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PEARLS for Decision Making
Presentation to
______________ Credit Unions
Autumn 2005
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PEARLS
Protection P
Effective financial structure E
Asset quality A
Rates of return & cost R
Liquidity L
Signs of growth S
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Objectives of PEARLS
1. Executive Management Tool
2. Standardised Evaluation Ratios & Formulas
3. Objective, Comparative Rankings
4. Facilitate Supervisory/Regulatory Control
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Components of PEARLS
Protection P
Effective financial structure E
Asset quality A
Rates of return & cost R
Liquidity L
Signs of growth S
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P = PROTECTION
P1. Adequacy of Provisions for doubtful debts
P2. Loans Written off /Total loans
P3. Solvency Indicator
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E = Effective Financial Structure
ASSETS95% productive assets composed of
LOANS (70%-80%)INVESTMENTS (10% - 20%)
5% unproductive assets composed of primarily fixed assets (buildings, equipment)
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E = Effective Financial Structure
LIABILITIES & CAPITAL80%-90% Member’s Savings/Deposits15% Total Reserve Capital 0% Borrowings
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Effective Financial Structure
BALANCE SHEETASSETS LIABILITIES & CAPITAL
80% - 85% Members Shares & Deposits
15%-20% Capital Reserves
80% Loans to members
15% Liquid Investments
5% Buildings & Equipment
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Reserves
Purpose of Capital provided by reserves: Finance non-earning assets. Improve Earnings Absorb losses
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A = ASSET QUALITY
Delinquency Ratio
maximum 5% of total loans Percentage of Non-earning Assets
maximum 5% of total assets
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R=Rates of Return and Costs
RETURN/Yield Loan Portfolio Investments Measures level of operating expenditure
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R=Rates of Return and Costs
OPERATIONAL COSTS Administrative Costs Provision for Bad Debts Costs
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L = LIQUIDITY
Total Liquidity Reserves Liquid Reserves to Withdrawable savings
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S = Signs of Growth
Total Assets Loans Savings Capital / Reserves Investments Borrowings Membership
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P.E.A.R.L.S.
THEPEARLS
MONITORING SYSTEM GOALS
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Protection Monitoring Goals
AREA PEARL DESCRIPTION GOAL
Protection P1 Bad debt provisions & reserve/Provision required for Loans as per Res49.03
100%
Protection P2 Loans written off/Total Average Loans minimise
Protection P3 Solvency Indicator
KEY RATIO 1
109%
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Effectiveness Monitoring Goals
AREA PEARL DESCRIPTION GOAL
Effective Financial Structure
E1 Gross Loans/Total Assets 70%
+Effectiveness E2 Total Investments/Total
Assets< 30%
Effectiveness E3 Member’s Resources/Total Assets
80%-90%
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Effectiveness Monitoring Goals
AREA PEARL DESCRIPTION GOALEffectiveness E4 External Credit/Total Assets 0%Effectiveness E5 Total Reserves/Total Assets
KEY RATIO 215%
Effectiveness E6 Statutory Reserve/Prior Year Savings
10%
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Asset Quality Monitoring Goals
AREA PEARL DESCRIPTION GOAL
Asset
QualityA1 Total Delinquency/Gross Loan
Outstanding
KEY RATIO 3
<5%
Asset
QualityA2 Non-Earning Assets/Total
Assets<5%
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Rates of Return & Costs Goals
AREA PEARL DESCRIPTION GOALRates of Return & Cost R1 Total Loan Income/Average
Gross Loan BalancesCover expenses & build reserves
Rates of Return & Cost R2 Total Invest Inc /Average Total
InvestmentHighest Rates (without risk)
Rates of Return & Cost R3 Total Income/Average Total
Assets KEY RATIO 4Cover exps & build reserves
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Rates of Return & Costs Goals
AREA PEARL DESCRIPTION GOALRatesof Return & Cost R4 Operating Expenses/ATA <5%
Ratesof Return & Cost R5 Expenses/Income <43%
Ratesof Return & Cost R6 Wages/Income <15%
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Liquidity Monitoring Goals
AREA PEARL DESCRIPTION GOALLiquidity L1 Liquidity
Reserves/Uncommitted Savings KEY RATIO 5
20%
Liquidity L2 % of members borrowing maximise
Liquidity L3 Total Cash & Inv/Uncommitted
Min 10%
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Growth Monitoring Goals
AREA PEARL DESCRIPTION GOALSigns of Growth S1 Growth in loans to members
Signs of Growth S2 Growth in total investments
Signs of Growth S3 Growth in member’s resources
Signs of Growth S4 Growth in Total Reserves
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Growth Monitoring Goals
AREA PEARL DESCRIPTION GOALSigns of Growth S5 Growth in Statutory Reserve
Signs of Growth S6 Growth in Membership
Signs of Growth S7 Growth in Total Assets
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