Zero Tolerance Against Delinquency Alarm Signal System What to do at the Onset of Delinquency

Session Objective  Discuss indicators or “alarm signals” of delinquency  Review strategies to respond timely and effectively to these alarm signals to prevent delinquency from escalating At the end of the session, account officers should be able to better detect causes of delinquency and have a “toolkit” of measures to apply to respond to and address delinquency

Zero Tolerance against Delinquency  Zero tolerance means NO LEVEL OF DELINQUENCY IS ACCEPTABLE!  It is the attitude of the bank management & staff towards loan delinquency – no level of late payment is acceptable. It is an institutional culture in which late payments are totally unacceptable  The bank will aggressively pursue past due clients, whatever the cost, to establish and maintain zero loan delinquency.

Remedial Management Tools Alarm Signals Legal Processes

Delinquency Alarm Signals

Delinquency Alarm Signals : Alarm Signal No. 1 - Payment is delayed one (1) day Actions to be Taken Account OfficerMFU SupervisorBranch ManagerCredit Committee Determine cause of non-payment and informs Supervisor and BM Monitor & follow up action taken by AO to effect loan payment. Collect from spouse or co-maker Follows up loan payment and asks borrower to pay penalty fee within 24 hours of default

Delinquency Alarm Signals : Alarm Signal No. 2 - Payment is delayed three (3) days Actions to be Taken Account OfficerMFU SupervisorBranch ManagerCredit Committee Speak with spouse/co- maker and arrange payment Supervisor accompanies AO during visit to client Monitors progress of actions taken by MFU re: clients with delayed payments Withdraws funds from client’s mandatory savings to cover loan payment Reports clients with delayed payments during weekly CreCom meeting

Delinquency Alarm Signals : Alarm Signal No. 3 - Payment is delayed one (1) week Actions to be Taken Account OfficerMFU SupervisorBranch ManagerCredit Committee AO (together with Supervisor & BM) deliver 1 st Warning Letter Supervisor signs 1 st Warning Letter; accompanies AO in delivering letter BM signs 1 st Warning Letter Monitors action taken by MFU and BM on delinquent accounts Demand payment of delinquent installment AO validates reason for default BM considers re- scheduling payment, based on AO verification of reason for default.

Delinquency Alarm Signals : Alarm Signal No. 4 - Payment is delayed two (2) weeks Actions to be Taken Account OfficerMFU SupervisorBranch ManagerCredit Committee AO delivers 2 nd Warning Letter Supervisor signs 2 nd Warning Letter BM signs 2 nd Warning Letter Monitors action taken by MFU and BM on delinquent accounts Demand payment of delinquent installment Provides CreCom weekly update on PAR collection efforts BM goes with AO to visit client BM informs client of drastic measures that the bank will take (blacklist client, file case in Barangay court, enforce Security Agreement/CM)

Delinquency Alarm Signals : Alarm Signal No. 5 - Payment is delayed three (3) weeks Actions to be Taken Account OfficerMFU SupervisorBranch ManagerCredit Committee AO delivers 3 rd /Final Warning Letter signed by Branch Manager Implement “drastic measures” indicated in Signal #4. Monitors implementation of “drastic measures” indicated in Signal #4 Advise client to talk to bank management to avoid legal action, other client losses option to re-schedule payments Implement “drastic measures” indicated in Signal #4.

LEGAL PROCESSES

Steps in enforcing Legal Action 1.Ensure that the borrower has received all three (3) demand/warning letters. Loan documents should be complete and in order in assuring a successful legal action and recovery. 2.File complaint in the Barangay Court Letter of Complaint Be ready with loan repayment scheme or program to be signed by the borrower 3.File complaint with the Local Court

NOTE : What is a Voluntary Offer to Surrender? A document signifying the intent of the borrower to surrender any of his/her valuable item(s) on a specified period in case he/she fails to forward the full payment of the loan on an agreed date. The bank can sell the item(s) in case the borrower fails to pay the loan 5-10 days after surrendering the item(s). Not a legal document, but binding. The ACT only becomes legal once the borrower signs an Authority to Sell; Surrendering the item(s) does not extinguish the loan; loan is considered paid once the bank receives cash in payment for the loan

Action on Court-mandated Agreement Borrower Action Bank Option Borrower pays loan in fullBank closes account. NOTE: NO RELOANS to borrowers brought to court. Borrower surrenders item/s specified in VOS Keep visiting client/remind about loan payment Have borrower sign Authority to Sell, then sell item/s

Action on Court-mandated Agreement Borrower Action Bank Option Borrower does not abide by agreement Request Barangay Court to issue 2 nd (up to the 3 rd ) summon. Borrower faces Court a 2 nd time Determine the cause(s) of failure to pay and means of paying, OR determine the cause(s) of refusal to surrender the item(s) specified in the Voluntary Offer to Surrender DO NOT GIVE BORROWER ANY OPTION OTHER THAN PAYING THE FULL AMOUNT IN LESS THAN 3 DAYS!

Action on Court-mandated Agreement Borrower Action Bank Option Borrower refuses to face court after 2 nd and/or 3 rd summon Request barangay court to forward the complaint to the Lupon (barangay council) for deliberation Request barangay court to file a “Contempt of Court” decision against the client Request Lupon to issue a Certification signifying the failure of the barangay court to settle the matter due to the refusal of the borrower to cooperate

Action on Court-mandated Agreement Borrower Action Bank Option Borrower refuses to face court after 2 nd and/or 3 rd summon Pursue a complaint with the Municipal/City Court for : (i) Collection of Sum of Money.

To Summarize …

Delinquent Borrowers can be Classified into 3 Categories: Borrower forgot to pay Borrower not able to pay Borrower not willing to pay

How to handle Delinquency Bank Action Borrower forgot to payFrequent visit Frequent reminder Borrower not able to paySupportive measures: 1.Extension of payment 2.Payment arrangement schemes 3.Shared payment with co- makers Borrower not willing to pay TAKE LEGAL ACTION

REMEMBER: Constant follow-up is one of the keys to preventing and remedying delinquency.