GUIDELINES FOR PAR ANALYSIS Mindanao Supervisors’ Forum Dynasty Court Hotel, Cagayan de Oro City August 4-5, 2005

Possible CausesIndicatorsActions to be taken Rapid portfolio expansion while loan procedures still cumbersome  Productivity per AO below 150 clients  Disbursement / processing of first loans >7days  Disbursement/ processing of repeat loan > 2 days  Approval centralized in a Bank Credit Committee Review loan procedures to eliminate redundancies Reduce info requirements for repeat loans Eliminate unnecessary documentation and paperwork Simplify loan application Simplify CIBI  Decentralize loan approval/ discretionary approval at branches with PAR 7 <3%. IF PAR 7 IS <3% BUT GROWING OVER THE PAST THREE MONTHS

Possible CausesIndicatorsActions to be taken Rapid portfolio expansion while understaffed Weakening client monitoring and collection Weakening management supervision  Productivity p/ AO near or above150 clients  Client visits below 1 per month  Proof of loan collection (e.g. collection letters) are non existent  Hire additional AOs  Staff training

IF PAR 7 IS <3% BUT GROWING OVER THE PAST THREE MONTHS Possible CausesIndicatorsActions to be taken Rapid portfolio expansion while poor MIS  MIS reports are not timely/accurate  MIS reports are not broken-down by AO  MIS reports are not broken-down by branch  If problems with timeliness and accuracy can not be solved within 30 days: The bank need to resort to manual reporting on portfolio quality Slow down expansion until MIS if full operation  Break down reports by branch and AO

IF PAR 7 IS >3% IN ALL BRANCHES (Something is wrong with the methodology, there is a need to review it) Possible CausesIndicatorsActions to be taken Likely problems with the credit policies and procedures Ranges or limits on loan amounts are not well defined Loan increases (percentages) for repeat loans are too high Terms are excessive or too short Weak guarantee structures Policies on loan follow up and collection are not well defined, Poor procedures on loan analysis  PAR concentrated on repeat loans  PAR concentrated on large amounts (10,000+)  Manual does not define how often clients are to be visited or steps to be taken in case of arrears  Review credit policies to ensure they are well defined  Review credit policies to ensure they follow best practices  Review and adjust policies on amounts Reduce limits on first loans Reduce increases of repeat loans  Review and clearly define steps on loan monitoring and collection  Review and clearly define steps on loan analysis

IF PAR 7 IS <3% IN ALL BRANCHES (Something is wrong with the methodology, there is a need to review it) Possible CausesIndicatorsActions to be taken Banks do not comply with defined P&P due to:  Lack of adequate training of AOs, branch managers, bank managers.  Lack of follow up on implementation  Weak supervision Lack of will of bank managers to comply with P&P Management has introduced unauthorized changes to P&P Lack of supervision of upper management on branch managers and compliance with P&P  PAR concentrated on new or untrained AOS  PAR concentrated on new or untrained branches  P&P compliance analysis indicate high deviation across AOS and branches  Amount and/or quality of training are deficient.  P&P compliance analysis indicate high deviation across AOS and branches  PAR concentrated on repeat loans  PAR concentrated on large amounts (10,000+)  AOs and branches do not have a credit manual available.  Bank needs to review credit policies and procedures  Supervisors, branch managers and credit committee needs to monitor compliance with P&P  Training of AOS, supervisors, and branch managers on P&P

IF PAR 7 IS <3% IN ALL BRANCHES (Something is wrong with the methodology, there is a need to review it) Possible CausesIndicatorsActions to be taken Poor collection and client monitoring  Client visits below 1 per month  Proof of loan collection (e.g. collection letters) are non existent  Strengthen Main office monitoring on branches to ensure compliance and early problem detention  Supervisors, branch managers and credit committee needs to monitor compliance with P&P Deficient MIS  MIS reports are not timely/accurate/  MIS reports are not broken-down by AO  MIS reports are not broken-down by branch  If problems with timeliness and accuracy can not be solved within 30 days: The bank need to resort to manual reporting on portfolio quality Slow down expansion until MIS is in full operation  Break down reports by branch and AO

IF PAR 7 IS OVER 3% IN JUST ONE OR TWO BRANCHES Possible CausesIndicatorsActions to be taken Deviation from P&P Lack of adequate training of AOs, branch managers and supervisors Poor branch supervision from main office  PAR concentrated on new or untrained branch managers and AOs  PAR concentrated on new or untrained branches  P&P compliance analysis indicate high deviation among the high PAR branches and AOs  Strengthen Main office monitoring on affected branches to ensure compliance and early problem detection  Supervisors, branch managers and credit committee needs to monitor compliance with P&P

IF PAR 7 OF A PARTICULAR BRANCH IS >3% BUT AFFECTING FEW ACCOUNT OFFICERS ONLY Possible CausesIndicatorsActions to be taken Deviation from P&P Lack of adequate training of AOs Poor supervision from branch manager and supervisor  PAR concentrated on new or untrained AOs  P&P compliance analysis indicate high deviation among those high PAR Aos  Training of AOs, supervisors  Strengthen monitoring of branch manager, product manager and supervisors on the high PAR AOs to ensure compliance and early problem detection  Strengthen approval/review of loans submitted by high PAR AOs

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