1. Disaster Preparedness and Management

2. Objectives Create greater awareness for rural banks on how to better manage the impact of natural disasters on their operations. Present options and measures to manage the impact of disaster for both the banks and clients.

3. Framework for Disaster Preparedness and Management Disasters RISKS Rural BanksClients IMPACT

4. Framework for Disaster Preparedness and Management Liquidity Income Portfolio Quality (PAR) RISKS

5. A Framework for A Framework for Disaster Preparedness & Management DISASTERSDISASTERS Banks On Liquidity 1. Temporary decline in inflows from affected clients 2. Temporary increase in outflows to affected clients On Portfolio Quality 3. Medium-term decline in repayment rates and/or new loan demand On Profitability 1. Less collection means less income 2. Less or no disbursement means less generation of profit Clients 1. Temporary inability to earn income 2. Damage to or destruction of income-generating assets 3. Increased basic expenditures 4. Damage to or destruction of household assets 5. Loss of lives IMPACTIMPACT 1. Less savings; possibility of withdrawals 2. Less or no repayment of amortization 3. May need new loans

6. A Framework for A Framework for Disaster Preparedness & Management DISASTERSDISASTERS IMPACTIMPACT Coping Mechanisms Response & Recovery Measures BanksInstitutionalPreparedness Clients Client Preparedness

7. Disaster Preparedness ASSESSMENT OF RISKS Basic Questions to Answer 1. Are my clients located in a disaster-prone area? 2. Is my institution located in a disaster-prone area? Institutional Preparedness Adopt a Disaster Preparedness Manual Have in placed a working MIS Observe Liquidity planning and management Strictly implement a portfolio management system Conduct periodic staff monitoring and training Client Preparedness Assess preparedness of clients Anticipate possible needs in line with continued access to financial services

8. Disaster Preparedness Manual - Access to information - Infrastructure and equipment - Staff security - Communications - Access to clients - Market shocks Disaster Preparedness

9. Install adequate and functioning management information system (MIS) - Ensure the safety of data - Ensure adequate capacity to offer preparation, response and continue banking services for clients - Train human resources Disaster Preparedness

10. Liquidity management measures - Observe strict asset and liability management - Ensure that bank has ready credit lines which the bank can draw from in times of emergencies -Negotiate for flexible conditions on existing loans with fund providers Disaster Preparedness

11. Ensure strict portfolio management system - Carry out regular loan portfolio analysis (daily, weekly, monthly) - Classify loans based on PAR Ageing - Establish trigger points (PAR ceilings by AO, Branch) - Observe delinquency alarm signals - Observe proper loan loss provisioning Disaster Preparedness

12. Provide periodic refresher training on the bank’s disaster preparedness plan to staff Disaster Preparedness Disaster preparedness is not a one- time process. It is a process that happens daily in many facets of the bank’s activities.

13.  Before deciding on recovery measures to take: Conduct Portfolio Review Current vs. Delinquent loan account  New vs. Repeat loans  Determine risk exposure against savings balance Conduct on-site field verification  Verify damage to whole community, and client’s business and household  Establish client’s ability to re-establish business  Ascertain other sources of income WHEN DISASTER STRIKES: Disaster Management

14. Modified Policies and Procedures Imposing a moratorium on lending Restructuring loan Refinancing Write-off Product Modifications Withdrawal of compulsory savings Provide emergency loans Shift from group-based liability to individual liability during a disaster Disaster Management Response Measures/ Options

15. Disaster Response Measures & Options Response MeasureConsiderationsPossible Impact I. Moratorium on Lending a) General – New & Repeat Loans? b) Selective – New Loans only? Staff will require training to implement this procedure particularly on how and when to inform clients to ensure that it does not create a crisis of confidence Should define the time period for implementing the policy May result to a temporary excess of liquidity If not done properly, may result to a crisis of confidence May negatively affect bank’s ability to generate income Modification of Policies and Procedures

16. Disaster Response Measures/Options Response MeasureConsiderationsPossible Impact II. Options for Restructuring Loans Option 1: Bank continues to collect interest payments while principal repayments are restructured MIS must be able to track interest payments without principal payments MIS must be capable of altering loan terms Liquidity projections of the bank must be altered Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Interest payments minimizes impact of delayed payments to the banks liquidity

17. Response MeasureConsiderationsPossible Impact II. Restructure Loans – Option 2: Bank charges additional interest payments to compensate for extended loan period MIS must be capable of altering loan terms Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them This puts greater strain on liquidity as no payments is expected for a period of time This however helps to reduce losses as full interest payments are made Allows clients sufficient time before payments are required Disaster Response Measures/Options

