Management of Hardcore Delinquent Accounts

The Case of BayWalk Bank, Inc.

Answer Sheet
Causes of Delinquency

1. Management commitment

 Defective hiring policies

 Lack of training program for officers and staff including members of the
microfinance unit.
 No established compensation package commensurate to the production and
performance of the staff.
 Failure to provide transition period or time for new account officers assuming
the accounts of resigned AOs.
 Lack of management commitment and support in microfinance.
 Lack of support staff for the president to monitor the performance not only of
microfinance but also the other units of the bank.

2. Product features

 Failure to read the demand and needs of the market. The bank adopted ‘one
product fits all’ policy. They completely ignored the higher end accounts
whose needs could offset the higher cost of the small segment market.
Likewise, this could be the reason for the high PAR in the HO and San Pablo
branch. These areas are highly urbanized whose market requires bigger loan
size.
 Lack of market research analysis on the part of the bank. It failed to
anticipate the entry of competitors and did not continue to innovate the
product.
 The bank’s incentive schemes are based on production without considering
portfolio quality, hence, the bigger the numbers the higher the incentives.

3. Product delivery

 Negative impact to the bank due to lack of quality customer service in the
delivery of the product.

4. Procedural issues

 CIBI delivery, cash flow analysis and documentation procedures

 Loan size increases are not regulated
 Collection and follow up is not done consistently by the AOs. Supervisors and
branch managers do not enforce close monitoring and follow-up.
5. Supervision

 The Crecom cannot function and deliver on its responsibility as a guardian

and control unit in the delivery of the microfinance product. It is dependent
and relies most of the time from the account officers recommendation. They
could not intelligently evaluate loans coming their way due to their lack of
knowledge/training on the basic microfinance practices;
 Lack of supervision by MF supervisors due to multitasking;

6. MIS

 Branch managers, supervisors and account officers do not understand the

information presented in the MIS generated reports.
 Branch managers, supervisors and account officers do not use the MIS
generated reports to detect, classify and monitor delinquency.

7. Provisioning and write offs

 Lack of understanding in the value and benefits of a write off.

 Lack of program of action in the management of hardened accounts

8. Loan/loss provisions

 Refer to the answer sheet for the PAR Exercise.