MICROENTERPRISE ACCESS TO MICROENTERPRISE ACCESS TO BANKING SERVICESBANKING SERVICES

Remedial Management Remedial Management & Other Collection & Other Collection

AlternativesAlternatives

Delinquency DefinedDelinquency Defined

What is a Loan Delinquency?What is a Loan Delinquency?

Any loan with a missed Any loan with a missed amortization of even one day is amortization of even one day is

a delinquent accounta delinquent account..

Causes of DelinquencyCauses of Delinquency

1.1. Inefficient screening processInefficient screening process Defective CIBIDefective CIBI Erroneous cash flow analysisErroneous cash flow analysis

2.2. Inefficient collection and follow Inefficient collection and follow ups activitiesups activities

Why Delinquency is no AcceptableWhy Delinquency is no Acceptable

1.1. It reduces profitabilityIt reduces profitability

2.2. It reduces the bank’s competitivenessIt reduces the bank’s competitiveness

3.3. It negatively affects the bank’s image It negatively affects the bank’s image in the communityin the community

4.4. It can lead to bank failureIt can lead to bank failure

REMEDIAL MANAGEMENT REMEDIAL MANAGEMENT ACTIONS ON DELINQUENT ACTIONS ON DELINQUENT

ACCOUNTSACCOUNTS

I. Setting up of the Remedial I. Setting up of the Remedial Management Unit or function that Management Unit or function that will focus on:will focus on:

1.1. Collection ProcessesCollection Processes

2.2. Legal remediesLegal remedies

COLLECTION PROCESSCOLLECTION PROCESS

WHAT IS THE OBJECTIVE OF WHAT IS THE OBJECTIVE OF COLLECTION?COLLECTION?

1.1. To obtain payment of accounts To obtain payment of accounts promptly at a minimum cost and promptly at a minimum cost and at the same time maintains at the same time maintains goodwill with borrowersgoodwill with borrowers

to collectto collectto collect promptlyto collect promptlyminimum costminimum costmaintain goodwillmaintain goodwill

22. . To extend assistance to borrowers To extend assistance to borrowers who thru unexpected expenses or who thru unexpected expenses or temporary loss of income or temporary loss of income or combination of both may find it combination of both may find it difficult to keep obligation up to difficult to keep obligation up to

datedate.. financial advicefinancial advice

technical know-howtechnical know-how

Term paymentsTerm payments

3. Assist in correcting errors in 3. Assist in correcting errors in credit decision such that credit decision such that potential and actual losses are potential and actual losses are reduced to its minimum.reduced to its minimum.

provide information/insightprovide information/insight

What problem accounts What problem accounts require?require?

1.1. Immediate and proper Immediate and proper identification of problemidentification of problem

typetype

causecause

magnitudemagnitude

2.2. Proper corrective Proper corrective measures/remedial measures/remedial managementmanagement

WHY PROMPT COLLECTION WHY PROMPT COLLECTION EFFORTS?EFFORTS?

1.1. Laxity in collection would merely Laxity in collection would merely invite more difficulties in collection invite more difficulties in collection and at the same time helps convert and at the same time helps convert potential good borrowers into poor potential good borrowers into poor ones.ones.

2.2. The longer the receivable remains The longer the receivable remains outstanding, the longer the bank outstanding, the longer the bank becomes continually exposed to becomes continually exposed to hazards and risk of non-payment or hazards and risk of non-payment or loss.loss.

3.3. Prompt collection tend to reduce Prompt collection tend to reduce the investment required in the investment required in receivables and its capital cost.receivables and its capital cost.

Remedial ManagementRemedial Management

What is remedial managementWhat is remedial management

For financial institutionsFor financial institutionso A specialized unit or department in the A specialized unit or department in the

bank the primary function of which is, bank the primary function of which is, the management and recovery of all the management and recovery of all written off accounts;written off accounts;

Remedial Management ProcessRemedial Management Process

Why set up an RMU?Why set up an RMU?Management’ common belief that Management’ common belief that after a write-off, collection stops!after a write-off, collection stops!Manage and dispose assets Manage and dispose assets surrendered by clients as loan surrendered by clients as loan payments;payments;The unit that will ultimately focus The unit that will ultimately focus collection of all hardened and collection of all hardened and problem accounts of the bank.problem accounts of the bank.

Remedial Management Unit-Remedial Management Unit-

Organization & Set upOrganization & Set up Written off and hardened accounts should Written off and hardened accounts should

have reached 200 or more;have reached 200 or more; The Unit is headed by the MF Product The Unit is headed by the MF Product

Manager to be based in the head office;Manager to be based in the head office; Initially,Initially,

Two (2) dedicated Collection Officers (COs) will Two (2) dedicated Collection Officers (COs) will be assigned to the Unit;be assigned to the Unit;

Experienced account officers/supervisors are Experienced account officers/supervisors are the ideal staff that should be manning the unit.the ideal staff that should be manning the unit.

Remedial Management Unit -Remedial Management Unit -

Targets & WorkloadTargets & Workload Each hardened/written off account should Each hardened/written off account should

be visited at least twice a month by the be visited at least twice a month by the COs or the Unit head;COs or the Unit head;

Collection officers shall be given Collection officers shall be given geographical assignments and schedules geographical assignments and schedules for an effective recovery effort;for an effective recovery effort;

The ideal caseload per CO is 120-150 The ideal caseload per CO is 120-150 borrowers.borrowers.

