enhanced by mlspineda for mabs preventive and remedial measures enhanced by mlspineda for mabs

Enhanced by MLSPineda for MABS

Preventive and Remedial Measures



“A focused approach to PAR fighting”


Causes of Delinquency

• Factors within the control of the bank that contribute to loan delinquency: Poor client selection Poor loan management Poor credit discipline Poor service delivery Poor product design



FactorsFactors CharacteristicsCharacteristics

1. Poor Product Design

• Lack of incentives for borrowers and staff

• Automatic step-up increases in loan amount

• Loan term and payment schedule do not match the borrower’s cash pattern• Inadequate penalty for late payments




2. Poor Service Delivery

• Delays in loan releases, especially repeat loans

• Suspension of loan disbursements – leads client to think that they cannot rely on the bank for their borrowing requirements• Failure of the bank to comply with the agreed mode and schedule of payment




3. Poor Client Selection

• Lack of information, or improper CIBI which lead to incomplete or misleading information• Accommodations – giving special treatment to friends or preferred clients• Erroneous or lack of cash flow analysis• Business risk not properly analyzed




4. Poor Loan Management

• Lack of, or inaccurate MIS to track reports on installments due, outstanding balance, aging of delinquent loans, and portfolio-at-risk

• Lack of manpower to pursue collection

• Sluggish follow-up of delinquent accounts




4. Poor Loan Management

• Infrequent client visits to detect early signs of delinquency

• Faulty collection system

• Faulty internal control system




5. Poor Credit Discipline

• Bank management and staff are tolerant of past due loans due to a false notion that:

- Large spreads give allowance for

past due

- Past due means outstanding loans

that are past maturity


Seven Essential Elements to Delinquency PreventionSeven Essential Elements to Delinquency Prevention

• The credit service must be valued by the client• Careful client screening• Field staff (AOs) and clients must understand that late

payment is not acceptable• The consequences of late payment must be sufficiently

unappealing to clients (penalty)• MFIs need timely and accurate management information

system• MFIs must be alert for changes in their client’s business

and household circumstances which may affect their capacity to pay

• Delinquency needs effective follow-up proceduresDelinquency needs effective follow-up procedures


Delinquency “RED FLAGS” (warning signals)

• BUSINESSBUSINESS– Reduced inventory– Presence of other loan

collectors– Entry of bigger/other

competitors– Reduced business days or

hours– Lay-off of workers– Replacement of workers– Old, dilapidated & idle

equipment– Abandonment of the family

business by the spouse

• HOUSEHOLDHOUSEHOLD– Family problems– Termination of spouse’s

employment– Illness / hospitalization of a

household member– Large withdrawal from

bank deposit


Delinquency “RED FLAGS”(warning signals)

• Sectoral TrendsSectoral TrendsPerformance of the major sources of household income ( e.g. crop/poultry & livestock farming, fishing, factories, etc.)

• Seasonal TrendsSeasonal TrendsPerformance of specific types of microenterprise in the community ( e.g. fish vendors, carenderia near schools, etc.)

• Other Warning SignalsOther Warning Signals– Change in Borrower’s Attitude– Change in Borrower’s Lifestyle


Remedial Management ToolsRemedial Management Tools

• Alarm Signals

• Legal Processes


Delinquency Alarm Signals : Alarm Signal No. 1 - Payment is delayed one (1) day

Actions to be TakenActions to be Taken

Account Officer MFU Supervisor Branch Manager Credit Committee

Determine cause of non-payment and informs Supervisor and BM

Monitor & follow up action taken by AO to effect loan payment

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 TakenActions to be TakenAccount Officer MFU Supervisor Branch Manager Credit

CommitteeSpeak 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


CommitteeAO (together with Supervisor & BM) deliver 1st Warning Letter

Supervisor signs 1st Warning Letter; accompanies AO in delivering letter

BM signs 1st 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


CommitteeAO delivers 2nd Warning Letter

Supervisor signs 2nd Warning Letter

BM signs 2nd Warning Letter

Monitors action taken by MFU and BM on delinquent accounts


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


Committee

AO delivers 3rd/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, otherwise client losses option to re-schedule payments



LEGAL PROCESSES


Steps in enforcing Legal Action

1. Ensure that the borrower has received all three (3) demand/warning letters

2. File complaint in the Barangay Court• Filing fee P15 – 150, depending on the barangay• Letter of Complaint

3. Face borrower in Court• Consider loan repayment options


Loan Repayment Options

Borrower ActionBorrower Action Bank OptionBank Option

Borrower is unable to pay at the moment

Payment arrangement scheme

Borrower is able to pay but, unwilling at the moment

Borrower to sign a Voluntary Voluntary Offer to Surrender (VOS)Offer to Surrender (VOS)

Borrower is able to pay but, unwilling to pay

Borrower to provide collateral (e.g. CM, REM, etc) or PDC


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


Steps in enforcing Legal Action

4. During the court proceedings– Barangay clerk/secretary takes note of the

proceeding & the Agreement– Both parties (bank rep & borrower) sign the

Agreement– Barangay captain & secretary affix their signatures

as “witnesses”

5. Enforcement of the Court-mandated Agreement


Action on Court-mandated Agreement

Borrower ActionBorrower Action Bank OptionBank OptionBorrower pays loan in full Bank 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



Borrower ActionBorrower Action Bank OptionBank OptionBorrower does not abide by agreement

Request Barangay Court to issue 2nd (up to the 3rd) summon.

Borrower faces Court a 2nd 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!



Borrower ActionBorrower Action Bank OptionBank OptionBorrower refuses to face court after 2nd and/or 3rd 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



Borrower ActionBorrower Action Bank OptionBank Option

Borrower refuses to face court after 2nd and/or 3rd summon

Pursue a complaint with the Municipal/City Court for : (i) Collection of Sum of Money; and (ii) “Estafa” (abuse of confidence) for purposely misleading the bank.


To Summarize …



• Borrower forgot to pay

• Borrower not able to pay

• Borrower not willing to pay


How to handle Delinquency

Bank ActionBank ActionBorrower forgot to pay Frequent visit

Frequent reminder

Borrower not able to pay Supportive measures:1. Extension of payment

2. Payment arrangement schemes

3. Shared payment with co-makers

Borrower not willing to pay

TAKE LEGAL ACTION


Write-offs

• Basic Policies• BSP Circular 409 Loan Loss Provisioning• BSP Circular 463 New Guidelines for Loan

Write-offs• delinquent accounts for 91 days or more may be

written-off. • Adequate provisions properly set-up based on

BSP Circular 409

• Write-off Procedures


Write-offs

Write-off proceduresI. Implementation of the delinquency “alarm

signals”1. Complete documentary requirements including

demand letters, call slips etc.2. Collect from co-makers3. Apply savings balance that guarantees the loan

(through the debit authority of client’s withdrawal slip)

4. Go after serialized assets5. File complaint for collection with the barangay or

local court


Write-offs

II. Provide a list of accounts recommended for write-off and have it approved by the bank’s BOD;

III. Send a letter of intent for write-off to BSP together with the list under RB/COB Form No. 23 (BSP form) twenty-five days prior to the actual write-off.


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

enhanced by mlspineda for mabs preventive and remedial measures enhanced by mlspineda for mabs

Documents

mabsdelinquency alarm

loan delinquency

clients business

family business

household circumstances

clients penaltymfis

borrowers lifestyleenhanced

borrowers attitudechange