Managing Delinquency

LOAN PORTFOLIO ANALYSISLOAN PORTFOLIO ANALYSIS

Session 1

Session ObjectivesSession Objectives

Read and interpret MIS reports such as the PAR aging reports effectively

Use portfolio analysis to better manage clients

Enhance decision-making skills to improve portfolio quality

Loan Portfolio Loan Portfolio AnalysisAnalysis

Rationale

“Your loan portfolio is the biggest income- generating asset of your bank”

How important is Loan Portfolio Analysis in Microfinance Operation?

Microfinance loans are potentially more volatile-- can show rapid deterioration in arrears – and

the absence of collateral guarantees offers less/difficult recourse in the recovery process. 

Loan Portfolio Loan Portfolio AnalysisAnalysis

In order to manage risk and minimize delinquency, Management should conduct a regular analysis of its loan portfolio

Loan Portfolio Loan Portfolio AnalysisAnalysis

Why do portfolio analysis? It’s a powerful tool in tracking and

controlling delinquency

It is key to identifying and preventing PAR

It is key to planning the work of supervisors and BMs with every AO; planning the work of the product manager with the various Branch MFUs; and the whole MF operations of the Bank

MIS: Essential Element in Portfolio Analysis

A good MIS should be able to provide portfolio performance information on a “daily basis”. Accurate and reliable;

Account officers, MF Supervisors, BMs and senior officers must have an understanding in reading and analyzing the reports;

Portfolio performance reports must be easily accessible to all AOs, supervisors and BMs.

“ ANALYZE THE REPORTS DAILY IF NECESSARY”

Recommended Essential Reports :

Loan Portfolio Data & Quality

Revenue, Growth & Performance

Quality, Based on Client,

Business & Characteristics

Listing of Loans Collection Due Report Client Status Report Delinquency Report Portfolio at Risk Report

Interest collected by MFU Performance Report by AO Microfinance Monthly Report

PAR, by aging & business activity PAR, by loans disbursed & business activity Loans Profile by Gender

POSITION

LOAN PORTFOLIO DATA & QUALITY

REVENUE, GROWTH &

PERFORMANCE

QUALITY, BASED ON CLIENT, BUSINESS & CHARACTERISTICS

PRESIDENT, COO, HEAD MF OPERATIONS, PRODUCT HEAD

Delinquency ReportPortfolio at Risk Report

Interest Collected by MFUPerformance Report by AOMF Monthly Report

PAR, by aging & business activity PAR, by loans disbursed & business activity Loans Profile by Gender

SUPERVISORS & BRANCH MANAGERS

DelinquencyPortfolio at RiskListing of Loans

Interest Collected by MFUPerformance by AOMicrofinance Monthly Report

PAR by Aging and Business Activity

ACCOUNT OFFICERS

DelinquencyPortfolio at RiskListing of Loans

Who Should Read What Reports?

How frequent are the reports?

Daily Delinquency ReportWeekly Performance Report By AO Delinquency Report Portfolio-At-Risk Aging ReportMonthly Performance Report By AO Delinquency Report Portfolio-At-Risk Aging Report Monthly MF Performance Report (MF Performance

Indicators plus Statement of Income and Expense)

A tool to identify and assess the quality and risk in the loan portfolios.

It provides information how much principal is at risk and whether risk is serious, moderate, or minor.

PAR report on a weekly and monthly basis and broken down into smaller units (by branch or by account officer), is probably one of the most useful risk management tools for senior and middle management.

Portfolio-at-Risk Aging Report

Portfolio-at-Risk Aging Report

Why are you having

this?

1.The bank forgot to monitor2.The account officer forgot to collect3.The account officer is on leave4.The account officer did not know that

he has to collect5.The account officer postponed the

collection6.The client forgot to pay

Reasons

PAR 1-7 DAYS

PAR 8-30 DAYS

PAR 31 -60 DAYS

PAR 61 -90 DAYS

PAR OVER 90 DAYS

Minor Risk, but needs to

be watched

Moderate Risk

Serious Risk

Low Chance of Repayme

nt

LOST!LOST!

STAGES OF DELINQUENCY

Main indicators that can help in analyzing PAR

1. What portion of the portfolio is totally current (100% on time repayment on the exact date that the payment was due)

2. What portion of the portfolio in % has missed at least one payment (this is total loan outstanding minus current loans)?

How to Read PAR Reports

How to Read PAR Report

3. What is the quality or aging of your delinquent portfolio like?

CHECK FOR TRENDS!

PAR Analysis : Sample Case 1

AO 1: Joelan AO 2: Marlon

Sept. 2011

2.0% 2.0%

Who has the better performance?

PAR 1 : Determining Trends Sample 2

AO 1: Joelan AO 2: Marlon

May 2011 0.61% 7.00%

June 2011 0.90% 5.00%

July 2011 1.00% 4.50%

August 2011

1.75% 3.00%

Sept. 2011 2.00% 2.00%

Who has the best performance?

PAR by AGE Sample 3

AOs 1-7 8-15

16-30

31-60

60-90 90+

Luis 2%

Jose 2%

Ben 2%

Marlon 2%

Joelan 2%

Who has the best performance?

Loan Loss Rate

AOs Current

1-7 8-15 16-30 31-60 60-90

90+

Luis 2%

Jose 100%

Ben 2%

Marlon 2%

Joelan 2%

Who has the best performance?

PAR by AGE

AOs PAR1 1-7 8-15 16-30 31-60 60-90 90+

Luis 6%

Jose 3%

Ben 3%

Marlon 7%

Joelan 4%

Who has the best performance?

PAR by AGE

AOs PAR1 1-7 8-15 16-30 31-60 60-90 90+

Luis 6% 4.92% 1.08%

Jose 3% 3%

Ben 3% 2.67% 0.33%

Marlon 7% 2.52% 1.39% 3.09%

Joelan 4% 1.07% 2.93%

Who has the best performance?

Identifying Sources of PAR

Before any bank wide PAR fighting is undertaken, Managers must isolate/ identify what are the main sources of PAR.

Steps:1. Identify which branches2. Identify the Aos3. Identify loan cycles

Exercise 1: What branch is the PAR source?

SANTI AGO BRANCH

PAR 30 = 1%

SAN J OSE BRANCH

PAR 30 = 3%

SAN FRANCI SCO

BRANCH PAR 30 = 2.5%

SAN I SI DRO BRANCH

PAR 30 = 20%

Exercise 2: Source of PAR by AO

SANTI AGO BRANCH

PAR 30 = 1%

SAN J OSE BRANCH

PAR 30 = 3%

AO J OEL PAR30=4%

AO BONG PAR30=2%

SAN FRANCI SCO BRANCH

PAR 30 = 2.5% AO KELLY PAR30=3%

AO MARY PAR30=36%

Identifying Sources of PAR

A break down of her PAR will further isolate PAR sources into

First vs. Repeat Loans Repeat Loans 3 and 4 Loans with Increases above 30% A particular activity

Identifying Sources of PAR

Isolating/identifying the source of PAR, will enable Branch Managers and Supervisors to:

Implement measures tailored specifically to the cause identified with the AO identified

Improve productivity Improve portfolio quality Improve time management

THANK YOU!