Criteria for credit status
Introduction
The changes that have occurred in the international political-economic environment that the country has been working on have given rise to a process of decentralization of economic activity in general, which demands the manipulation of services and capacities in the banking system, which has had to go through by radical transformations; Hence the need for banking institutions to grant loans to the population and establish debt recovery mechanisms with an optimal level of efficiency and effectiveness.
To achieve increasingly high levels of efficiency within this process, it is necessary for managers to have a theoretical basis and apply a Management System that guarantees a prompt recovery of immobilized debts, monthly, in the segment of the Disengaged and Retirees and that also makes it possible to rigorously measure the effectiveness of the use of the financial resources granted.
In this context, good credit management does not consist only in establishing the volume of credit granted and the payment terms of the clients, in this sense. It is essential to carry out an adequate policy for the prevention of delinquency, and in the event that it occurs, take the necessary steps to minimize its negative effects.
In all this process, the work carried out by the Banco Popular de Ahorro (BPA) as part of the national Banking and Financial System is decisive, as it serves the highest percentage of credits granted to the Natural Persons Segment. Suffice it to point out that from 2005 to date, the bank has financed 4.8 million household appliances, amounting to 10 billion pesos, a process that began with the massive delivery of items to all Cuban families with the purpose to contribute to the saving of energy carriers on the island. From that moment on, the purchase of said items was financed through social loans granted to the population, with ample payment facilities.
As a consequence of the above, the risk that the institution assumed for debt collection increased, with the banks involved being responsible for the recovery of the resources invested as part of the economic recovery cycle, which in the case of the segment of retirees and pensioners who collect their income in different payment centers, as is the case of the mail, increases the risk due to the noticeable aging of the population and the lack of a feasible way to pay their monthly obligations with the bank.
This situation causes the bank insufficient recovery of credits, raising the rate of delinquent and immobilized cases, as well as affecting the release of liabilities that hinder new possibilities of placing in the market and hinders the obtaining of bank income. In another sense, it brings with it a greater influx of public by those who go to the bank, which has an adverse impact on external customer service.
It is precisely in this context that the investigation entitled "Proposal of policies to reduce the delinquency of social loans granted to the segment of natural persons by the Popular Savings Bank in the municipality of Santiago de Cuba" was developed and which was outlined as a problem to solve the following:
Are the high recovery rates of social loans granted to the segment of natural persons having a negative impact on the delinquency of the BPA portfolio in the Santiago de Cuba municipality?
In the search for solutions to the problem situation described, the General Objective was formulated:
1. Propose policies that contribute to reducing the high rates of recovery of social loans granted by the BPA to the segment of individuals, with a view to cleaning up the financing portfolio of the Santiago de Cuba municipality.
To fulfill the previous objective, the following specific objectives were formulated:
- Characterize the process of granting social loans to the segment of natural persons in the BPA in Santiago de Cuba, delimiting their impact on the economic management of the selected branches Propose policies that contribute to reducing the high recovery rates of social loans granted by the BPA to the segment of individuals in the Santiago de Cuba municipality. Apply the proposed policies and evaluate their impact on the economic-financial management of the BPA branches of the Santiago de Cuba municipality.
The hypothesis formulated, based on the stated scientific problem is the following:
The application of policies in the BPA branches in the municipality of Santiago de Cuba, would contribute from an adequate structuring, to the decrease of the high recovery rates of social loans granted to the segment of natural persons.
Development
Policy proposals to reduce the high delinquency rates of social loans in the BPA.
Before moving on to the proposed policies, we proceed to show the concept of Collection Policy, which is defined as the procedures used by a company in its efforts to make its accounts receivable effective in the shortest possible time once they expire; terminology closely linked to the termination of the management of recovery of credits to the population, for which the policy proposal is formulated to reduce the high delinquency rates of social credits in the BPA.
Policy 1: The effective date of payment is proposed as the only recovery criterion.
Premises for its application.
The proposal of this policy starts from taking into consideration the diagnosis of the current situation of the recovery of credits in the Santiago municipality, taking into account the behavior of the recovery during the analyzed period (2012).
The recovery of credits is managed through two computer systems: The System carried out by the province of Pinar del Río and the Operating System. For its part, the Pinar del Río System covers all the managerial information on the subject of credit recovery, where the information on this activity is processed at the higher levels, it reports a single credit category (immobilized), that is, it summarizes in this to the (immobilized, possible, defaulters) and sometimes credits per day.
By way of illustration, suffice it to say that calculating the month from the last day the customer paid, for example: A credit that was paid on 2/20/2010 on 3/21/2010 is already immobilized, these credits are not immobilized for the SIBPA, it does not allow the manager to take the voucher to carry out the collection management, due to the disparity of the recovery criteria that exist between both systems. In addition to having to manually analyze the different statuses, to report to the management levels weekly because the information must be done by dividing the Fixed and Possible credits.
The Operating System: Comprehensive system that covers all operations in the commercial area, including the recovery of credits to the population and that we detail below:
- Settlements of the collections made by the Correos de Cuba (ECC) agencies Settlements of the charges made by the BPA collection managers The entire transfer process sent and received is carried out Reports are issued from the different states of the credits, as established in the MIP. Reports are issued on the different status of the collections delivered to the managers.
