importance of Credit risk management for banking By Sam Miller, 2008)

According to the results shown by a research, Credit reserves, valued in the part for their role in risk aspects of Financial Management are itself subject to risk. Therefore Financial Institutions must calculate farmers' credit risk in loan portfolio management. As the policies or risk measures strengthen it affects the farmer's capacity of borrowing, other factors include unavailability of operating finance in the rural level that effect input for farm and respective income. It leads the farmer to approach other sources to get finance or borrow on high rates that ultimately could not match their income. This results increase in level of farmer's credit risk. Implications for macro-investment analysis also are evident in the tendency for changes in credit availability rather than changes in interest rates, especially for rural banks, to serve as key methods of financially constraining farm investment and growth. So, financial institutions are important players in development and growth of agricultural activities by advancing loans at the rural level. (Peter J. Barry, C. B. Baker, Luis R. Sanint, 1981)

According to an article most of the banks in Cameroon failed because of insider lending, to the political associates and to the friends which are unrecoverable. (Reasons Why Local Banks in Cameroon Failed Within the 1980-1990 Peroid By Ashu Felix Tambong)

Credit risk is risk which arises when counter party defaults on its obligation and is not in a position to repay all its liabilities. To mitigate this risk certain steps are taken by lender bank. For this prudent limits for exposure are established. The capacity of borrower is checked and credit rating is checked.

In forwarding Agricultural loans the lender company/banks have several issues to cater with. In two states of US a study was done on banks who were forwarding agricultural loans. The main concern for both of them was Credit risk. To lower the effect of the credit risk the 5Cs of finance were used, which is an old but effective tool. The conditions for every borrower is different from each other, there 5Cs are analyzed then terms and conditions are set. (Factors Affecting the Agricultural Loan Decision-Making Process by Wilson & Christine, 2006).

The Basel II Accord defines the operational risk as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes Legal risk but excludes Strategic and Reputational Risk.”

The failure of Societe General's is clearly the result of lack of consideration on operations risk. If we want to manage, supervise and control the operations risk the best option we can have is to refer to the guidelines defined by Basel Committee on Banking Supervision. (Managing bank Operations Risk by Stanley Epstein)

Operational risk is a type of risk which arises due to not complying and following the rules set by the organization. To counter this risk the organization must report all the illegal activities, both internal and external controls should be ensured. (Managing Risk in Financial Sector by Adeel Mirza.)

Operational risk is partly related with technology. It can arise when existing technology malfunctions or breaks down. In 2001, a failure of system was noticed when CITI Bank ATM system crashed for a long period. Its 2000 nationwide ATMs and all online banking functions were down for almost two business days. In Sep 2004, a third of Wachovia securities broker, sales assistant and other employees were blocked and could not access their systems for one week. Consequently the operations like viewing client's accounts, place trades etc were suspended because they did not have backup system. In Feb 2005, Bank of America announced that all computer backup tapes have been lost during transportation to data storage house which contains all personal information of about 1.2million Federal Government Employees Charge Card. Operational risk management department ruled out the chances of access to the data because the backup data was stored with them and there were strict security checks on it that only concerned personnel could access. (A. Saunders & Marcia M. Cornett, 2006)

According to an article in Harvard Business Review journal, organizations either cooperation or banks can map their fraud risks and can prioritize different operational risk types. So a heat map can focus unlikely but potentially devastating risk events also called black swan events. (Toby J.F Bishop & Frank E. Hydoski, 2009).

For every organization it's important to utilize its recourses to optimum level. For countering other risk the companies design technique to tackle with operation risk. In this regard training is given and they have started employing operational risk professionals. (Deep Raj, 2004)

Operational risk is very important for financial institutions in this era. Financial institutions use different approaches to lower the effect of the operational risk. 1) Basic indicator approach 2) standardized approach 3) Advance measurement approach. (Alexander Gordon, 2002)

A research shows that the Operational risk events can arise from different factors. These factors can affect the bank's profits and can increase bank losses. They could have strong or weak relationship with operational loss. There are certain internal factors that also have significant role in operational losses. These factors include fraud, scale, capital structure, profitability and volatility that play a significant role in loss formation. Furthermore, there is a nonlinear relationship between operational loss and Human factor. That means as the number of employees increase in number the loss increases in the beginning and then fall as the time passes. It was also concluded that market-related factors have weak relationship with the operational risk. It could be explain with the help of relationship with GDP. According to findings it was found that as the GDP decreases the loss formation increases during downturns in the economy.

Operational risk can be defined as the risk of loss resulting from inadequate or failed processes, systems, human performance or external events. A Key Risk Indicator, also known as a KRI, is a measure used in management and measurement to indicate how risky an activity is. It differs from a Key Performance Indicator (KPI) in that the latter is meant as a measure of how well something is being done while the former is an indicator of the possibility of future adverse impact. KRI give us an early warning to identify potential event that may harm continuity of the activity/project. These key risk indicators are the mainstay of Operational Risk analysis. (Basel II, 2004)

Financial institutions are interested in KRI programs for many reasons. The Risk Management Association (RMA) conducted a survey of 38 financial institutions in May 2005 on the subject of KRI programs while many are still in planning process. (Risk Management Association, 2005).

