Managing Delinquency LOAN PORTFOLIO ANALYSIS Session 1.
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Transcript of Managing Delinquency LOAN 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
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