Managing Delinquency Training / Workshop Identifying Root Causes of Delinquency Workshop 2 4 Caselets

Objectives of the Activity From each case: To identify common causes of delinquency To discuss and share opinions on what the banks can do: a. Preventive Measures b. Remedial Measures

Workshop Guide Form the participants into 4 groups Each group will be given a caselet to analyze From the caselet, list down the following: a. Problem/s b. Possible Causes c. Preventive and remedial measures Choose a leader to report the results of their outputs.

Workshop Output Format

Workshop Groupings Group 1 Members Put here the names of group mates Group 1 Members Put here the names of group mates Group 2 Members Put here the names of group mates Group 2 Members Put here the names of group mates

Workshop Groupings Group 3 Members Put here the names of group mates Group 3 Members Put here the names of group mates Group 4 Members Put here the names of group mates Group 4 Members Put here the names of group mates

Caselet 1 Andres is the best performer of the 6 AOs of Luna Branch of XYZ Bank for the past 2 years. He handles 220 individual loan clients and 5.8M loan portfolio and earns incentives, given his case load. His supervisor has so much confidence in him that he seldom visits Andres in the field or scrutinizes his clients loan applications. Latest performance evaluation revealed the following: a) PAR rate= 15% b) most of the defaulting clients are from 3 rd & fourth cycles c) PAR over 90 days= 12% WHAT DO YOU THINK WENT WRONG?

Caselet 2 Center Beauty, already in its 8 th loan cycle, is having delinquency problems. A former Best Center awardee, member and loan approval responsibilities are lodged with the center officers. Most center members are able to get a loan worth P20,000 each. Payments are directly paid to the center president or treasurer one day before or during the center meeting. Clients cannot leave the center meeting unless the center collection is complete. The center chief gets 2% of the total loan releases upon full payment of all center members loans. No records are kept in the center to monitor internal arrears. During the last six months, attendance in the center meeting had been decreasing.

Caselet 3 ABC Bank is having delinquency problems in its microfinance department. Internal audit revealed the following: 5 out of 10 clients have faulty and deficient CIBI, such as incomplete information (address, location of business and family background of the client). Most of the clients’ references were not verified and validated. Random examination of folders also revealed some missing documents like PNs; application forms; and disclosure statements are not properly accomplished with erasures or spaces left blank. Documents in some credit folders were missing from the files. Cash flow analyses of repeat borrowers were merely copied from the previous loan record. While the policy limits increases for repeat loans to only 30%, in actual practice, no such limit was applied on repeat loan increases. Some repeat loans were increased by 50% to 100% of the previous amount. The branch CreCom seldom disapproves loans, new or repeat. The Crecom does not use the Client Status Report, relying solely on the recommendation of the AOs.

Caselet 4 Nanay Adela is the Center chief of Ligaya Center, which is composed of more than 100 members. Bank record shows that the center has a good repayment performance since its formation in % of its membership are already in their 6 th loan cycle or more, with an average of P25,000 on their last loan. These members are already considered as good performers by the bank. As incentive, the bank offered additional micro-agri loan to qualified members. 20 of the 50 qualified members with farming activities applied for the agricultural loan. The center chief together with the AO processed 60 loan applications of P30,000 each. The center chief used the names of the other qualified members, and collected the loan proceeds for her own use. In return, she gave the equivalent of 5% of the loan to the “dummy borrowers” for letting her use their names. The AO also received 10%. As bank policy, center chiefs may get 1% of the total loan released to center members at the end of the loan term, on the condition that there is no missed amortization and all loans are fully paid. Group liability is shouldered mainly by the center chief. Two months after the release of agricultural loans, amortization default for both the group loan and agricultural loan started. On the 4 th month, the Supervisor visited the center and found out that Nanay Adela already left the place.

Causes of PAR P A R INTERNAL EXTERNAL

Possible Causes Case 1- Lack of Supervision Case 2- Possible Fraud at Center Level Case 3- CIBI, Cashflows not properly conducted (lapses by the AO and Supervisor) - No proper validation especially for repeat loans -Deviation from policies Case 4- Internal control not in place; lack of supervision

Thank You