Still today many organizations kept this approach to the last to be considered. However, KRIs has one very specific quality that no other operational risk management or measurement tool offers: like real-time exposure information. While other models like Loss data fundamentally lagging in nature because it represent a past state of affairs, which in most cases is repaired long before the data analysis hits the risk manager's desk; Risk-and-control assessments are periodic subjective evaluations of the state of affairs, these periodic evaluations cannot measure ongoing change; Scenario analysis allows to consider what could happen, but in isolation tends to be considered as far-fetched, or a measure of the almost impossible - it certainly cannot provide an accurate barometer of real-time conditions etc.

However, similar to the way in which the fuel gauge, oil pressure gauge, engine temperature gauge and speedometer in a motor vehicle all provide us with vital information as to our safety and likelihood of survival, a KRI programme is the only way to provide management with the real-time targeted feedback they need to make mid-course adjustments as required. And that is essential to the achievement of business goals and the safety of the organization. (Jonathan Davies, Mike Finlay, Tara McLenaghen & Duncan Wilson, 2006)

ChAPTER # 03: Industry Overview

3.1) Historical Background

i.b) Specialized Banks

Specialized banks are Foreign Exchange Banks, Industrial Banks, Development Banks, Export-Import banks catering to specific needs of these unique activities. These banks provide financial aid to industries, heavy turn-key projects and foreign trade.

In the era of 1960s and 1970s the specialized banks were established, like IDBP and ADBP, they were either controlled by state bank of Pakistan or by Government. Cooperative banks were also included in it although they were operating before partition and after Division of subcontinent they were allowed to execute their operations. Other specialized bank is SME Bank, introduced to support the small scale industries.

i.b. 1) Specialized Banks in Agriculture Sector

In agricultural sector we have two financial institutions which assist and help agricultural sector in Agricultural Credit.

A) Zarai Taraqiati Bank Limited

Zarai Taraqiati bank formerly known as Agricultural Development bank was inaugurated in 1957. It came into existence when agricultural finance corporation and agricultural bank of Pakistan were merged together. Then in 2002 it was declared as public limited company.

The objectives of the ZTBL are to,

• Assist rural community, particularly the small farmers, in raising their productivity and income levels through timely delivery of credit, advisory and ancillary services.
• Build ZTBL's image as a proactive, client friendly, financially & operationally sustainable with indigenous product deployment.
• Establish and provide backward and forward linkages to strengthen agriculture, value added commodity chains.
• Engage in public - private and wholesale - retail partnership to deepen outreach and reduce operating cost.
• Function as a rural commercial bank to mobilize rural capital formation and to commercialize the agricultural sector by delivering the true value of credit to the client.
• Provide a wide range of risk insurance products to its clients.
• Open up its venues of operation to Domestic & International Banking Industry to avail comparative advantages.

B) Cooperative Banks

The second and the oldest are cooperative banks. The main objective of Cooperative Movement, which started in close of 19th Century, was to provide credit to the farmers who were heavily indebted to money lenders (Banya). The Movement was organized in most part of subcontinents on a three tier system

• Primary Societies at the base
• Cooperative Banks and Banking Union in the middle, and
• Provincial Cooperative Banks at the top.

There are 6 Cooperative Banks operating in Pakistan including 4 Provincial Cooperative Banks, 1 in Northern Areas Cooperative Bank and 1 in AJK.

B.i) Historical Background of Cooperative Banking in Pakistan

At the time of independence, Cooperative Movement was in an unsatisfactory state. The Cooperative Banking structure in Punjab, NWFP, and Sindh had managed to survive but the vacuum created in the field of commercial banking after independence induced the Cooperative Banks in Pakistan to undertake large-scale financing of trade and commerce at the expense of rural finance however, in the process, the Cooperative Banks received serious setbacks.

Huge funds advanced to individuals engaged in trade and industry by Cooperative Banks that had no experience of such loans was blocked. The worth of their assets, built over half of century, depreciated and consequently they were not in a position to provide funds to primary credit societies affiliated to them.

Various steps were taken to revive them but they did not yield any tangible results. In 1976, the Federal Gov, after obtaining the consent of Provincial Government enacted the ‘Establishment of Federal Bank for Cooperatives and Regulation of Cooperative Banking Act'. Under this act the Federal Bank for Cooperatives was established to serve as the principle financing institution for the entire cooperative movement in the country and the previous structure of the cooperative banks were reorganized.

All cooperative banks, other than only one Provincial Cooperative Bank in each province, were liquidated. The Provincial Cooperative Bank was supposed to meet the credit needs of its affiliated societies through a network of branches.

