A.

Cause
Banks/Cooperatives failed to collect amount of loans that they
provide to debtors. Some of the customers the bank has granted
Unsecured

loans to default on their loans. More and more of the banks’

borrowers either tell the bank that they are no longer able to
Loans

repay their loans, or simply fail to pay on time for several

months. The bank may now decide that these loans are ‘under-
performing’ or completely worthless and would then ‘write
down’ the loans, by giving them a new value, which may even
be zero. Certain bad loans would not be repaid, they can be
removed to balance sheet. Now, with the bad loans having wiped
out the shareholders equity, the assets of the bank are now worth
less than its liabilities.

B. Strategic Plan

CREDIT STRATEGY DEVELOPMENT AND EXECUTION OF MONITORING ALL

MONEY TRANSACTIONS THROUGH BANK MERGERS AND ACQUISITION ON
LENDING INFORMATION OF CUSTOMERS
The aim of credit risk management is to maintain credit risk exposure with in proper and
acceptable parameters. For this, banks need to manage not only the entire portfolio but also
individual credits. A review is vital for any bank's long term success and future. Loans make up
for the biggest risk for any bank or lending institution. A good and reputed credit risk
management company should be chosen for this task so that not only is there proper risk
management but also good recommendations and correct estimates. A bank's reputation is at
stake with credit risks and this is not taken lightly at all by any of the financial institutions who
are serious about their image and of looking at long term effects of the same.

MERGE WITH OTHER BANKS/COOPERATIVES CUSTOMER CREDIT

STANDING

CREDIT Payment Total Length of Types of New credit

SCORE History Amount owed credit History Credit
FACTORS

SOURCES Foreign Interbank

OF CREDIT exchange Swaps Bonds Equities transactions
RISK transaction
The banks/cooperatives need to ensure adequate controls over credit risk by analyzing different
sources of credit risk such as foreign exchange transactions, swaps, bonds, equities, and
interbank transactions. The key objectives they aimed to achieve through this engagement were
as follows:

Objective 1: The banks/cooperatives need to address the largest source of credit risk i.e., loans
apart from managing other financial instruments.

Objective 2: They were also interested in tracking changes in economic factors that were leading
to deterioration in the credit standing of the institution’s counterparties.

In line with the strategic plan objective number 2 above, the next thing to do is to have a Credit
management software procurement Market intelligence report

SOLVENCY ANALYSIS

UNPAID COLLECTION

SECURE COMMERCIAL CONTRACTS

 REAL TIME CONTROLLING

This strategic plan is balancing the opportunity and risk. One of the plans that is needed to be
able to develop a well-secured banks/cooperatives is to know your customers. Unsecured debts
are rooted to failed credit management. In order to build a secured debts, we need first to monitor
the financial transactions efficiently, securely and conveniently.

The point here is, banks/cooperatives need to go deeper into borrower financials and business
models or employment background.

A. Risk of the strategic Plan

DISRUPT CREDIT RELATIONSHIP

It will negatively impact small businesses,
higher credit score will means lower chances
for starting businesses

REDUCTION ON CREDIT
AVAILABILITY
Borrowers will face reduction in their total
 involved in the merger.

CHANGES IN OPPORTUNITY COST

INVESTING
Mergers tend to imply more extensive
reorganization within the new bank, and hence
a greater likelihood of loss of soft information.

DISRUPT CREDIT RELATIONSHIP

One limit of the available evidence on the effects of bank mergers and acquisitions on lending is
the lack of information on the consequences for individual borrowers. The majority of
existing studies are based on bank level (or bank holding company level) data or on market level
data. Results from microeconomic data on individual bank-firm relationships support the view
that consolidation disrupts credit relationships, particularly those of small businesses. The
conclusion based on that credit relationship is more likely to be severed after a merger, and that
this probability is relatively greater for smaller firms.

REDUCTION ON CREDIT AVAILABILITY

This negative impact of mergers on credit relationships is not sufficient to infer that borrowers
will face a reduction in their total credit availability after their lenders have been involved in
mergers. To the extent that borrowers are able to insure against shocks affecting their lenders
(including bank mergers) by having multiple banking relationships, or can find other lenders ex
post, the availability credit to them will not change. Other lenders may step in and compensate
for the reduction in credit provided by the consolidating banks.

