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Introduction............................................................................................................. 1
I.
II.
Research Design........................................................................................................... 7
Methods of Data Collection............................................................................................. 7
Data Analysis.............................................................................................................. 7
Statistical Treatment...................................................................................................... 7
III. Results and Discussion............................................................................................... 8
Table 1.1. Total Non-Performing Assets (2010-2015).............................................................8
Table 1.2. Total Non-Performing Assets from Loans (2010-2015)..............................................8
Figure 1. Proportionate Share of Net Non-Performing Loans to the Total Net Non-Performing Assets
(2010-2015)................................................................................................................ 7
Table 1.3. Trend Percentage of Non-Performing Assets in LTVTP-MPC (2010-2015).....................7
Figure 2. Trend Percentage of Net Non-Performing Assets (2010-2015)......................................8
A.
Credit Assessment.................................................................................................. 9
B.
Property Valuation................................................................................................ 11
C.
Insider Lending.................................................................................................... 12
D.
IV. Conclusion............................................................................................................. 16
V. Recommendation..................................................................................................... 17
VI. References............................................................................................................ 18
VII. Authors Biography................................................................................................. 19
VIII. Appendix............................................................................................................. 20
I. Introduction
The banking sector has always been the resort of
those in need of funds in various areas such as
fishing, mining, construction, manufacturing, and
agriculture. However, cooperatives also contribute to
the economic development of a country. They
supplement the gaps left by the public, private and
Appraisal factors
Poor credit assessment skills of managers
At times, the credit appraisal or the loan application
review might not be prudent. The managers might not
be competent enough to appraise the loan. For the
industry, overall bad management practices are
manifested not only in excess expenditures, but also
subpar underwriting and monitoring practices and
eventually lead to non-performing loans (Berger et al.,
1997).
The work of credit analysts is crucial to the success of
banks and other financial institutions. These
professionals help financial institutions minimize debt
risk and maximize income by determining the risk
involved in authorizing loans or credit lines.
1.
5. Individual crisis
Unpredicted individual crisis may led to loan
delinquency. The crisis may include death of a near
relative, fired from work, salary reduction among
others. This will lead to the profits generated or the
amount borrowed being used to cater for those
unanticipated commitments hence failure to meet loan
repayment deadlines. (Hwandi and Gama, 2015)
6.
2.
Natural disasters
Natural disasters such as floods, drought and
earthquakes may hinder the monitoring the progress of
the project, for example appraisal visits may thwarted
F.
Conceptual Framework
Profile of LTVTP-MPC
Financial Statements (2010-2015)
Policies/Regulations on Loans
Profile of Loan Appraiser and Loan Officer
Independent
Variable
Insider lending
Seizing and disposing off collateral
Failure to adhere lending policies
Lack of Follow-up measures or communication
Dependent
Variable
Expected
Outcome
2.
3.
6
Profile of LTVTP-MPC
II. Methodology
This chapter contains the research design. It presents
the following: method of data collection, data analysis
and statistical treatment of data.
Statistical Treatment
The statement of financial position of the cooperative
was used to compute for the increase or decrease of the
non-performing assets as a whole and non-performing
asset coming from the loans itself. The researchers
used the trend analysis to compute for the percentage
change for the past six years using 2010 as the base
year. The formula is:
Research Design
This research used a case study under descriptive
method. A case study is defined as doing research
which involves an empirical investigation of a
particular contemporary phenomenon within its real
life context using multiple sources of evidence. The
aim is to identify causal factors to some abnormality or
deficiency and to find and recommend a solution, a
treatment, or development procedures. A case study
strategy is mostly used in exploratory and explanatory
research. This study focused on explanatory research
which is referred to as analytical study. The main aim
of explanatory research is to identify any causal links
between the factors or variables that pertain to the
research problem. Such research is also very structured
in nature.
Trend % =
Comparison Year
100
Base Year
Trend% =
Trend% =
Trend% =
Data Analysis
The study used both qualitative and quantitative
approaches. The quantitative approach focused on
obtaining percentage increases or decreases based on
the statement of financial position for the past 6 years
(2010-2015) of LTVTP-MPC. The interview and
questionnaire, on the other hand, made up the
qualitative approach of the study as this focused on
answering the probable causes of the increase of NPA.