Under the reorganized setup, there are now six provincial Cooperative banks with over 200 branched spread throughout the country. At the base, there are primary cooperative societies affiliated to the Provincial Cooperative Bank. The primary agriculture societies were generally the Raiffeisen type, small in size and having unlimited liability. Some societies are multipurpose in character, relatively large and liability of their members is limited.

Apart from the setting up of large number of cooperative credit societies, the cooperative agencies have also been employed in various field of rural development and their credit operations have been linked with marketing and supply activities.

In the late 1980s, there was a major collapse of confidence in the viability of cooperative financing and several highly publicized cases of insolvency. The crisis was particularly severe in the Punjab and the state operations had to be launched to prevent the total collapse of the cooperatives.

Chapter # 04: Organizational overview

4.1) History of Frontier Provincial Cooperative Bank

Frontier Provincial Cooperative Bank was established in 1943 under the Cooperative Societies Act 1925. Before partition it was affiliated with Punjab Provincial Cooperative Bank. It was functioning through its 7 branch offices in 1947, which increased to 10 in 1952.

In several districts it functioned as a commercial rather than a Cooperative Bank. Large percentage of its deposits were commercial deposits 70% of its paid up share capital was owned by individuals and 80% of the loans were advanced in 1951 to private firms and individuals.

The Cooperative Registrar as well as the Managers of the Banks recognized that cooperative funds were diverted from agricultural in to industry and trade, and starving the rural areas of their share. The Department as well as the Provincial Government agreed on the diversion of funds towards the agricultural; subjection on the Frontier Provincial Cooperative Bank to the supervision, inspection and control of the State Bank the same way as were Scheduled Banks, were measures considered essential for its rehabilitation.

In the light of these considerations:

1. An experience officer was to be deputed to survey the movement in the province and to submit a report on its progress,
2. The state bank was to take over the recruitment of the officers of the bank, including suitable refresher courses for others already in employment,
3. A plan of operation was to be drawn up for making advances to agriculturalist on a pattern familiar to the people of the province through the branches of Frontier Bank, and
4. Finally, necessary finance was to be made available, on long term bases at reasonable rates of interest, for granting loans to the agriculturist.

Frontier Provincial Cooperative Bank was to function under the general guidance and supervision of central agency as an alternative to organizing new bank and duplicating the number of credit agencies serving the rural people.

The provincial schemes for the organization of agricultural banks briefly outlined above required to be worked out in full detail after investigations of selected areas.

Frontier Provincial Cooperative Bank limited comprises one-third percentages of share holders of NWFP Government, the Federal Government through the Federal Bank for Mutual Cooperation and 7600 corporative societies.

From the very beginning this bank, besides giving small farmers/petty land holders' fertilizers, seeds and pesticides also provided them agricultural supplements as aid through their registered societies for mutual help. For such help, the bank realized profit on very subsidized rates fixed by the state bank of Pakistan, from these societies.

The bank met its expenditure such as the pay of its employees and other administrative expenses from these realized profits and was not in any way, a burden/liability on the treasury of the Govt. of NWFP. In fact, every year this bank paid lacks of Rupee to the Government of NWFP under the head of Income and Property Tax.

Frontier Provincial Cooperative Bank Limited was a well functioning financial institute of NWFP, whose administration comprised of an experienced banker who had been trained by State Bank of Pakistan.

Chapter # 05: Identification of Issues

5.1) Prime Function of the Bank

The prime function of Frontier Provincial Cooperative Bank is to extend loan to the Cooperative Societies, to help them in agricultural development. While extending loans bank's addresses some important issues to protect it and to eliminate or to lower the effect of certain risks.

5.2) Priority Issues

The Frontier Provincial Cooperative Bank has three main issues which led to adverse situation and well functioning bank was about to collapse.

5.2.A) Credit Risk Management

The first issue is that the bank does not have any Credit Risk Management Department. The non-presence of this department had a great effect on the bank. The bank never assessed the risk of the borrowers, either they will be able to pay or will default on loan. This is what happened; large number of creditors' defaulted on the obligation which directly affected the bank.

5.2.B) Mortgages

The second issue focuses on the Mortgages as Collateral. Bank used to keep the land of the borrowers as collateral. But did not assess their values appropriately and even not investigated physically. We know that each bank before advancing loan cross checks the land existence and verify its value in the market. But here they did not follow the procedure. This issue led to increase the problems of bank's existence when they figure out that the collateral even cannot cover 1/4th of the principal amount loaned. While accepting assets as collateral the banks negligence resulted in a great failure on the banks operations.

