Managing Delinquency Training / Workshop

Identifying Root Causes of DelinquencyWorkshop 2

4 Caselets

Objectives of the ActivityFrom each case:

To identify common causes of delinquencyTo discuss and share opinions on what the

banks can do: a. Preventive Measures b. Remedial Measures

Workshop GuideForm the participants into 4 groupsEach group will be given a caselet to

analyzeFrom 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 2 Members

Put here the names of group mates

Workshop Groupings

Group 3 Members

Put here the names of group mates

Group 4 Members

Put here the names of group mates

Caselet 1Andres 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 3rd & fourth

cycles c) PAR over 90 days= 12%WHAT DO YOU THINK WENT WRONG?

Caselet 2Center Beauty, already in its 8th 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 3ABC 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 2007. 50% of its membership are already in their 6th 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 4th month, the Supervisor visited the center and found out

that Nanay Adela already left the place.

Causes of PAR

P A RINTERNAL 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