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Cooperatives
10/19/15
What is credit?
Purpose of Credit
Productive purposes - to finance production
activities of its member-borrower. (crop
prodn. livestock prodn. & breeding)
Providential purposes Intended for nonproductive purposes but provides for the
emergency and providential needs.
(health/medical
services, educational)
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merlene quiba flores. panabo city
Credit terms
Short term the borrower must pay the loan
within one year or less.
Medium or intermediate term Loans payable
in one year up to five years.
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Trust or confidence
Risks
Period or term of payment
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Important lending
processes/transactions
Loan Analysis/credit Initiation
Collections/credit administration
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Evaluation and
analysis of loan
applications.
Evaluation of
credit/project
proposals.
Credit committee
validation.
Loan approval
Documents that
provide basis for loan
grant:
-Loan proposal
Loan release-in
accordance with
disbursement procedures.
-Loan agreement
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-Promissory note
-Collateral/securities
documents
merlene quiba flores. panabo city
Collections/credit administration
After loan release- coop
to administer close
monitoring of the
borrower.
Formulation &
installation of
Innovative collection
scheme.
Installation and
maintenance of credit
files.
Loan Supervision
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- Remedial measures
-Monitoring the
implementation of
remedial measures.
- Problem identification
and recognition
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Loan
approval,formulation
of policies.
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Promotes coop
services, analyzes and
recommends for loan
approval, maintains
merlene quiba flores. panabo city credit files.
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LOAN SUPERVISION
Monitor progress of the project
implementation that will enable the coop to
determine potential problem/s arising from
such accounts.
Ensure that the terms and conditions of the
loans are being complied with.
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LOAN SUPERVISION
Develop a credit relationship with memberborrower to bridge the information gap for
future credit decisions.
Ensure prompt payment at maturity of the
principal, accrued interest and other charges
or expenses associated with the transaction.
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LOAN SUPERVISION
Ensure that the mechanism to generate
available management options in improving
collection of loan accounts includes legal
deposition and execution of alternative plan
of action including restructuring and
refinancing in some cases.
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MEASURING LOAN
PORTFOLIO
LOAN PORTFOLIO largest asset
in a cooperative
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Importance of portfolio
management
Enables financial institution to
continue to provide a needed
service
Critical to the survival of a credit
union
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3 measures to describe
quality of loan portfolio
DELINQUENCY
REPAYMENT
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LOANS:
The Lifeblood of Credit Cooperatives
Loan delinquency one of the most common
and most serious problems a coop may have.
Weakens the operations of the cooperative.
Slows down the delivery of services to
cooperative members.
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Delinquency definitions
If a members fails to pay the loan as promised or as per
agreement
Any type of loan which is not paid when due
Delinquent by installment
Delinquent by maturity
Portfolio at risk
o Mode of repayments and due dates
o Amount of installment
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o Term of maturity
Aging of accounts
Loan status monitor (LSM)
attached to the individual loan
ledger (ILL)
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Causes of DELINQUENCY
Personal Problems
Financial Management
Difficulties
Unexpected circumstances
Cooperative Shortcomings
Policies & Procedures
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Effects of delinquency
Demoralization among cooperative
members
Resignation of staff & Officers
Loss or dormancy leading to bankruptcy
Coops role in the community ends
Loss of goodwill in the cooperative
movement
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Costs of Delinquency
Delinquency plays a critical role in
cooperatives cost, structure, income and
financial situation.
Delinquent loans imply postponed interest
income from loans with payments past due.
Delays in income can have serious,
detrimental effects on the cooperatives cash
flow and self sufficiency.
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Costs of Delinquency
Delinquency slows down the rotation of the
loan portfolio.
Allowing members to miss payments even
though they eventually repay, allows the
institution to lose vital income needed to
cover the costs.
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Costs of Delinquency
De-capitalize the portfolio
Decrease the cooperative assets
Provisions for defaults have direct
effects on the cooperatives income
and assets
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75,000.00
25
15
10
7,500.00
Loans of 75,000
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Loans of 75,000
75,000.00
25
none
25
7,500.00
Loans of 75,000
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Loans of 75,000
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Continuation
Do the loan officers or credit committee
effectively analyze the borrowers ability to
repay the loan granted?
Are the loan and collection policies &
procedures adequate?
When do collection efforts begin once a loan
becomes delinquent? Is this quick enough?
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Continuation
Are collection efforts effective?
Is the collection department adequately staffed
and focused to meet the challenges of high or
increasing delinquency?
Has anyone manipulated the delinquency
information in the past to hide delinquency?
Has there been a major event that is beyond
the cooperatives control?
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Workshop
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Problem Resolution
Management &
Officers should
ensure that
delinquency is
correctly
calculated &
disclosed
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Problem Resolution
Management should ensure that the
delinquency report is useful.
Employees working with delinquent loans
should perform a review of each loan to
determine their collectivity.
All charged-off loans and loans that are in
need of legal action should be given to lawyers
or collection agencies.
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Problem Resolution
All charged-off loans and loans that are in
need of legal action should be given to lawyers
or collection agencies.
Management should ensure that interest on
loans is not accrued when loans become
delinquent.
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Problem Resolution
Management should determine that the
allowance for loan loss account is adequate for
all potential losses.
The use of loan extension and refinances
should be strictly limited.
If loan underwriting appears to be the source
of problem, the credit policies and procedures
should be revised.
