zero tolerance against delinquency alarm signal system what to do at the onset of delinquency

Zero Tolerance Against Delinquency

Alarm Signal SystemWhat to do at the Onset of Delinquency

Session ObjectiveSession Objective

Discuss indicators or “alarm signals” of delinquency

Review strategies to respond timely and effectively to these alarm signals to prevent delinquency from escalating

At the end of the session, account officers should be able to better detect causes of delinquency and have a “toolkit” of measures to apply to respond to and address delinquency

Zero Tolerance against DelinquencyZero Tolerance against Delinquency

Zero tolerance means NO LEVEL OF DELINQUENCY IS ACCEPTABLE!

It is the attitude of the bank management & staff towards loan delinquency – no level of late payment is acceptable. It is an institutional culture in which late payments are totally unacceptable

The bank will aggressively pursue past due clients, whatever the cost, to establish and maintain zero loan delinquency.

Remedial Management ToolsRemedial Management Tools

• Alarm Signals

• Legal Processes

Delinquency Alarm Signals

Delinquency Alarm Signals : Alarm Signal No. 1 - Payment is delayed one (1) day

Actions to be TakenActions to be Taken

Account Officer MFU Supervisor Branch Manager Credit Committee

Determine cause of non-payment and informs Supervisor and BM

Monitor & follow up action taken by AO to effect loan payment

Monitor & follow up action taken by AO to effect loan payment

.

Collect from spouse or co-maker

Follows up loan payment and asks borrower to pay penalty fee within 24 hours of default

Delinquency Alarm Signals : Alarm Signal No. 2 - Payment is delayed three (3) days

Actions to be TakenActions to be TakenAccount Officer MFU Supervisor Branch Manager Credit

CommitteeSpeak with spouse/co-maker and arrange payment

Supervisor accompanies AO during visit to client

Monitors progress of actions taken by MFU re: clients with delayed payments

Withdraws funds from client’s mandatory savings to cover loan payment

Reports clients with delayed payments during weekly CreCom meeting

Delinquency Alarm Signals : Alarm Signal No. 3 - Payment is delayed one (1) week


CommitteeAO (together with Supervisor & BM) deliver 1st Warning Letter

Supervisor signs 1st Warning Letter; accompanies AO in delivering letter

BM signs 1st Warning Letter

Monitors action taken by MFU and BM on delinquent accounts

Demand payment of delinquent installment



AO validates reason for default

BM considers re-scheduling payment, based on AO verification of reason for default.

Delinquency Alarm Signals : Alarm Signal No. 4 - Payment is delayed two (2) weeks


CommitteeAO delivers 2nd Warning Letter

Supervisor signs 2nd Warning Letter

BM signs 2nd Warning Letter

Monitors action taken by MFU and BM on delinquent accounts


Provides CreCom weekly update on PAR collection efforts

BM goes with AO to visit client

BM informs client of drastic measures that the bank will take (blacklist client, file case in Barangay court, enforce Security Agreement/CM)

Delinquency Alarm Signals : Alarm Signal No. 5 - Payment is delayed three (3) weeks


Committee

AO delivers 3rd/Final Warning Letter signed by Branch Manager

Implement “drastic measures” indicated in Signal #4.

Implement “drastic measures” indicated in Signal #4.

Monitors implementation of “drastic measures” indicated in Signal #4

Advise client to talk to bank management to avoid legal action, other client losses option to re-schedule paymentsImplement “drastic measures” indicated in Signal #4.

LEGAL PROCESSES

Steps in enforcing Legal Action

1. Ensure that the borrower has received all three (3) demand/warning letters. Loan documents should be complete and in order in assuring a successful legal action and recovery.

2. File complaint in the Barangay Court• Letter of Complaint• Be ready with loan repayment scheme or program

to be signed by the borrower

3. File complaint with the Local Court

NOTE : What is a Voluntary Offer to Surrender?• A document signifying the intent of the borrower to surrender any of

his/her valuable item(s) on a specified period in case he/she fails to forward the full payment of the loan on an agreed date. The bank can sell the item(s) in case the borrower fails to pay the loan 5-10 days after surrendering the item(s).

• Not a legal document, but binding. The ACT only becomes legal once the borrower signs an Authority to Sell;

• Surrendering the item(s) does not extinguish the loan; loan is considered paid once the bank receives cash in payment for the loan

Action on Court-mandated Agreement

Borrower ActionBorrower Action Bank OptionBank OptionBorrower pays loan in full Bank closes account.

NOTE: NO RELOANS to borrowers brought to court.

Borrower surrenders item/s specified in VOS

Keep visiting client/remind about loan payment

Have borrower sign Authority to Sell, then sell item/s


Borrower ActionBorrower Action Bank OptionBank OptionBorrower does not abide by agreement

Request Barangay Court to issue 2nd (up to the 3rd) summon.

Borrower faces Court a 2nd time

Determine the cause(s) of failure to pay and means of paying, OR determine the cause(s) of refusal to surrender the item(s) specified in the Voluntary Offer to Surrender

DO NOT GIVE BORROWER ANY OPTION OTHER THAN PAYING THE FULL AMOUNT IN LESS THAN 3 DAYS!


Borrower ActionBorrower Action Bank OptionBank OptionBorrower refuses to face court after 2nd and/or 3rd summon

Request barangay court to forward the complaint to the Lupon (barangay council) for deliberation

Request barangay court to file a “Contempt of Court” decision against the client

Request Lupon to issue a Certification signifying the failure of the barangay court to settle the matter due to the refusal of the borrower to cooperate


Borrower ActionBorrower Action Bank OptionBank Option

Borrower refuses to face court after 2nd and/or 3rd summon

Pursue a complaint with the Municipal/City Court for : (i) Collection of Sum of Money.

To Summarize …

Delinquent Borrowers can be Classified into 3 Categories:

• Borrower forgot to pay

• Borrower not able to pay

• Borrower not willing to pay

How to handle Delinquency

Bank ActionBank ActionBorrower forgot to pay Frequent visit

Frequent reminder

Borrower not able to pay Supportive measures:1. Extension of payment

2. Payment arrangement schemes

3. Shared payment with co-makers

Borrower not willing to pay

TAKE LEGAL ACTION

REMEMBER:Constant follow-up is one of the keys to preventing and remedying delinquency.

zero tolerance against delinquency alarm signal system what to do at the onset of delinquency

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