5.3.C) Operational Risk

Operational Risk is the third issue we have analyzed and shall be discussed. Union was very strong which lead to dismissal of the person heading the Bank even if he was competent Officer. The political influence had very bad impact in the management, organization, staffing and even in controls. The internal politics also added the fuel to the fire. The bank had the incompetent person as head appointed because of the political influence. The person then issued loans to the people with whom he had any political affiliations in the past. This was the point where they had kept the finance procedure aside. This resulted in the complications they seen afterward. They lack in modern technological advancements. They still have the old manual ledger system. The Bank still do not have the proper procedure of recruitment and selection. This means they do not have HR department.

So the gap originated between the required state and the present state of the Problem. We shall generate the solutions and an action plan to address the issues discussed in the above paragraphs.

Chapter # 06: Possible Options

6.1) Possible Options to Address Credit Risk

Credit risk is the risk of default by the debtor on the agreed terms either on principal amount or on the due amount of markup. Banks do financing in a very cautious manner, in order to avoid fraud and bad debts which directly affects the bank's profitability.

The FPCB has the same issue, the obligator defaulted, and the reason for that is, they did not investigated the borrowers thoroughly, to see whether he is worthy or reliable and for that they did not have any tool or model to measure or see all these issues.

Theory has developed models that can address the credit risk issues in Personal Borrowings and Corporative Loans. There are certain models and techniques developed by banks themselves or using the models developed by International Organizations like Bank for International Settlement, European Commission etc., and each country has the Risk management department in Central Banks.

6.1.A) Basel Accords

Basel Committee is a committee of central banks or representatives from central banks of group 10 countries in 1974. Committee meets every three months at Basel (Switzerland), where the main office of the Bank for International Settlements is located. Basel Accords are the product of this bank aimed at providing and promoting sound business and supervisory practices, by focusing on risk management.

First accord was known as Basel-I which was designed in 1988 and implemented in 1992. Its main focus in this accord was only on credit risk along with minimum capital requirement to support the value of risk weighted assets of the bank. After a lot of improvements in Basel-I a new accord named Basel-II was published in June 2004. Basel -II is still going under serious changes because of Global Financial Crises. It covers the areas of all the major risks that are faced by financial institutions. It addresses Credit Risk, Market Risk and Operational Risk along with updated Capital Requirement Ratio.

Basel-II formulated two basic approaches to calculate credit risk or to mitigate it.

1. Standardized approach for Credit Risk: it mostly resembles with Basel-I, but is more risk-sensitive. Under this approach the banks are required to use ratings from External Credit Rating Agencies to quantify required capital for credit risk.
2. Internal-Ratings-Based (IRB) Approach for Credit Risk: It allows bank to use their own internal estimates to determine Capital requirements, subject to the approval of Central Banks.

6.1.B) Value at Risk (VAR)

It is a major tool for modern risk management. It was originally developed for managing market and liquidity risk but now it is also used to confront credit risk. While computing VAR three variables are used i.e. Mean value of data, Standard Deviation and a Normal Distribution Curve to predict expected losses.

Its Formula is VAR = za x SDp

Where,

Za; the critical z-value based on the normal distribution and the selected a% probability.

SDp; is the standard deviation of the Portfolio.

We cannot put VAR as a model to mitigate credit risk, because of the limitations of VAR.

1. According to the concept VAR can be applied to a portfolio in which trading of stocks and bonds take place and historical data is available for it. Because the current market value of the stocks and bonds are directly observable and can be calculated easily. But daily price or Market Value of the loans is not directly observable because loans are not the tradable instruments in the financial market. We cannot calculate the mean value for loans as they are not traded in stocks and bonds market.
2. As Current Market Value is not available so volatility measure is difficult.
3. Normal Distribution is the approximation even in the case of Market Securities. In case of Loans the assumptions tends to be even more wild approximation.

So we can conclude that, as the Bank under discussion is not involved in such sort of trading and issue loan in Agriculture sector only. This means the model of VAR is not the best option for the bank.

6.1.C) Credit Default Swap (CDS):

It can be used as a tool to transfer credit risk to the other party. Banks usually indulge in such sort of transactions to maintain their working capital if any credit instrument is in the status of Nonperforming Loan. CDS is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default. Following figure shows the concept of transaction;

As we know that Global Financial Crisis were triggered by these swaps. These swaps were became the weapon of mass destruction for the financial market when mortgaged backed securities defaulted. The chain was made when Large Size Banks issued Credit Default Swaps to the investors through Broad Index Securitized Trust Offering, Bristo in short. Here every financial institution was involved in trading such swaps as market was on boom for CDS. So they were linked in a manner that if one of them defaults the chain reaction will start. Same happened here Lehman Brothers the biggest CDS player got a hit in this chain first and then led to the failure of many other institutions linked with it like American Insurance Group (AIG). Out of $700 Billion most of the CDSs of Lehman Brothers were insured by AIG. On the basis of the said concept we are of the view that credit default swaps is not the best option. Because every bank is now avoiding investment in CDS, as they are aware of its consequences in the Global Financial System.

