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Managing Delinquency

Managing Delinquency. LOAN PORTFOLIO ANALYSIS Session 1. Session Objectives. Read and interpret MIS reports such as the PAR aging reports effectively Use portfolio analysis to better manage clients Enhance decision-making skills to improve portfolio quality. Loan Portfolio Analysis.

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Managing Delinquency

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  1. Managing Delinquency LOAN PORTFOLIO ANALYSIS Session 1

  2. Session Objectives • Read and interpret MIS reports such as the PAR aging reports effectively • Use portfolio analysis to better manage clients • Enhance decision-making skills to improve portfolio quality

  3. Loan Portfolio Analysis Rationale “Your loan portfolio is the biggest income- generating asset of your bank”

  4. Loan Portfolio Analysis How important is Loan Portfolio Analysis in Microfinance Operation? Microfinance loans are potentially more volatile-- can show rapid deterioration in arrears – and the absence of collateral guarantees offers less/difficult recourse in the recovery process. 

  5. Loan Portfolio Analysis In order to manage risk and minimize delinquency, Management should conduct a regular analysis of its loan portfolio

  6. Why do portfolio analysis? • It’s a powerful tool in tracking and controlling delinquency • It is key to identifying and preventing PAR • It is key to planning the work of supervisors and BMs with every AO; planning the work of the product manager with the various Branch MFUs; and the whole MF operations of the Bank

  7. MIS: Essential Element in Portfolio Analysis • A good MIS should be able to provide portfolio performance information on a “daily basis”. Accurate and reliable; • Account officers, MF Supervisors, BMs and senior officers must have an understanding in reading and analyzing the reports; • Portfolio performance reports must be easily accessible to all AOs, supervisors and BMs. “ ANALYZE THE REPORTS DAILY IF NECESSARY”

  8. Recommended Essential Reports :

  9. Who Should Read What Reports?

  10. How frequent are the reports? Daily • Delinquency Report Weekly • Performance Report By AO • Delinquency Report • Portfolio-At-Risk Aging Report Monthly • Performance Report By AO • Delinquency Report • Portfolio-At-Risk Aging Report • Monthly MF Performance Report (MF Performance Indicators plus Statement of Income and Expense)

  11. Portfolio-at-Risk Aging Report • A tool to identify and assess the quality and risk in the loan portfolios. • It provides information how much principal is at risk and whether risk is serious, moderate, or minor. • PAR report on a weekly and monthly basis and broken down into smaller units (by branch or by account officer), is probably one of the most useful risk management tools for senior and middle management.

  12. Portfolio-at-Risk Aging Report Why are you having this?

  13. Reasons The bank forgot to monitor The account officer forgot to collect The account officer is on leave The account officer did not know that he has to collect The account officer postponed the collection The client forgot to pay

  14. STAGES OF DELINQUENCY PAR 1-7 DAYS HARDCORE PAR 8-30 DAYS PAR 31 -60 DAYS PAR 61 -90 DAYS PAR OVER 90 DAYS Minor Risk, but needs to be watched Low Chance of Repayment LOST! Moderate Risk Serious Risk

  15. How to Read PAR Reports Main indicators that can help in analyzing PAR 1. What portion of the portfolio is totally current (100% on time repayment on the exact date that the payment was due) 2. What portion of the portfolio in % has missed at least one payment (this is total loan outstanding minus current loans)?

  16. How to Read PAR Report 3. What is the quality or aging of your delinquent portfolio like? CHECK FOR TRENDS!

  17. PAR Analysis : Sample Case 1 Who has the better performance?

  18. PAR 1 : Determining Trends Sample 2 Who has the best performance?

  19. PAR by AGE Sample 3 Who has the best performance?

  20. Loan Loss Rate Who has the best performance?

  21. PAR by AGE Who has the best performance?

  22. PAR by AGE Who has the best performance?

  23. Identifying Sources of PAR • Before any bank wide PAR fighting is undertaken, Managers must isolate/ identify what are the main sources of PAR. Steps: • Identify which branches • Identify the Aos • Identify loan cycles

  24. Exercise 1: What branch is the PAR source?

  25. Exercise 2: Source of PAR by AO

  26. Identifying Sources of PAR • A break down of her PAR will further isolate PAR sources into • First vs. Repeat Loans • Repeat Loans 3 and 4 • Loans with Increases above 30% • A particular activity

  27. Identifying Sources of PAR Isolating/identifying the source of PAR, will enable Branch Managers and Supervisors to: • Implement measures tailored specifically to the cause identified with the AO identified • Improve productivity • Improve portfolio quality • Improve time management

  28. THANK YOU!

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