A Comparative Study on the Effectiveness of the Loan Recovery

Practices of the Two Selected Commercial Banks

OVERVIEW

• The immense success and development of human beings would not have been possible without the idea of credit.

• Loans can be considered as lifeblood of all banking operations.

• In case of the occurrence of non-performing loans, banks take precautionary measures or loan recovery practices.

• Banks need to undertake loan recovery practices because it is important for them so that they can continue to be operational.

THE PROBLEM STATEMENT

This study aimed to determine the effectiveness of the loan recovery practices of two selected commercial banks.

Specifically this study attempted to answer the following questions:

1. What is the personal profile of the respondent in terms of:1.1 Age1.2 Gender1.3 Company Position1.4 Number of years employed in the company

2. What is the estimated average amount of loan lent to the borrowers by the two selected commercial banks for calendar years of 2012 to 2014 in terms of:

2.1 Commercial Loans

3. What is the estimated percentage of the non-performing loans of the two selected commercial banks for the calendar years of 2012 to 2014?

4. What is the estimated percentage of the loan recovered of the two selected commercial banks for the calendar years of 2012 to 2014?

5. How effective are the loan recovery practices of the two selected commercial banks for the calendars years of 2012 to 2014 in terms of their: 5.1 Collection Efficiency

6. What is the Implication of the gathered data to the loan operations of the two selected commercial banks?

7. Is there a significant difference on the effectiveness of the loan recovery practices of the two selected commercial banks in terms of their collection efficiency?

HYPOTHESIS

• The hypothesis that was tested in this study is:

There is no significant difference on the level of effectiveness on the loan recovery practices of the two selected commercial banks.

OBJECTIVES OF THE STUDY

•To assess the effectiveness on the respective loan recovery practices of the two selected commercial banks.

•To compare the level of effectiveness of the loan recovery practices of the two selected commercial bank and;

•To determine the significant difference on the loan recovery practices of the two selected commercial banks.

SCOPE AND LIMITATIONS

• This study was focused on the assessment of the effectiveness of the loan recovery practices of the two selected commercial banks measured in terms of their collection efficiency during the calendar years of 2012 to 2014

• Respondents of the study included two groups

• Bank A- 8 respondents from office branches around the downtown center of Binondo, Manila

• Bank B- 5 respondents from office branches in the university-belt area in Sampaloc, Manila

• Banking transactions was considered in selecting the bank office branches

CONCEPTUAL FRAMEWORK

INPUT

Profile of the Respondents from the selected Commercial Bank Branch Offices

• Age• Gender• Company Position• Number of years

employed to the company

Loan Recovery Practices • Rescheduling• Restructuring• Other recovery

alternatives (Litigation)

PROCESS

Questionnaires

Interview

Document Analysis

OUTPUT

Level of effectiveness of the loan recovery

practices of commercial banks

METHODOLOGY

• Research Design– Descriptive type of research

• Sampling Procedure– Purposive Sampling

• Participants

Bank A Bank B

8 5

• Research Instruments─ Questionnaires─ Interview─ Document Analysis

• Statistical Tools─ Frequency─ Percentage─ Weighted Mean─ One Sample T-test

FINDINGS

1. Personal profile of the respondents in terms of:

1.1 Age

Age Frequency %30-35 years36-40 years41-45 years46-50 years50-51 years

44311

30.7730.7723.087.697.69

Mean Age 39.19 years

1.2 Gender

1.3 Company Position

Gender Frequency %

Male

Female

4

9

30.77

69.23

Total 13 100

Company Position Frequency %

Branch Manager

Branch Officer

Loan Processors

2

6

5

15.38

46.15

38.46

Total 13 100

1.4 Number of years employed to the company

Range Frequency %

1-5 years

6-10 years

11-15 years

16-20 years

21-25 years

1

2

5

4

1

7.69

15.38

38.46

30.77

7.69

Total 13 100

Mean 13.77 years

2. Estimated average amount of commercial loan lent to the borrowers by the two selected commercial banks for calendar years of 2012 to 2014 in terms of:

2.1 Commercial BankBANK A BANK B

CY 2012 CY 2013 CY 2014 CY 2012 CY 2013 CY 2014

2,000,001 -5,000,000

10,000,001 - 50,000,000

50,000,001 - 100,000,000

10,000,001 - 50,000,000

50,000,001 - 100,000,000

50,000,001 - 100,000,000

3. Estimated percentage of the non-performing loans of the two selected commercial banks for the calendar years of 2012 to 2014?

4. What is the estimated percentage of the loan recovered of the two selected commercial banks for the calendar years of 2012 to 2014?