Remedial Management UnitRemedial Management Unit

ApproachesApproaches

For banks with multi-branches, an RMU set For banks with multi-branches, an RMU set up is ideal;up is ideal;

Single unit banks, assign an experienced Single unit banks, assign an experienced account officer solely for remedial account officer solely for remedial management functionsmanagement functions. .

Remedial Management UnitRemedial Management Unit

The ProcessThe ProcessAccount classification and identificationAccount classification and identificationClassify accounts as to their collectibility, Classify accounts as to their collectibility,

such as:such as:Collectible, andCollectible, andUncollectibleUncollectible

Collection officers shall focus initially on Collection officers shall focus initially on the collectible accounts;the collectible accounts;

Unit head shall conduct a validation of Unit head shall conduct a validation of those classified as un-collectiblethose classified as un-collectible

Remedial Management UnitRemedial Management UnitCredit files managementCredit files management Inventory and validation of credit files of written Inventory and validation of credit files of written

off accounts endorsed to the Unit;off accounts endorsed to the Unit; Management and control of files shall be the Management and control of files shall be the

responsibility of the Unit head;responsibility of the Unit head; For internal control purposes, recording and For internal control purposes, recording and

monitoring of performance shall be done on a monitoring of performance shall be done on a daily, weekly and monthly basis;daily, weekly and monthly basis;

Prepare a Statement of Account for each and Prepare a Statement of Account for each and account to be attached and filed with its credit account to be attached and filed with its credit files.files.

Remedial Management UnitRemedial Management UnitCollection processCollection process Collection process shall be done at least 4 times a Collection process shall be done at least 4 times a

week;week; Coordinate with branch offices’ AOs to know the Coordinate with branch offices’ AOs to know the

background and history of the account, including background and history of the account, including present collection arrangement, if any;present collection arrangement, if any;

A minimum of 15 accounts should be followed up A minimum of 15 accounts should be followed up in a single dayin a single day

COs to remit collections with the nearest branch COs to remit collections with the nearest branch not later than the cut off time, (4:00 pm) and not later than the cut off time, (4:00 pm) and prepare a daily collection and follow up report.prepare a daily collection and follow up report.

Remedial Management UnitRemedial Management UnitPayment Re-schedulingPayment Re-scheduling The Unit can recommend re-scheduling The Unit can recommend re-scheduling

repayments based on limits to be repayments based on limits to be determined by the bank;determined by the bank;

The Unit should be authorized to arrange The Unit should be authorized to arrange a final settlement option with the a final settlement option with the borrowers, such as:borrowers, such as:

1.1. Full payment w/in 60 days after notice. Full payment w/in 60 days after notice. Principal balance only.Principal balance only.

2.2. Full settlement of account within 90 days. Full settlement of account within 90 days. Total amount due on the SOA.Total amount due on the SOA.

3.3. Settlement of account in 3 monthly Settlement of account in 3 monthly payments. Principal balance + interest only.payments. Principal balance + interest only.

Remedial Management UnitRemedial Management Unit4. 4. Settlement in 4 monthly installments. Settlement in 4 monthly installments.

Principal + interest + 25% of penaltiesPrincipal + interest + 25% of penalties

Nature of paymentsNature of payments Cash or in-kind (chattels), surrendered by Cash or in-kind (chattels), surrendered by

the client.the client.

Custody and disposal of ChattelsCustody and disposal of Chattels The Unit shall be responsible for the The Unit shall be responsible for the

management and disposal of all assets management and disposal of all assets repossessed or surrendered by clientsrepossessed or surrendered by clients

Remedial Management UnitRemedial Management Unit

IncentivesIncentives The bank should adopt incentive schemes based The bank should adopt incentive schemes based

on a commission basis for written off accounts on a commission basis for written off accounts recovered.recovered.5% commission on all written off accounts that 5% commission on all written off accounts that

are considered collectible;are considered collectible;30% on accounts validated as un-collectible30% on accounts validated as un-collectibleThe incentives may be open to all staff of the The incentives may be open to all staff of the

bank who can facilitate the collection of bad bank who can facilitate the collection of bad accounts accounts

Remedial Management UnitRemedial Management Unit

Performance monitoring reportsPerformance monitoring reports

Daily collection and follow up report;Daily collection and follow up report;

Weekly performance reportWeekly performance report

Monthly Status Report of CollectionsMonthly Status Report of Collections

Remedial Management UnitRemedial Management UnitInternal control measuresInternal control measures

Control and custody of credit files Control and custody of credit files Preparation and review of a final Statement of Preparation and review of a final Statement of Account;Account;Approving authorities on final settlement option Approving authorities on final settlement option and rescheduling of payments;and rescheduling of payments;Turn-over of collections before cut off with the Turn-over of collections before cut off with the nearest branch office;nearest branch office;Review and monitoring of collections and other Review and monitoring of collections and other cash management issues.cash management issues.Separate MIS listing of written off accountsSeparate MIS listing of written off accounts

STEPS TO BE TAKEN IN STEPS TO BE TAKEN IN COLLECTING FROM COLLECTING FROM

DELINQUENT BORROWERDELINQUENT BORROWER

1.1. Maintain a regular, continuous follow-up.Maintain a regular, continuous follow-up.2.2. Keep in constant touch with the borrower.Keep in constant touch with the borrower.3.3. Try to be cooperative and helpful.Try to be cooperative and helpful.4.4. Always show courtesy but nevertheless Always show courtesy but nevertheless

firm.firm.5.5. Exercise some compassion and Exercise some compassion and

understanding as circumstances would understanding as circumstances would indicate.indicate.

6.6. The bank must not hesitate to use all The bank must not hesitate to use all available resources to enforce collection. available resources to enforce collection.