III.
The following figures and tables below present the profile of the cooperative based on the financial statements of
LTVTP-MPC, in terms of the total non-performing assets, total non-performing assets from loans, proportionate share
of non-performing assets from loans to total non-performing assets, and trend percentage of non-performing assets. The
values were lifted from the books of the company, specifically the statement of financial position of the said
cooperative.
Item/Year
2010
2011
2012
2013
2014
2015
Other
Receivables
3,949,732.86
3,508,742.35
11,248,587.01
20,273,348.46
11,621,766.61
9,912,744.90
Unused Office
Supplies
122,033.00
141,966.00
124,717.00
119,608.50
218,590.34
211,807.84
57,900.31
118,683.50
202,914.85
2,940,083.00
935,737.00
575,241.00
162,888.85
165,603.34
232,595.45
684,961.93
477,285.24
249,051.08
10,771,891.49
11,931,745.42
11,502,623.63
18,403,062.87
10,934,165.72
18,488,137.87
15,064,446.51
15,866,740.61
23,311,437.94
42,421,064.76
24,187,544.91
29,436,982.69
Prepaid
Expenses
Total Property
and
Equipment
Total Other
Non- Current
Assets
Total Net
NonPerforming
Asset
2010
2011
2012
2013
2014
2015
3,951,831.30
5,455,208.80
6,512,321.55
9,164,152.01
9,794,317.22
15,301,447.45
Unearned
Income
(686,383.96)
(1,169,824.47)
(1,635,954.23)
(1,899,243.23)
(1,951,745.17)
(2,674,003.62)
Total Net
NonPerforming
Loan
3,265,447.34
4,285,384.33
4,876,367.32
7,264,908.78
7,842,572.05
12,627,443.83
Figure 1. Proportionate Share of Net Non-Performing Loans to the Total Net Non-Performing Assets (2010-2015)
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2010
2011
2012
2013
2014
2015
Figure 1 above shows the increase of NPA from loans in relation to total NPA. With the NPA from loans having the
most contribution in 2014 (32.42%) and 2015 (42.90%). Although the year 2013 (17.13%) shows a decrease in
percentage, it does not necessarily mean a decrease in amount which is shown on Table 1.2 that the total NPA made a
boom in 2013, showing that the cooperative started to have difficulties in handling NPA, and so the percentage of NPA
from loans to total NPA decreased.
Table 1.3. Trend Percentage of Non-Performing Assets in LTVTP-MPC (2010-2015)
Item/Year
2010
2011
2012
2013
2014
2015
Net NonPerforming
Asset
Trend
Percentage
(Year 2010 as
the base)
15,064,446.51
15,866,740.61
23,311,437.94
42,421,064.76
24,187,544.91
29,436,982.69
100.00%
105.33%
154.74%
281.60%
160.56%
195.41%
Table 1.3 shows the increase in NPA both in peso amount and in percentage, 2010 being the base year. The NPA made a
boom in the year 2013 which approximately reached 181.60% increase from the base year. In year 2015, the company
managed to lessen NPAs to 95.41% increase.
281.60%
300%
250%
195.41%
200%
150%
100.00%
100%
160.56%
154.74%
105.33%
50%
0%
2010
2011
2012
2013
2014
2015
Fig
ure 2. Trend Percentage of Net Non-Performing Assets (2010-2015)
Figure 2 shows a graphical presentation of the increase in NPA from 2010 to 2014, reiterating that 2013 having the
highest increase of 181.60%.
10
The following data presents the responses of the cooperative based on the questionnaire given to the manager,
collectors, credit committee, and audit committee in terms of the probable internal causes of the increase in the NPA:
A. Credit Assessment
A.
i.
ii.
Yes ___No
A.2 Does the loan officer have any credit or financial risk-related certification? __Yes No
a.
A.3 Does the loan officer have any related experience in assessing credit risk of debtors?
NO
___YES, please fill up the table below.
Corresponding Period of Experience in
years
Organization/Activity
1.
2.
3.