18. Response MeasureConsiderationsPossible Impact II. Restructure Loans – Option 3: Bank extends the term of the loan by, say, 1 month during which time no additional interest is charged MIS must be capable of altering loan terms Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them This strategy foregoes potential interest income to compensate for possible losses Allows severely affected clients time before payments are required May affect bank’s profitability Disaster Response Measures/Options

19. Response MeasureConsiderationsPossible Impact III. Refinancing Providing an additional loan to an existing good client to assist in the full recovery of his/ her business MIS must be capable of capturing additional loan to client Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Bank is liquid enough to service additional loan requirements Bank is able to keep its good clients Disaster Response Measures/Options

20. Response MeasureConsiderationsPossible Impact IV. Write-offCandidates for write off are loan accounts with PAR more than 90 days Bank has adequate loan loss reserve A special unit or dedicated account officers are in place to pursue remedial management measures Flexibility to negotiate with clients on various ways to settle delinquent account If collected, it is realized as other income Written-off account is recognized by BIR as an expense; hence lesser income tax for the bank Instead of following-up on non-productive accounts, AOs can instead generate new loans Disaster Response Measures/Options

21. SavingsContextWhat to do Compulsory Savings In normal times, used as a substitute collateral, hence tied to client’s loan In times of disaster, clients should allowed access to address emergency needs Make compulsory savings semi-flexible (allow a percentage of the savings balance to be withdrawn by the client) Caution: Don’t ask clients to return all amounts withdrawn before giving client another loan Voluntary Savings Used for asset-building purpose which the client can access anytime One of the best coping mechanisms for clients during times of disasters Design an “emergency needs” savings product that clients will regularly save for with affordable amounts, with no restrictions on withdrawals Savings: One of the best coping mechanisms for clients

22. Disaster Response Measures/Options Response Measure ConsiderationsPossible Impact I. Withdrawal of Compulsory Savings MIS must be capable of tracking extraordinary withdrawals Consider looking for alternative sources of funds Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Will have an impact on the banks liquidity situation However, this will enable the bank to earn loyalty of its clients, and may encourage more savings especially if CS is made semi-flexible Product Modification

23. Disaster Response Measures Response Measure ConsiderationsPossible Impact II. Provide Emergency Loans MIS must be capable of tracking multiple loans of different products from one client Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Will require additional sources of funds since additional disbursements are to be made before the projected payment of outstanding loans This loan will assist clients in good standing but will be a burden to those with history of missed payments

24. Response Measure ConsiderationsPossible Impact III. For group lending: Shift from group- based liability to individual liability, as an interim policy of the bank For members of centers that demonstrate varying levels of repayment capacity May require designing of a transition product MIS must be capable of handling the change to individual loans The bank should be prepared to handle a substantial increase in transaction flow Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Impact on liquidity depends greatly on clients’ response It may encourage prompt repayments from clients who are able to, but also removes the guarantee for those who are not It may encourage payments and increase loan disbursements Disaster Response Measures/Options

25. Non-Financial Emergency Responses Before a disaster: Training on Risk/Disaster awareness Information Dissemination After a disaster: Distribution of emergency/relief supplies Disaster Management Response Measures/ Options

26. Non-Financial Emergency Responses Response Measure ConsiderationsPossible Impact The banks’ loan portfolio must be under control and liquidity position adequate before venturing to these Assess the banks human resource capability to undertake additional tasks Additional funds to cover costs of these services Accounting system must be able to track costs separately Clients who do not receive sufficient explanation as to why, how and for how long these services are offered could start to see the bank as a relief agency and fail to make future payments Getting involved ensures the survival of the bank during and after the crisis Disaster Management Response Measures/ Options

27. Non-Financial Emergency Responses Response Measure ConsiderationsPossible Impact The banks’ loan portfolio must be under control and liquidity position adequate before venturing to these Assess the banks human resource capability to undertake additional tasks Additional funds to cover costs of these services Accounting system must be able to track costs separately Clients who do not receive sufficient explanation as to why, how and for how long these services are offered could start to see the bank as a relief agency and fail to make future payments Getting involved ensures the survival of the bank during and after the crisis Disaster Management Response Measures/ Options

28. Reference material: Miamidian, Arnold, Burrit and Jacquand, Surviving Disasters and Supporting Recovery: A Guidebook for Microfinance Institutions, The World Bank, February 2005 Disaster Preparedness and Management