6.1.D) 5Cs of Credit Financings

This model contains five C's of Business and Commercial Financing. This is a very simple method used by financial institutions, investors and lenders around the world to determine and see the credit worthiness of the potential borrower.

This model uses five Characteristics to assess the riskiness of the prospective borrower. They are discussed one by one in the coming paragraphs,

• Character
• Capacity
• Capital
• Collateral
• Conditions

6.2) Model to Address Operational Risk

It is the risk that results in operational losses emerges from the loops incurred in operations; it could also be the contribution of fraud, management, lack of service quality, technological lagging and many more internal factors.

6.2.A) Heat Map

Modern era is highly sophisticated, dangerous fraud schemes are on rise. Companies both local and multinational take significant measures to tackle and to lower the effect of these risks. But these risks measurements are taken on lower level, Executives are not involved and are not aware of these risks. They must be made aware and should take interest in it, and should be concerned about the security measure of their database.

The great method for managers through which they can educate their Executives is to use Heat map.

6.2.B) Key Risk Indicators by Basel II

Key Risk Indicator is a simple concept. It measures and identifies and reports those items which are of main concern for a Bank or Organization. It signals in advance about any risk that could arise of any mismanagement in business operations. These indicators are different for different organizations according to its relevance and importance. KRI monitors important processes and ideally are setup as a system of leading risk indicators. Before a process fails it alarms the management and management acts on the signals to overcome the problem and to prevent losses.

It is the important approach an organization can use to swiftly operate in the daily business operations. An example can be customer complaints. It could be the key risk indicator that could signal about the processes of the organization and any opportunity of improvement. There are a lot of researches done on it and Bank could take help from such researches.

Management must be vigilant to carve-out the possible key indicators in their daily operations as well. It is the ongoing process that must be updated time to time. The indicator becomes key when it tracks an especially important exposure. In operational risk, we are interested in KRIs that monitor operational risk. Operational risk can be defined as the risk of loss resulting from inadequate or failed processes, systems, human performance or external events.

6.3) Possible way to Assess and Accepting Assets as Collateral

There is no particular model to assess an asset as collateral. There is a standard way which is used by all specialized and commercial banks before accepting an asset as collateral. Each commercial and specialized bank avoids negative business sectors, in which they do not advance loans. Mainly they avoid political loans to secure themselves as the banks know that it will be hard to recover them due to political interference. Because of political pressure most of the time public Sector banks do not follow the true procedure while accepting asset as collateral.

Another option could be of calculating the force sale value of an asset, the proper documentation and to check all the required documents while going in to contract. A sight visit must be done to ensure that the asset does exist, and has the same location as it's shown in the documents. Quality of land must be assessed and it should be assured that the quality of land will not depurated.

6.4) Steps to Better Risk Management

It is an overall strategic process in the organization, by applying this model in the Bank, they can be in a better position to understand risk and can lower its effect. It's a general model to build strategic process to change the risk perceiving mindset and align operations and organization culture in a way to reduce risk or acquiring it and manage, and in result it helps them to retain competitive advantage.

Five steps outlined in the diagram form a dynamic cycle from indentifying your major risks those are natural in nature. This enables you to determine capacity and appetite for risk which in result embed risk in all decisions and help the Bank for batter risk profiling by aligning Governance and organization around risks. Companies with a strong culture of risk - adjusted decision making are better positioned to identify and understand changes in their risk profiles, triggering the cycle again. These steps help organization to identify and manage risk at every level from top to bottom.

Chapter # 07: Best option/recommendations

7.1) Models to address Credit Risk

7.1.A) 5Cs of Credit Financing

This model contains five C's of Business and Commercial Financing. This is a very simple method used by financial institutions, investors and lenders around the world to determine and see the credit worthiness of the potential borrower. This method helps mangers to reduce the potential credit risk.

This model uses five Characteristics to assess the riskiness of the prospective borrower. They are discussed one by one in the coming paragraphs,

• Character
• Capacity
• Capital
• Collateral
• Conditions

This model measures both the qualitative and quantitative aspects of the potential lender. The “5C's of credit” are a common reference to the major elements of a banker's analysis when considering a request for a loan.

I) Character

Before investment is made, lenders and investors need to be sure that they can believe in the character of the borrower and business. Character refers to moral, social and business reputation of the borrower. Past history must be looked and analyzed. The character of the borrower must be analyzed to see whether he meets and fall in the criteria that the bank has established for the lenders. In addition to character, the borrower's ability to succeed will be closely examined. Business owners with the proper education and relevant work experience are more favorable to be financed.

II) Capacity

Capacity means whether borrower is able to payback and he/she has enough resources to convert them into cash to meet the obligations. Banks must check the status of income statement of the borrower. It is the prime factor before lending to be checked that borrower has the stable income. Financial capacity of the borrower is checked, to assure that he has the capacity to repay the loan with in time and without any pause.