The number of lenders, is motivated by the view that multiple relationships are maintained as a
buffer that protects firms from bank shocks. If firms establish relationships with many banks to
stabilize their credit sources, those with a large number of lenders should be insulated from any
adverse effect of consolidation, whereas those depending on a small number of lenders might
not. The focus on borrowers of different quality is motivated by the conjecture that banks do
reassess their portfolios and cut credit, but only to borrowers of negative net present value. If this
is the case, the reduction in credit following mergers would not necessarily reduce welfare. As
explained below, we measure the credit-worthiness of firms using scores based on discriminant
analysis

CHANGES IN OPPORTUNITY COST INVESTING

Changes in investment cash flow sensitivity of borrowers from merged banks could help detect
changes in the opportunity cost of investing. A firm may be more constrained in its expansion
even if there is no reduction in current credit volumes. Hence, it may need to resort to a greater
extent to internally generated funds to finance investment. A third contribution of our analysis is
that we distinguish between mergers and acquisitions. Mergers include all the cases in which two
or more entities form a new bank; acquisitions include cases in which a holding company or
another bank takes over the acquired institution but the acquirer and the acquired remain separate
entities. Banks often acquire other banks and maintain the charter of the acquired banks

as a way to enter a market while preserving existing relationships. We expect these two types of
consolidation to have different effects on credit relationships. In particular, mergers tend to
imply more extensive reorganization within the new bank, and hence a greater likelihood of loss
of soft information. Acquisitions, instead, tend to be followed by the replacement of top and
middle management but preserve local knowledge. we differentiate firms based on proxies of
their dependence on relationship based lending or, more generally, the extent to which they face
barriers in accessing credit markets. In particular, we consider size, number of relationships and
credit-worthiness.

B. Benefit of the Strategic Plan

Debt management Guide

LOW RISK OF UNSECURED DEBT

Enhanced the credit granting process by
identifying customers who were over-indebted.

PREDICTIVE INSIGHTS
Building an appropriate credit administration,
measurement and monitoring proces
 BANKS/COOPERATIVES CHALLENGE
To address the largest source of credit risk i.e.
loans apart from managing other financial
instrument

In partnership with the credit information with other banks – a well-established financial
services institution – improved their credit risk management and reduced bad debt by adapting
credit management strategies. The solution offered helped them to:

 Enhance the credit-granting process by identifying customers who were over-indebted or

on the verge of becoming over-indebted.
 Build an appropriate credit administration, measurement, and monitoring process.
The solution offered helped the financial services firm to devise credit risk strategies and extend
the appropriate amount of credit to qualified buyers. This increased incremental credit loss
savings and minimized costs for the company. The solution offered, helped the client to
determine the financial position of their customers and ensure responsible lending.

C. Possible outcome/effects of the proposed strategic plan

Possible effect
Mr. Madriaga

TAKE LOAN

P1,200,000 AT 20% PER ANNUM

Purchase car worth P1,200,000 Risk Management Check

 HIGHER CREDIT HIGHER CREDIT
RISK RISK

Mr. Madriaga Loan application

may Rejected Get the approval for Loan

Will allocate lower money

Possible Outcome;

Scale

A bank/cooperative merger helps will help the institution scale up quickly and gain a large
number of new customers instantly. Not only does an acquisition give bank more capital to work
with when it comes to lending and investments, but it also provides a broader geographic
footprint in which to operate. That way, they achieve your growth goals quicker.

Efficiency
Acquisitions also scale bank more efficiently, not just in terms of efficiency ratio, but also in
terms of banking operations. Every bank has an infrastructure in place for compliance, risk
management, accounting, operations and IT – and now that two banks have become one, you’re
able to MORE EFFICIENTLY CONSOLIDATE AND ADMINISTER THOSE
OPERATIONAL INFRASTRUCTURES. Financially, a larger bank has a lower aggregated
risk profile since a larger number of similar-risk, complimentary loans decrease overall
institutional risk.

Business Gaps Filled

Bank mergers and acquisitions empower your business to fill product or technology gaps.
Acquiring a smaller bank that offers a unique revenue model or financial product is sometimes
easier than building that business unit from scratch. And, from a technology perspective, being
acquired by a larger bank might allow your institution to upgrade its technology platform
significantly.

D. Implementation of the strategic Plan

Before the implementation of banks/cooperative merger and acquisition of borrowers lending

information, we need to ensure a proposed plan that would benefit all firms, not just your firm but
all banks. This is a collaborative team.

Procedure 1: Multidisciplinary team consultant.

Collaborative team with other banks/cooperatives multidisciplinary team consultant. A

typical consulting service involves a specialist (the consultant) being invited to lend his
or her expertise to an organization, group, or individual (the client). Multiple consultants
can come together on the same project, making the format more complex because the
consultants now work as a team. This refers to intradisciplinary and interdisciplinary
teams, indicating persons with different specialties and/or interests, but all within the
same discipline. A multidisciplinary team is composed of consultants from different
disciplines working as a unit.

Multidisciplinary teams are an excellent way to maximize opportunity, combine skills,

expertise, resources and balance sheets. This enables the individual organization to compete on a
larger scale to enhance their profile, increase market share, diversify their areas of expertise and
collaborate with industry leaders. 

Procedure 2: Payment Monitoring/ Credit management improvement

The validation of credit limits is done on the basis of formal delegations thresholds written in an
approval matrix, part of the credit management policy. The credit management team is involved
only in support of sales managers to provide them with the information they need. Being cut off
from the customer relationship, it is dependent on information from business managers which
may be given according to their interest. This positioning puts credit team in a weak situation
and does not allow to reach a good performance.