A.4 Has the loan officer attended any recent seminars or trainings regarding credit risk assessment?
NO
___YES, please fill up the table below.
Event Title
Year
1.
2.
3.
B.
11
B.1 How does the loan officer assess the credit rating of borrowers?
Always
a.
b.
c.
d.
e.
By checking payment
history on existing
credit relationships
and the probability of
successful repayment
Checking how much
the owner has
invested
Asking for additional
forms of security
Focusing on the
intended purpose of
the loan
Using subjective
opinion/impression
(education,
experience references
and trust) of the
borrower
Often
Sometimes
Seldom
Never
Analysis
B. Property Valuation
A.
12
Corresponding
Years in Practice
6 years
B.
Real Estate
(such as Land
and Building)
b.
Marketable
Securities
(such as
Stocks and
Bonds)
Inventories
(Such as
Vehicle and
other movable
property)
c.
Often
Sometimes
Seldom
Never
__Seldom
__Never
Analysis
Under the Philippine laws, it is a requisite to pass the
real estate licensure examination as every real estate
practice needs to be licensed. The appraiser of the
cooperative attained a bachelors degree in real estate
management and has been practicing as a real estate
appraiser for 6 years.
Which of the following are instances when loan is given out to employees?
13
Always
1.
2.
Sometimes
Seldom
Never
3.
Medical Emergency
Loan
4. Special Loans
Others, please specify:
B.
Often
Commercial Loan
Loan with collaterals
Does the cooperative treat loans from members and employees alike?
___Yes
No
If NO, what are controls or policies unique to the loans given to employees?
a. Lower interest rate = 7% per annum
b. Longer grace period for repayment = maximum of 15 years
c. No collateral needed = direct payroll deduction
Analysis
not they are capable of paying the debt within the given
period for repayment. The employees are given a
maximum of 15 years for repayment of their debt and
have a lower interest rate of 7% per annum as
compared to the 12% interest rate given to the other
members. This is inconsistent with Circular No. 423
which states that dealings of a bank with any of its
Directors, Officers, Stockholders and their Related
Interests should be in the regular course of business
and upon terms not less favorable to the bank than
those offered to others.
D.
20% to
40%
40% to
60%
60% to
80%
If you dispose the collateral, which of the following ways do you dispose the collateral?
Always
Often
Sometimes
14
Seldom
Never
80% to
100%
B.
If the cooperative cannot dispose the collateral even with reasonable diligence, what are the reasons?
a. High cost due to high appraisal
b. So far, not within the business center
c. Not properly inspected
Analysis
Based on the data gathered, the cooperative only
accepts land and/or building as collateral. The disposal
of the collateral is either through selling the collateral
by private or public sale or leasing the collateral or
depending on what the borrower and the cooperative
agreed upon. . The cooperative is able to seize at most
80% of its collaterals and dispose at least 80% of these
collaterals but are only able to dispose them at most
20% of their value because
B.
C.
__seldom
__never
Are the lending policies well disseminated to officers and members of the cooperative?
__Yes
No
E. Analysis
F.
15
K.
L.
M.
N.
O.
P.
H.
I.
Q.
T. F.
U.
a.
Do you give notice to the borrowers before their due date of payment?
V.
Yes
__No
W.
1.
X.
If yes:
Notice is given through
Y.
Z.
AE. Text
AK. Call
AQ. E-mail
AW. Letter
Al
w
ay
s
AF.
AL.
AR.
AX.
AA. O
ft
en
AB. Som
etim
es
AC. Se
ld
o
m
AD. N
ev
er
AG.
AM.
AH.
AN.
AI.
AO.
AJ.
AP.
AS.
AY.
AT.
AZ.
AU.
BA.
AV.
BB.
BC.
2.
Notice is given
BD.
BE. A
l
w
a
y
s
BK.
BQ.
BW.
BF.
Oft
BG. Som
etime
s
BI.
Ne
BM.
BH. S
e
l
d
o
m
BN.
BL.
BR.
BS.
BT.
BU.
BX.
BY.
BZ.
CA.
16
BO.
CC.
CD.
CE.
CF.
CG.
CI.
