MF Policy Compliance Review

Rural Bankers Association of the Philippines-Microenterprise Access to Banking Services

(RBAP-MABS)

Supervisors Training Course

Earlier it was mentioned that two (2) of the most important functions of a supervisor were:

B Supervising and monitoring daily AO’s activities and ensuring 100% on time payments by clients

I Strictly enforce among account officers operational policies

Why does PAR still happen?

CAUSES OF PARCAUSES OF PAR

In 98% of the cases, PAR is due to internal causes.

Lack of compliance with and deviations from credit policies– Excessive amounts for repeat loans– Poor CIBI: character and reference

checks– Poor monitoring and collection

CAUSES OF PARCAUSES OF PAR

Poor internal controls (resulting in fraud)

Poor MIS

Poor Staff training

Most of the causes of PAR can be prevented with effective AO supervision from Supervisors and Branch Managers

Supervision of AOs

There are two main tools in effective supervision:

1. Compliance with Policies Review

2. Portfolio Analysis

Documentation Documentation ReviewReview

Objectives and Importance of Loan Documentation

1. Promissory Note2. Application Form3. Disclosure Statement (Discount Statement)4. Co-maker Statement5. CIBI/Cash Flow6. Security Agreement7. Deed of Assignment of Deposits

1. Are AOs complying with the credit policies?If not, what policies are AOs not complying with?

2. How homogeneously are credit policies applied across AOs? Is the lack of compliance the same across AOs?Across branches?

3. Is the lack of compliance the result of bad or inappropriate credit policies? Or policies are appropriate but there are no enforcing mechanisms?

Compliance with Compliance with PoliciesPolicies

If policies are inappropriate they must be modified

But if they are appropriate, the Supervisors and Branch Managers must make sure credit policies are complied with.

Compliance with policiesCompliance with policies (using Supervisor Checklist)(using Supervisor Checklist)

One easy way to check compliance to policies is through the use of a checklist.

The checklist contains the product policies and procedures.

On regular basis, the Supervisor should take sample files at random to check on compliance with policies and procedures.

Instructions:

SUPERVISOR'S MONITORING CHECKLIST 1. Take 3 sample files per Account Officer with P AR < 3%.

2. Take 5 sample files per Account Officer with P AR > 3%.

Date: ______________________________ 3. Branch and Account Officers < 3% at least every three months if P AR is not increasing.

Branch: ____________________________ 4. Branch and Account Officers > 3% at least once a month.

5. As a baseline, Supervisor must do the Compliance with P olicies checklist for all the branches.

1. Compliance with policies

Comments

LOAN TERMS AND CONDITIONS 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5Loan Amount First loan (P3,000 - P50,000) Succeeding loans based on classification Amount increase < 30% of prev iuos loan

LOAN PROCESS AND PROCEDURES 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5Loan Application Application form is completedLoan Analysis CIBI is completed Client Interv iew/Character analysis-FL Peer interv iew-FL Supplier/landlord interv iew-FL Was repayment behavior analyzed properly-RL Cash flow analysis is completed Cash Flow calculations are accurateLoan Approval Credit Committee approvalLoan Documentation is complete Loan recommendation sheet Promissory Note Co-Maker's Statement Disclosure Statement, if any Security Agreement/Chattel Mortgage Voluntary Offer to Surrender the guaratees

Account Officer 1 Account Officer 2 Account Officer 3

Please select files per account officer and check compliance with loan policies. If lack of compliance is found add more files.

SAMPLE CHECKLIST

MONITORING AND COLLECTION 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5Monitoring (current loans) First Visit after week of loan disbursement Visits at least once a montht took placeCollection (past due loans) Visit after first missed payment Visit on first agreed date Visit on co-borrower/co-makers Delivered first demand letter Visit on second agreed date Visit on co-borrower/co-makers Delivered second demand letter Visit on third agreed date Visit on co-borrower/co-makers Delivered third demand letter Garnishment of sav ings/Serialized assets Filing of complaint to Barangay court Endorsing account to legal counselProductivity (# of accounts)Quality Service PAR Disbursement Period* First Loan (disbursed within 7 days) Repeat Loan (disbursed within 48 hours)

REPORTING Weekly reports submitted

* Number of days between date of application and date of disbursement

STEPS IN DOING POLICY COMPLIANCE REVIEW

STEP 1: Select 5 client files for AO with PAR7 >3% and 3 files for AO with PAR7 <3%.

STEP 2: Review each file for compliance following the order in the checklist. Check (√ ) those policies AO is complying with and mark (X) those policies AO is not complying with.

STEP 3: Write comments only if necessary

STEP 4: In the summary table, map out the lack of compliance and look for consistencies

STEPS FOR ANALYZING COMPLIANCE

Branches AO Branch 1 Ronie 8.00%

Allan 6.00%

Eddie 8.00%

Tony 2.00%

Branch 2 Ernie 2.50%

Edwin 3.00%

Ruel 0.00%Andy 1.00%

Branch 3 Danniel 1.00%

Bobby 0.00%

Rey 2.26%

Samuel 20.00%

SUMMARY OF COMPLIANCE

Compliance with policiesCompliance with policies (using Supervisor Checklist)(using Supervisor Checklist)

LOOK FOR CONSISTENCIES• Complied with OR NOT COMPLIED WITH among account

officers?• Is the non compliance related to the same policies across

AOs?• Is the non compliance related to the same policies across

branches? How homogeneously are policies • Is there any co-relation between non compliance by AO and

high PAR?• What policies may need to be reviewed for quality and

effectiveness

Compliance with policiesCompliance with policies (using Supervisor Checklist)(using Supervisor Checklist)

• IF all or most AOs do not comply consistently with the same policy, the problem may not be with the AOs, but with the policy or with lack of proper supervision from Supervisor, Branch Manager and CRECOM.

• IF three AOs have different compliance practices, the policies may be good, the problem may be with the AOs not complying or the Supervisor not checking.

“If you have all the facts and you do your job well, you don’t need to be a genius to make the right decisions.”

Session Exercise

Loan Review and Evaluation Process