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Day II - Session 1
Loan Write Offs
Lesson Objectives
Management of
Hardcore Delinquent Accounts
Remedial Management includes a series of options to collect
hardcode delinquent accounts. These options include:
Loan write-offs
Debt Recovery Program
Collection Agencies
Legal options
Flow of
Procedures to
Identify and
Manage
Hardcore
Delinquent
Accounts
REMEDIAL
MANAGEMENT
IDENTIFY/CLASSIFY
ACCOUNTS
COLLECTIBLE
Debt Recovery
Program
Collection
Agencies
UNCOLLECTIBLE
Legal
Actions
Loan Write-Offs
Loan Write-Offs
Definition
Removing a loan account from the
banks active portfolio and classifying
that loan as written of
It is an accounting function where a
written of account is classified from
active to bad debts written of;
2.
3.
4.
5.
Loan portfolio becomes loaded with nonperforming assets; size of loan portfolio and
assets becomes misleading.
Amount of portfolio at risk will continue to be high
Instead of generating new and good accounts,
AOs & supervisors spend more time for follow up
and collection that produces minimal results.
Bank does not get the benefits from the expenses
already incurred for loan/loss provisioning.
P100,000,000
100,000,000
Operating expenses
50,000,000
50,000,000
Other expenses
20,000,000
20,000,000
5,000,000
(5,000,000)
5,000,000
(5,000,000)
5,000,000
P 30,000,000
P25,000,000 ??
9,600,000
8,000,000
Item
Gross Income
Less:
Tax savings
P1,600,000
P 55,445,225
4,353
P 12.2 million
P 6.8 million
P 5.4 million
PAR Ageing
# Accts.
PAR Amt
%*/
Estimated Loan/loss
provisions
878
6,984,766
12.59%
211,399
365
1,432,378
2.58%
398,455
1667
3,985,367
7.18%
3,985,367
P xxxxxx
( xxxxxx )
( xxxxxx )
P xxxxxx
Note:
The loan-loss provision stated in the balance sheet is an allowance serving
as reserves or buffer for future credit loss.
It is only during actual write offs, that these reserves are utilized
Interest expense
Compensation/benefits
Bad debts written off
Provisions (loan-loss)
Etc
P xxxxxx
xxx
xxx
xxx
xxx
xxx
P xxxxxx
P xxxxxx
Loan Write-Offs
---
Disadvantages . .
The bank experiences a temporary reduction in
portfolio and outreach
However
-- removing hardcore delinquent loans from the
portfolios of account officers and transferring them
to a specialized unit for recover enables account
officers to focus on monitoring exiting accounts and
generating new productive accounts.
Loan Write-Offs
Regulatory Policies
Loan Write-Offs
Procedural steps prior to write off
Loan Write-Offs
Procedural steps prior to write off
The bank exerted all remedies and collections efforts
to collect from the client, such as those contained
in the banks alarm signals (See MABS PAR Form 1.2)
Loan Write-Offs
The Process
Loan Write-Off
The Process. . .
Loan Write-Offs
Documentary requirements
o
Loan Write-Offs
In Sum