CJ.
CK.
CL.
CM.
CO.
CP.
a.
a.
CX.
CY. Analysis
DA.
DB.
DC.
DD.
DE.
DF.
DG.
DH.
IV.
Conclusion
DI.
DJ. From the findings of the study as provided
above, the following conclusions can be
drawn:
1.
17
DL.
DM.
DN.
DO.
2.
DX.
DY. .
DZ.
EA.
EB.
EC.
V.
Recommendation
ED. Based on the data gathered and analysed, the
researchers, recommend that: LTVTP-MPC
should have clear and effective credit or
lending policies and procedures and must not
be skipped. It should be noted that policies
and procedures are to be followed and the
cooperative must respond quickly to solve the
problem. Follow-up measures should be
conducted days before and after the due date
to remind the borrowers improve the cash
collection system for effective monitoring.
EG.
18
References
Addae-Korankye, A. (December 2014). Causes and Control of Loan Default/Delinquency in Microfinance Institutions
in Ghana. American International Journal of Contemporary Research. p.38-39. Retrieved from:
http://www.aijcrnet.com/journals/Vol_4_No_12_December_2014/5.pdf
Andreyev, A. (July 12, 2016). How do I enforce my PPSR
http://andreyev.com.au/blog/2015/03/12/how-do-i-enforce-my-ppsr-interest/
interest?.
Retrieved
from:
Arko, S. (2012). Determining the causes and impact of non performing loans on the operations of microfinance
institutions:
A
CASE
OF
SINAPI
ABA
TRUST.
Retrieved
from:
http://ir.knust.edu.gh/bitstream/123456789/4958/1/FINAL%20THESISSAMUEL%20KOFI%20ARKO.pdf
Lee, G. (March 2, 2016). Why Experience Is More Important Than Your Education. Retrieved from:
http://aiesec.ca/blog/why-experience-is-more-important-than-your-education/
Morah, C. (June 11, 2014). Analyzing A Career In Credit Analysis.
http://www.investopedia.com/articles/financial-careers/09/career-credit-analysis-analyst.asp
Retrieved
from:
North Shore Bank (August 19, 2013). What is Collateral and Why is It Important? Discover how collateral; can be an
important part of the loan process. Retrieved from: https://www.northeastshorebank.com/what-is-collateral-andwhy-is-it-important.aspx
Owino, E. (2012). The effect of the lending policies on the levels of non-performing loans of commercial banks in
Kenya.
Retrieved
from:
https://www.google.com.ph/?
gfe_rd=cr&ei=ZjcxWNyJPKLK8geyiaV4&gws_rd=ssl#q=The+effect+of+the+lending+policies+on+the+levels+of
+non+performing+loans+of+commercial+banks+in+Kenya
Republic Act (R.A.) No. 6938: Cooperative Code of the Philippines
Republic Act (R.A.) No. 9646: The Real Estate Service Act of the Philippines
Richard, E. (2011). Factors That Cause Non-Performing Loans in Commercial Banks in Tanzania and Strategies to
Resolve Them. Journal of Management Policy & Practice. 2011, Vol. 12 Issue 7, p50-58. 9p. Retrieved from:
http://web.a.ebscohost.com/ehost/detail/detail?sid=4ec4c431-0ef74925b3369b445659294d
%40sessionmgr4008&vid=0&hid=4109&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=71665972&db=bth
Sanjeev, G. (2007). Bankers' Perceptions on Causes of Bad Loans in Banks. Journal of Management Research
(09725814). Vol. 7 Issue 1, p40-46. 7p. Retrieved from: http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?
sid=dc3bb93a-24d1-4815-ab3d-4c9dd796734c%40sessionmgr105&vid=1&hid=118
Song, I. (2002). Collateral in Loan Classification and Provisioning WP/02/112. IMF Working Paper, Monetary and
Exchange Affairs Department. p. 4.Woo, D. (2000). Two Approaches to Resolving Nonperforming Assets During
Financial Crises. IMF Working Paper. p. 3. Retrieved from: https://books.google.com.ph/books?id=zCGWdPGI2YC&printsec=frontcover#v=onepage&q&f=false
Vivek Rajbahadur Singh (2016).A Study of Non-Performing Assets of Commercial Banks and its recovery in India.