With a standard credit check a financial lender can determine, the number of loans that were obtained and if they were fully repaid. A borrower with a history of making loan repayments on time is more likely to receive financing for their business than a borrower who irregularly makes payments or no payments at all.

In analyzing Capacity three items must be considered.

i) Stability

The stability of borrower is checked in terms of borrowers' employment in the field and income.

ii) Income Type

Income of the borrower should be checked. The nature of the income should be assured whether its commission based, wages or any other. Moreover many entrepreneurs have seasonal earnings that should also be considered while extending loans.

iii) Income Amount

Banks are mostly concerned with the expenses and revenue statement of Client. They do so because it gives the picture of the repayment ability of borrower after meeting its expenses. It shows that whether the earnings level will be able to meet monthly repayments. And banks should consider whether the prospective client's income decrease or increase and in what pattern.

III) Capital

Capital is looked at as the amount of money that borrower has invested in his own business. A financial lender or an investor may be curious as to why borrowers are seeking financial assistance before using their own assets. Many lenders or investors also want to know if they plan on using their money to help business succeed when needed. In addition to borrowers willingness to use their own equity, all financial lenders or investors may verify that there are assets to use. To verify the availability of assets, many lenders request a credit report or financial records.

The safety and viability of the project is closely linked with the share of borrowers' equity.

IV) Collateral

To ensure safety of advances, collaterals offered should be given due consideration. A loan is secured using the subject property as collateral. Since the property is the lender's protection against default, it must be structurally sound and functional. When evaluating the collateral bank must consider these conditions Property Type, Marketability and Readily Ascertainable.

V) Condition

Lender should make loaning conditions favorable to the borrower so that borrower could not default. Conditions consist of interest rate and term for financing. Secondly the bank should consider the purpose of loan required and should make it a condition in the contract which means what it will be used for.

7.2) Model for Operational Risk

7.2.A) Heat Map

The model that can be used for operational risk management is a Heat Map. This Map is easy to use and help managers to brief their executives on those events which are never discussed in their meetings. These events have devastating effects on business operations. These events vary business to business. Every business has its own priority to each event.

Banks have different events to cater with, than a production oriented business. These events are also called Black-Swan Events and are mapped on the Heat map according to their exposure level. For financial Institutions these events are,

1. Manipulation of loan loss reserves
2. Mortgage frauds
3. Securitization frauds
4. Sanctions violations
5. Central bank violation
6. Inside loan fraud
7. Theft of fund cashiers
8. Theft of fund transfer etc.

Management can analyze them one by one and should also prioritize according to its importance. They could be plotted on the map according to their significance and likelihood. The map could be drawn in the way presented in the next page,

7.2.B) Key Risk Indicators

Another approach an organization can use to swiftly operate in the daily business operations is key risk indicators. Examples could be customer complaints, lack of technology, inappropriate Professionals, application and loan procedure etc in a bank. Management must be vigilant to carve-out the possible key indicators in their daily operations as well.

7.3) Criteria in Advancing Loans and Mortgages

In forwarding loans a number of important criteria must be followed,

• The force sale value of an asset as a collateral must be properly and accurately calculated. Its value is calculated almost 25% less than the market value of an asset.
• The second big issue is that the bank personnel never visited the collateralized asset on-site. They never bothered to visit the site to check whether the asset exist in the same locality as shown in the documents. But false documentation was accepted and was considered.
• The third issue is related to feudalism. The assets where they were located were near to land of landlords. They at the time of auction gave a lower price, because to reach the land you had to pass through his land. According to land reforms of Pakistan first right to give an offer before the auction is of the neighboring land holders. So it is the same case here that the person indebted, his land neighbor the land of the landlords, get the lowest price for his land. Most of the time offered price is less than the actionable price that also contribute in increasing problems of bank's recovery. This result in less cash recovery and hence less liquidity at Bank.
• Quality of Land: because they did not visit land onsite which created the problem for them that they did not have the Idea of the land's quality. As we know that cultivable lands must not have the problem of erosion if water flows around the land, Salinity, Rocks, or any other problem that could prevent from cultivating the land. All such problems can add to decrease in the value of land in the market. Secondly if there is any land like the person is owner of the land that lies on hills, they must have any valuable component. Like forests that have value either equal to or more than the amount of loan applied. Or it is ever used for the cultivation of any crop etc.

ChApter # 08: Action plan

8.1) Introduction and General Discussion on Policies

Every Bank does hold basic banking departments ranging from cashier to the Branch Manager to the Area Head and CEO to Board of Directors. This bank also had the same processes as an ordinary bank should have. But we will suggest them to have Credit Risk Department within the domain of Credit Department as it is a new phenomenon in the banking sector nowadays. They should have a Head, subordinate to the Chief Credit Officer and should have the functions such as calculating Risk Adjusted Rate of Return, Full analysis and investigation of the potential borrower's credentials as provided by them. He should direct the team under him to cross check the banks, security agencies, and should visit the area mentioned in application as collateral to ensure actual worth of the underlying asset. It will help them to avoid any chances of the client's default on the loan applied.