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Problem Resolution
If delinquency is high or increasing due to the
actions of one specific employee, that
individual should be terminated, removed
from the position or placed in another position
or adequately trained.
Loan application forms should be reviewed so
as to collect necessary information.
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Problem Resolution
If loan collection practices appear to be at
fault, the policies and procedures should be
reviewed.
In the cooperatives, collection activity is an
afterthought and the collection work is given
to an employee who has some extra time.
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CREDIT EVALUATIONS
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Tools in Determining
Creditworthiness..
Additional sources for credit information:
Credit Union files - to check the members
various accounts, frequency of loan application,
previous loan decisions, repayment records
Employers files - to verify the members length
of employment,salary & loans from the
company
Personal knowledge - to reinforce information
obtained from other sources
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Tools in Determining
Creditworthiness...
LOAN APPLICATION -when
amount of loan
purpose of loan
collateral offered, if any, the value
and its condition
(CU employee should do a physical
inspection)
total monthly obligations of
applicant
number of dependents
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Tools in Determining
Creditworthiness...
LOAN INTERVIEW -should be conducted for any loan that poses a
risk to the credit unions capital. It is helpful to:
Elaborate information in the application--know the borrower
Provide credit counseling about the wise use of credit-- borrowing your
neighbors money, not donor funds.
Determine the reliability of the applicant according to their personal history
and references
Establish a personal relationship-- make them understand that this is also
their credit union
Sell other credit union services and educate the member about the CUs
philosophy--use this personal time wisely--IMPRESS THE BORROWER.
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Tools in Determining
Creditworthiness...
Tools in Determining
Creditworthiness...
COLLATERAL INSPECTION FORM - This form is used by credit
union personnel to document the condition of the collateral. Important
information includes:
Description of the collateral offered
Identification or serial number
What is the value of equipment included with collateral
Over-all condition of the collateral
Estimated value
Any noticeable damage
Can collateral be legally possessed?
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Tools in Determining
Creditworthiness...
OTHER DOCUMENTS NEEDED:
Written verification of income
Savings and credit history at the credit union
Collateral agreement
Proof of insurance on collateral
Appraisal (in addition to the physical inspection for
specific cases)
All of the same information for the co-makers/co-signors .
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CREDIT ANALYSIS
Credit analysis is not
examining facts
separately but
establishing a
relationship between
all the components
that affect
CRECOMs
decisions.
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To determine the
credit worthiness, so
that sound loan
decisions can be made
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Loan interview
Verifications
These components
should:
Reveal members identity
Show stability, capacity
to repay and credit
history
Be consistent
Credit Score
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Credit Profile
Should be evaluated
thoroughly and
objectively
merlene quiba flores. panabo city
Loan Application
Loan Interview
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character
capacity
conditions
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collateral
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Security first
- members savings
- cooperatives
Loan Quality first
before quantity
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Evaluation of
risk
- set the limit of
manageable risk
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Grant loans to
members with
good standing &
capacity to pay
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Thorough
credit
investigation
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Loan is a
privilege rather
than a right
inherent to
membership
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No loan will be
extended to
member with
delinquent
account
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Balance
between risk,
diversification
and
profitability
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Limiting loan
exposures to
certain
geographical
area
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Collateral for
commercial,
real estate and
agricultural
loans
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70% financing
for viable
project
30% member
participation
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5 Cs of Credit
Capacity This refers
to the memberborrowers proven
capability to repay the
loan on the agreed
terms
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5 Cs of Credit
Character
- integrity, credibility,
trustworthiness of the
member-borrower and or
the co-borrower
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5 Cs of Credit
3
Capital
regular, consistent amount
of savings or
contributions to the buildup of financial, material
resources
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5 Cs of Credit
Collateral
Real, personal and deposit
certificates that can be
offered as security to the
loans
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5 Cs of Credit
5
Condition
External factors affecting the socioeconomic
condition of the loan and the borrower
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Collections
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How to do collection
Be polite ..
Be firm .
Be Strict
Be listening .without agreeing
If you do not get money .get a date and hour and go back
on due time
Be respectful
Leave your heart at home .and your problems at .the office
.
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start
COLLECTION
STRATEGIES
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d
a
y
s
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Timely management
information system
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Monitoring Collections
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Recognition
Follow-up
Collection records
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Account Classification
In general, cooperatives should classify their
delinquent accounts according to age.
The most past due an account is, the less likely
the cooperative is to receive payments.
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CONCLUSIONS
It is a fact that loan delinquency is a major
problem to many lending institutions in the
Philippines including cooperatives. The causes
of loan delinquency maybe due to unsystematized and passive collection of loan
repayments and members misunderstanding
on their role as cooperative members.
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CONCLUSIONS
To deal with delinquency, the cooperative
should have a clear collection and lending
policies as part of financial management.
These policies should be properly
implemented and reviewed. This is the best
way to prevent delinquency to happen.
However, the strictness of such policies should
not hamper the good relationship that exist
between the officers/staff and the members.
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Credit is like a
flame; use,
value, nurture,
and manage it
well.
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Collection Process
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Collection Procedures
Collection Starts on the First day of after
a non-payment of amortization.
Reminder letter should be sent within 15
days of delinquency.
A Demand letter shall be sent if no action
is made with reminder letter.
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A-3 Application of
Payment
1. Miscellaneous Advances
(insurance, mortgage, legal)
2. Penalty
3. Interest
4. Principal
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Sale of business
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