Annual Research Journal of Symbiosis Centre for Management Studies, Pune Vol. 4. Retrieved from:
http://www.scmspune.ac.in/chapter/2016/Chapter%209.pdf
VII.
Authors Biography
DATSUN C. MONTES, CHERRY MAE G. LIM, SIBLEY JANE B. GANASE AND KAREN B.
PANINGBATAN, are fourth year Accountancy Students of the School of Accountancy and Business Management,
19
Saint Louis University, Baguio City, Philippines, ERLINDA G. BIALNO, is their adviser in Accounting 403a,
Management Consultancy I (Thesis).
20
VIII. Appendix
Dear respondents,
We, the researchers, currently enrolled in Saint Louis University are conducting a study about the
Causes of the Increase in Non-Performing Asset (NPA) of La Trinidad Vegetable Trading Post
Multi-Purpose Cooperative (LTVTP-MPC): A Case Study in partial fulfillment of the requirements
of the degree of Bachelor of Science in Accountancy.
In line with this, may we ask for your support by answering the following questions objectively.
Rest assured that your answers will be used for academic purposes and will be treated with utmost
confidentiality.
Thank You!
Sincerely yours,
Montes, Datsun
Ganase, Sibley Jane B.
C.
Noted by:
Erlinda G. Bialno
Adviser
21
A.3 Does the loan officer have any related experience in assessing credit risk of debtors?
___ NO
___YES, please fill up the table below.
Corresponding Period of Experience
in years
Organization/Activity
1.
2.
3.
A.4 Has the loan officer attended any recent seminars or trainings regarding credit risk assessment?
___ NO
___YES, please fill up the table below.
Event Title
Year
1.
2.
3.
22
Always
Often
Sometimes
Seldom
Never
By checking payment
history on existing credit
relationships and the
probability of successful
repayment
Checking how much the
owner has invested
Asking for additional
forms of security
Focusing on the intended
purpose of the loan
Using subjective
opinion/impression
(education, experience
references and trust) of
the borrower
2. Property Valuation
a.
Corresponding
Years in
Practice
b.
23
___ 20-25
Others: Please Specify _____
B.2 What types of security or collateral are usually offered by the borrowers to secure loans?
24
Always
Often
Sometimes
Seldom
__never
Never
TO THE MANAGER:
INSTRUCTION: Put a check mark to your corresponding answer/s. Items not answerable by yes or no can have
multiple answers.
1. Insider lending
i. Which of the following are instances when loan is given out to employees?
Always
Often
Sometimes
Seldom
Commercial Loan
Loan with collaterals
Medical Emergency
Loan
Special Loans
Others, please specify:
Never
ii. Does the cooperative treat loans from members and employees alike?
___Yes
___ No
If NO, what are controls or policies unique to the loans given to employees?
2. Seizing and disposing off the collateral
A. Does the cooperative find it difficult to seize the collateral?
___Yes
___No
If yes, what are the reasons?
Please put a check mark to your corresponding answer.
0% to
20%
20% to
40%
40% to
60%
If you dispose the collateral, which of the following ways do you dispose the collateral?
60% to
80%
80% to
100%
Always
Often
Sometimes
Seldom
Never
If the cooperative cannot dispose the collateral even with reasonable diligence, what are the reasons?
a.
b.
c.
INSTRUCTION: Put a check mark to your corresponding answer/s. Items not answerable by yes or no can have
multiple answers.
1. Adhering to lending policies
a.
b.
c.
__never
Are the lending policies well disseminated to officers and members of the cooperative?
__Yes
__No
INSTRUCTION: Put a check mark to your corresponding answer/s. Items not answerable by yes or no can have
multiple answers.
1. Follow-up measures or communication
Do you give notice to the borrowers before their due date of payment?
__Yes
__No
If yes:
Notice is given through
Always
Text
Call
E-mail
Letter
1.
2.
Often
Sometimes
Seldom
Never
Notice is given
Always
Often
Sometimes
Seldom
__never
a.
b.
Never