The bank should clearly define the goals and objectives of the Credit Department. It is the responsibility of the manager of the credit department to plan and direct the activities of the credit function within the guidelines of Bank Charter. Some of them could be

• Department should increase profits through a better understanding and skillful handling of all credit functions.
• Match risk and reward through customer and financial analysis.
• Compare a customer's financial performance, including current, quick ratios, debt ratios to those of others in the industry.
• Coordinate credit activities with all departments.
• Train and supervise credit department personnel.
• Educate other departments about credit and the credit functions.
• Control operating costs and expenses.
• Reduce collections and bad debt

8.2) Action Plan to follow on Credit Risk Management

To mitigate the Credit Risk on Agricultural loans to Cooperative Societies' Heads, Bank should follow 5Cs of Credit as Credit Advancing Policy. It is a very unique and old criterion that allows you to get whole picture of the prospective borrower. During assessment they should consider the minute factor that can cause a real threat in future of credit period. We shall explain them one by one to show what should be considered in the following part.

8.2.A)Character

The bank should thoroughly study the characteristics of the person as a financial citizen by checking his past loans and their payment patterns. Another tool could be the tax payment trend of the borrower. Bank should notice total debt borrowed by him in past from any financial institution. Delinquent accounts in his ownership in any bank should also be looked for. To further ensure that the character of the person (borrower) is suitable, Bank should visit his living place and cross check the society membership. Bank should check the social and business reputation in the market.

8.2.B) Capacity

Banks must check the status of income statement of the borrower. It is the prime factor before lending to be checked that borrower has the stable income. Financial capacity of the borrower is checked, to assure that he has the capacity to repay the loan with in time and without any pause.

Suitable borrower could be the one who has the sound credit history of repayment. In analyzing Capacity three items must be considered.

i) Stability

The stability of borrower is checked in terms of borrowers' employment in the field and income.

ii) Income Type

The nature of the income should be assured whether its commission based, wages or any other. Moreover many entrepreneurs have seasonal earnings that should also be considered while extending loans.

iii) Income Amount

Banks are mostly concerned with the expenses and revenue statement of Client. They do so because it gives the picture of the repayment ability of borrower after meeting its expenses. It shows that whether the earnings level will be able to meet monthly repayments. And banks should consider whether the prospective client's income decrease or increase and in what pattern.

8.2.C) Capital

Before making advancement the bank must check the capital of the owner. How much capital has been invested by the owner himself? If the owner has invested his own capital in his land then the bank should take a step, and incase the landowner has not invested his own capital then the bank must take up questions and should be cautioned before making advances. The safety and viability of the project is closely linked with the share of borrowers' equity.

In application form there should be a check box, to know whether applicant is investing his own equity or not. If ‘YES' then there should be another space to ask how much equity is being invested by the applicant. Bank should clear policy on the debt to equity ratio this means for how much equity bank will finance the debt required by the borrower.

8.2.D) Collateral

The Bank should accept those assets as Collateral which can be in a position, and has a value which can pay back the loan in case of default of borrower. Time to time check, the market value of the mortgage property, in case the value of the asset declines so measures could be taken to protect the bank. Another measurement is, force sale value should be accurately calculated and the documents of the mortgage property must be studied and investigated properly, if there is any difference, it could be addressed. They can check ownership of the asset from the Office of the Land Database at Tehsil level. The information about value and quality of the land could be taken from neighbor landholders or from any agricultural expert.

8.2.E) Condition

The bank should completely investigate the conditions of the place where financing is done, and then the terms and condition should be set with the borrower. They should provide the borrower quick loan, and with easy process. The process time of application should be reduced so the farmer can get loan in time.

Bank can analyze both borrower and external condition and their effect on loan. Bank should do need assessment of the borrowers demand then determine the amount and interest rate on that amount. It does not mean that farmer be exploited by bank. But bank to secure itself from default risk should correctly analyze the amount needed by the farmer.

As this “C” also include the external conditions, that is the economy, interest rate in economy, government policies and agricultural environment. Our economy is basically more based on agriculture sector and nowadays Government policies are more inclined towards agriculture. That is why Government has recently ordered the financial institutions to focus on agriculture sector.

As a result ZTBL and Punjab Provincial Cooperative Bank along with other commercial banks have increased their share to agricultural financing. This is a positive sign towards increase in agri-financing and Government is promoting subsidized rates to the banks. Other then fund based financing bank can provide them agricultural inputs on Murabaha Financing.

