Presentation on theme: "Root Causes of Delinquency, Preventive and Remedial Measures"— Presentation transcript:
2 Root Causes of Delinquency, Preventive and Remedial Measures Managing DelinquencySession 2:Root Causes of Delinquency,Preventive and Remedial Measures
3 P A R Causes of PAR EXTERNAL INTERNAL Put on the last slide for the CASELETs: COPY3
4 What causes PAR? ENVIRONMENT PEOPLE PROCESS PRODUCT/ POLICY Natural CalamitiesLack of trainingIncomplete loan documentationProduct not suited to the needs of the marketBankruptcyWeak supervisionInadequate loan loss provisioning“Copy and paste” product designEconomicSlowdownDeviation from policies and proceduresPut on the last slide for the CASELETTs: COPYCIBI short-cutMigrationFraud
5 Strategies to Mitigate the Effect Environment-relatedCauses of PARStrategies to Mitigate the EffectRemedial MeasuresArea is hit by natural disasters like typhoon, floods, excessive rains and volcanic eruptions.Prudent loan approval during typhoon seasonHave a manual ready that spells out what to do when disaster strikes (what do we do with clients affected; what do we do keep the records safe. etc.)Design a savings product specifically for loan payment when a client missed payments due to natural disasterDetermine if the clients have the capacity to payLoans can be restructuredWrite off accounts for the clients no longer in the are and those without capacity to pay.(Refer to Disaster Preparedness and Remedial Management Guidelines at
6 Preventive Strategies People-relatedCauses of PARPreventive StrategiesRemedial MeasuresLack of or inadequate training of staffProvide necessary trainings and exposure before deploying field staff for the job. Having the know-how and skills make for more confident and productive field staff.Conduct training needs assessmentTrain AOs to improve their product skills; train Supervisors to improve their management & people skillsInstitutionalize zero tolerance practices and discipline against loan delinquencyTeach AO to analyze their portfolio
7 Preventive Strategies People-relatedCauses of PARPreventive StrategiesRemedial MeasuresMF Supervisors lack management and leadership skillsPromote people based on both technical and leadership skillsObserve how candidates for supervisory position perform their tasks in the fieldTrain supervisors for leadership, people management and report analysis.Conduct training needs assessmentTrain Supervisors to improve their product & people skillsInstitutionalize zero tolerance practices and discipline against loan delinquency
8 Preventive Strategies People-relatedCauses of PARPreventive StrategiesRemedial MeasuresFast turnover of staff directly involved in MF operations:Low compensation packageunrealistic targets setnew field staff are assigned to handle difficult accountsOffer compensation package that is commensurate with AO’s role in generating income for the bankDon’t assign new AOs to handle problematic accounts.Implement standard targets Aos should be able to attain.Example: Group lending# of active borrowers:# of new per month: 20 clients# of centers: 12 centers# of member per center: 25PhP loan portfolio = determine on the basis of profitabilityConduct exit interviews of staff who are resigning to know reasons for leaving; gather their opinions on areas for improvementReview position classification & compensation package for account officers vis a vis the minimum wage in the area. Raise AO basic wage higher than min. wageDetermine the loading per staff and adjust the load based on difficulty, distance and market in the area.
9 Preventive Strategies People-relatedCauses of PARPreventive StrategiesRemedial MeasuresDeviation from policies and procedures because no one bothers to check!(mostly from inadequate supervision)Conduct monitoring through un-announced spot visit or temporary take over of an AO’s area of responsibilitySupervisor to conduct actual field validation especially of bigger loan amounts; define the loan size where supervisor validation is a MUSTInternal audit to provide regular audit checks and recommend improved processes and procedures.Conduct fast and reliable compliance review or auditDefine & Implement corresponding sanctions for deviations in policies and proceduresUn-announced spot visits especially to branches and AOs with unusually high PAR
10 Preventive Strategies People-relatedCauses of PARPreventive StrategiesRemedial MeasuresFraud committed by bank staff and/or by borrowers(details to be discussed in Fraud Management Workshop)Ensure that basic internal controls are in place (such as making sure that collections for the day are accounted and remitted within the day)MF Supervisors should monitor and supervise field staff activities through spot visits.Internal audit should conduct regular reviews.Adopt policy of reshuffling staff to avoid too much familiarity with the clientsConduct audit checks and spot visitsClearly define sanctions against fraudUse low-cost SMS messaging to inform borrowers of payments received or not received on payment date; encourage clients to respond back
11 Preventive Strategies Process-relatedCauses of PARPreventive StrategiesRemedial MeasuresPoor documentation are acceptable practice, such that loans with incomplete loan documentation are approvedShort-cuts in CIBI processConduct process audit and compliance review (MF supervisor/ Internal Audit)Use updated document checklistsand process trackers to all loan applications to help identify the gaps.Conduct process audit and compliance review
12 Preventive Strategies Process-relatedCauses of PARPreventive StrategiesRemedial MeasuresDelays in implementing the alarm signalsExample: Step to apply savings to pay for missed payments is taken too lateEnsure timely implementation of alarm signals:reviewing the list of delinquent accountsmonitoring the steps taken for each account in a trackerPAR Classification sheetPAR CalendarPAR Visit reportClassify delinquent accounts as to ageVerify the causes for missed paymentsList in a tracker the steps already taken to collect missed paymentsValidate whether account is still collectible or not.Supervisor or Internal Audit to validate this report.Based from findings, decide the appropriate remedial measure
13 Preventive Strategies Process-relatedCauses of PARPreventive StrategiesRemedial MeasuresInadequate loan loss provisioning such that long overdue accounts could not be written offFollow provisioning standardCurrent %1-30 days %31-60 days %61-90 days %Above 90 days 100%(BSP Circular 409)Book adequate loan loss provision monthlyClassify and validate accounts that are already beyond 90 days and schedule for write off.
14 Process-related (affecting Group Lending) Causes of PARPreventive StrategiesRemedial MeasuresPractice of conducting follow-up collection that extends until late hours making Account Officers unproductive and burnt out, and harass & embarass clientsImplement standard time management for Account Officers.Eliminate the “rescue” or “sit down” method of collection.Implement zero tolerance practices and Alarm Signals – close follow up of clients.
15 Process-related (affecting Group Lending) Causes of PARPreventive StrategiesRemedial Measures“Tapal” or “abono” hides arrears.These internal-arrears are not monitored by the bank.Clients who are recipients of “abono” manage to get higher loan amount from the bankMonitor actual repayment performance of members in group lending with a collection monitoring tool.A member might have a record of 100% payment in the bank’s records, but actual payments maybe due to “abonohan” or “tapal” systemSupervisors should conduct actual field validation of member’s repayment performance during center meetings;Enforce the recording & monitoring of internal arrears to avoid giving bigger loans to clients that have hidden delinquency.
16 Internal Arrears Monitoring Tool Date of the Transaction: ___ClientsAmount of Weekly PaymentInternal ArrearsNAME OF BORROWERPRINCIPALINTERESTSAVINGSTOTALBalance, last weekThis weekPrepared by : Center TreasurerNoted by: Account Officer
17 Preventive Strategies Product-relatedCauses of PARPreventive StrategiesRemedial MeasuresLoan product no longer responds to what the market wantsDo not copy loan product lock stock and barrel;Design loan products based on market survey of market demand and preferencesConduct a review of the existing loan product operations, policies and proceduresWhen offering group loan product, bank should have a plan and strategy for graduating clients to a transition or individual loan product.Transition qualified clients