BANK A BANK BCY 2012 CY 2013 CY 2014 CY 2012 CY 2013 CY 2014

1-10% 1-10% 1-10% 1-10% 1-10% 1-10%

BANK A BANK BCY 2012 CY 2013 CY 2014 CY 2012 CY 2013 CY 2014

61 - 80% 81 - 100% 61 - 80% 81 - 100%

81 - 100%

61 - 80%

5. Effectiveness of the loan recovery practices of the two selected commercial banks for the calendars years of 2012 to 2014 in terms of their:

5.1 Collection EfficiencyMeasurement of the Collection Efficiency

BANK A BANK BWeighted Mean Verbal

InterpretationWeighted Mean Verbal Interpretation

1. Amount or percentage of loan

recovered

3.6250 Very Satisfactory 3.6000 Very Satisfactory

2. Reduction of accounts receivable as part of their secured

loan

3.5000 Satisfactory 3.6000 Very Satisfactory

3. Compliance of customers to the payment terms

3.2500 Satisfactory 3.6000 Very Satisfactory

4. Recovery of the principal amount

3.1250 Satisfactory 3.4000 Satisfactory

5. Recovery of interest payments

3.7500 Very Satisfactory 3.8000 Very Satisfactory

Composite Mean 3.4500 Satisfactory 3.6000 Very Satisfactory

6. Implication of the gathered data to the loan operations of the two selected commercial banks?

Impact on the loan operations

BANK A BANK BWeighted Mean Verbal

InterpretationWeighted Mean Verbal

Interpretation

1. Continue to implement the existing loan recovery practices

3.6250 Very Satisfactory 3.8000 Very Satisfactory

2. Improve the existing loan recovery practices

2.1250 Good 3.2000 Satisfactory

3. Establish a new or different loan recovery

practices

2.2500 Good 2.2000 Good

Composite Mean 2.6667 Satisfactory 3.0667 Satisfactory

7. Is there a significant difference on the effectiveness of the loan recovery practices of the two selected commercial banks in terms of their collection efficiency?

Measurement of the Collection Efficiency

Bank A Bank BMean Diff.

Computed t – value

V.I.Overall Mean

SD Overall Mean

SD

1. Amount or Percentage of loan recovered 3.6250 .51755 3.6000 .54772 .025 25.387 Significant

2. Reduction of Accounts Receivable as part of the

secured loan3.5000 .53452 3.6000 .54772 .10 24.241 Significant

3. Compliance of customers to the payment

term3.2500 .46291 3.6000 .54772 .350 23.744 Significant

4. Recovery of the principal amount

3.1250 .35355 3.4000 .54772 .275 26.152 Significant

5. Recovery of the interest payments

3.7500 .46291 3.8000 .44721 .05 30.579 Significant

d.f. = 12 Tabular Value at α.05 = 2.18

CONCLUSION

1 . The respondents of this study were composed primarily of female participants and mostly between 30 – 40 years old. Majority of the respondents also were Bank Officers having been employed to their respective banking companies for more than 10 years.

2. The two selected commercial banks had a considerable amount of commercial loan lent to their clients. It can be concluded that Bank B lent a higher overall amount of commercial loan to its borrowers compared to Bank A.

3. The amount and percentage of the non-performing loans of the two selected commercial banks are at a low level for the calendar years of 2012 to 2014

4. The two selected commercial banks exhibit an efficient loan recovery practices, for the three consecutive years from 2012 to 2014. Bank B had a higher overall percentage of loan collections over the three year horizon.

5. The loan recovery practices of the two selected commercial banks are effective, having a difference on the rating scale. Bank B has a more effective loan recovery practices as compared to Bank A.

6. Bank B signified that it is more appropriate to continue to implement and improve the existing loan recovery practices than to establish a new or different loan recovery practice. While some of the respondents from Bank A however is more willing to establish a new or a different loan recovery practice than Bank B.

7. It can be concluded that the comparison on the level of effectiveness of the loan recovery practices between the two selected commercial banks has a significant difference in all aspects, and all the given data implies and strengthens the idea that the two selected commercial banks has a significant difference on the level of effectiveness on their respective loan recovery practices.

RECOMMENDATIONS

• Commercial banks should implement strategies that can enhance cost-effective loan recovery.

• Banks should have the necessary technologies and expertise for controlling loan transactions.

• Banks should follow the overall banking rules and regulations in all their operations

• Banks should consider all factors that can affect their loan operations, such as economic conditions.

• Banks should have the proper information system in order to asses if a client is qualified to acquire a loan or not.

• Banks should establish a customer-friendly terms and conditions regarding the repayment of a loan

• Finally, this study is recommended for further research in the future.

Thank you!