8.3) Operational Risk

8.3.A) Heat map

To make better controls and to avoid operational risk bank should have proper HR department. Basically the control process begins from top level to bottom and then trigger the need to develop new controls from bottom level after full assessment and open communication at all levels. It helps ultimately executives to build new controls and monitor their results as well. Black Wan events like,

1. Manipulation of loan loss reserves
2. Mortgage frauds
3. Securitization frauds
4. Central bank violation
5. Inside loan fraud
6. Theft of fund cashiers

should be accurately assessed from top level to the bottom to better perform the bank operations. And these events help to build better strategy to address Fraud Risks.

Bank should prioritize among these events important ones that can have potential impact whether in future or in current business operations. Heat Map could be used to plot them according to their significance and likelihood. The diagram is drawn in the previous chapter.

8.3.B)Key Risk Indicator Approach

Bank can use this approach to swiftly operate, and avoid any operational risk that could lead to its failure. Examples could be customer complaints, lack of technology, inappropriate Professionals, application and loan procedure etc in a bank. Management must be vigilant to carve-out the possible key indicators in their daily operations as well.

The bank must get-rid of the employee union, the members have mutual interests and understanding which create hurdle when any action is taken against any member of the union, although he is guilty. Most of the time, unions protest in their interest rather than the Bank's interest. It can cause delay in the processes and can cause failure to the process.

8.4) Mortgage Assessment

As discussed above in the 5Cs of credit, collateral discussed the assessment of asset and its documentation in detail.

8.5) Steps to Better Risk Management

It is an overall strategic process in the organization, by applying this model in the Bank they can be in better position to understand risk and can lower its effect. It's a general model to build strategic process to change the risk perceiving mindset and align operations and organize culture in a way to reduce risk or acquiring it and manage, and in result it can help them to retain competitive advantage.

Five steps outlined in the diagram form a dynamic cycle. It can enable Bank to determine capacity and appetite for risk which in result embed risk in all decisions and help the Bank for better risk profiling and then by aligning Governance and organization around risks they can not only mitigate but can effectively and efficiently manage the risk. This effective acquisition and better management of risk can give competitive edge. Companies with a strong culture of risk-adjusted decision making are better positioned to identify and understand changes in their risk profiles, triggering the cycle again. These steps help organization to identify and manage risk at every level from top to bottom.

1. Identify and Understand Your Major Risks
2. Decide which Risks are Natural
3. Determine your capacity and Appetite for Risk
4. Embed Risk in all Decision and Processes
5. Align Governance and Organization Around Risk

Bibliography

Books

Fasih-ud-Din Burni,2007 Introduction to Microfinance in Pakistan and Banking Procedure, Royal Book Company.

Money and Banking in Pakistan 2001, 5th edition, in Javed A.Ansari, 2004, pg.75-88,180-183.

S. Aijaz Husain, History of State Bank of Pakistan 1948-1960, 1992, State Bank of Pakistan, Karachi.

S. Aijaz Husain, History of State Bank of Pakistan 1961-1977, 1994, State Bank of Pakistan, Karachi.

Ciby Joseph, 2006, Credit Risk analysis - A tryst with Strategic Prudence, Tata McGraw-Hill, New Dehli.

Basel II, 2004, Operational Risk 2.0-Driving Value Creation in a Post Basel II Era, in Ellen Davis 2007, pg 6-10

Journals

Kevin B, Andrew F & Ron H., “Owning the Right Risks”, Five Steps to Better Risk Management, September 2008, p. 105-110.

Toby J.F. Bishop & Frank E. Hydoski, “Mapping your Fraud Risk”, Heat Map, October 2009, p. 76.

Internet Sources

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Measuring operational risk Accessed on November 1, 2009 Available at https://www.opriskadvisory.com/docs/Measuring_operational_risk_(4th_QTR_1998).pdf

Impact of Agriculture Credit on Growth and Poverty in Pakistan (Time Series Analysis Through Error Correction Model) Accessed on November 2, 2009 Available at https://www.eurojournals.com/ejsr.htm

The Importance of Credit Risk Management for Banking Accessed on November 2, 2009 Available at https://ezinearticles.com/?id=1102802

Agricultural Mortgage Company Accessed on November 2, 2009 Available at https://ezinearticles.com/?Agricultural-Mortgage-Company&id=1875266

Managing Bank Operations Risk Accessed on November 2, 2009 Available at https://ezinearticles.com/?Managing-Bank-Operations-Risk&id=955453

Managing Operational Risks Accessed on November 2, 2009 Available at https://ezinearticles.com/?Managing-Operational-Risks&id=386606

GUJARAT Collapse of Urban Cooperative Banking Sector Accessed on November 14, 2009 Available at https://www.jstor.org/stable/4413880

Agriculture cooperatives in Gujarat, India: agents of equity or differentiation Accessed on November 14, 2009 Available at: https://www.jstor.org/stable/4029374

Agriculture in Pakistan Accessed on November 15, 2009 Available at https://www.pakissan.com/english/agri.overview/agriculture.termed.backbone.of.national.economy.shtml

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