This operating system in its reports for monitoring the recovery work, establishes three states to categorize the credits to the population based on the last time the customer appeared to pay, breaking it down into delinquent, possible and immobilized, establishing as criteria a time determined to move from one state to another (Table 2.3). Complying with the provisions of the Instructions and Procedure Manual (MIP).
Table 2.3 Criteria for the status of credits
Criteria for credit status
Source: BPA Instructions and Procedures Manual, 00-233.
Difficulty of the system today:
- There are charges reported by the Pinar del Río program as fixed assets that the computer system does not allow the manager to collect to carry out the collection management, due to the disparity of the recovery criteria that exist between both systems. The computer does not allow to post in the commercial the collections made by the postmen who belong to a branch other than the branch where the settlement is made, having to be settled directly at the cashier, running the risk that the corresponding commissions will not be paid to the ECC, In addition to delaying the service, since the box is posted one by one, the sequence of the collections returned by the collection managers is lost,when the credit is changed from the payment center or transferred to another branch, losing its real status and disappearing in the system as if they had never been issued.
Theoretical foundation
It is based on the criterion of the effective date and not the last time the customer paid and establish the credit status (advanced, late or up to date). Acting only on overdue credits.
The effective date is calculated based on the submajor credit, for which it is proposed to use the following formula:
EC = FA - FO (Formula 1)
E = EC - MP
Where:
Current Date (FA).
Grant Date (FO)
Credit Age (EC)
Months Paid (MP)
Credit status (E)
Analysis rules:
If E = 1 → EC = MP → credit per day
If E> 1 → EC> MP → delinquent credit
If E <1 → EC <MP → advance credit.
As unit of measurements is established (months)
Policy 2: A single criterion is proposed for calculating the recovery percentage at the level of all branches.
Premises for its application.
In the foundation of this policy, a non-probabilistic sampling process was developed where 12 knowledgeable about the subject was taken as a sample, among which are: Directors of analyzed branches (8 and personnel at the provincial level who monitor compliance with the financial indicators), specialists and leaders of the business area (4). Who were interviewed about the criteria they have on this indicator. The responses obtained can be summarized as follows:
- There is no specific calculation method to calculate the recovery percentage. There is no mechanism at the provincial level to rector and verify the veracity of the information on the subject. At the provincial management level in the meetings of the Expanded Board of Directors and of Emulation, the managers of the branches have expressed their dissatisfaction with the scores achieved, claiming that there cannot be branches that do not comply with the 3% of fixed assets, that present a higher% of recovery than what they comply with the other indicator. Criteria included in the minutes of both meetings. For your information, the branches start from a manual statistic where all the credits that made a payment in the month are recorded.plus other charges corresponding to other monthly payments of those same credits within the month, thus calculating the actual amount paid. The result obtained is divided by the total amount of current credits, which in this case is the (Plan).
Actual collected = Amount of credits collected + other monthly payments collected
% Recovery = Actual amount collected / Total amount of outstanding credit
Other branches do everything described above, but the transfers received from (0 to 60 days) are subtracted from the current credits to determine the plan, since when the transfer arrives, the branches have up to 60 days to locate the client. The calculation formula used is the one shown below:
Actual collected = Amount of credits collected + other monthly payments collected
Plan = Total amount of current credit - number of transfers received between
(0 to 60 days)
% Recovery = Actual Amount Collected / Plan
The provincial management starts from what is reported by the branches on the basis of the established information that goes to the business and planning area, considering the information reported as real since there is no established control system for it where they can refute the branches the veracity of the information.
Theoretical foundation
This indicator (% Recovery), despite being the most important due to its influence on income, the entity does not have effective control of it. In the bank's MIP, a calculation method is not established, so the branches for your information start from a manual record where all the credits that made a payment in the month are reflected, plus other charges corresponding to other monthly payments of those same credits within the month.
In general, for its calculation, the branches take this data and divide it by the total of the portfolio or subtract the transfers received with more than 60 days to determine the Plan from the portfolio.
At the author's discretion, the other monthly payments charged should not be added to the real one, since the recovery action is aimed at the total of existing credits, thus distorting the information and as there is no pre-established uniform criterion for their calculation., each branch in order to achieve additional points in the fulfillment of the work objectives (on fulfillment), handle the two criteria described above at their convenience.
The previous criterion, part of the support that at present, the collection management in the bank is directed to the credit as such, not to the amount of monthly payments collected or paid for each credit, since when the client pays several monthly payments, does for two fundamental causes, namely:
- The first, because most of the other monthly payments correspond to overdue credits with surcharges, which in order for these to be eliminated, the client must catch up on the payment, maintaining the credit due to the level of delay that some of the debtors present The second, when advance payments are made, interest is recalculated, causing a decrease in the customer's debt, as well as in the income obtained by the bank.
To solve the above situation, the following calculation method is proposed:
% Recovery = Actual / Plan * 100 (Formula 2)
Where:
Plan: Total amount of the portfolio minus transfers received with less than 60 days.
Real: total amount of credits that were presented to the bank to pay in the month that is running or ending.
Policy 3. The direct liquidation of CCP postmen at bank branches is proposed.
Premises for its application.
At the end of 2012, the ECC had recognized and reconciled the debts of 13,907.91 pesos, which had to be settled to the BPA, for concepts of bank debts collected from retirees and pensioners and not paid to the bank branches recorded in the accounts corresponding to the months of May, June, July, August, September, October, November, December pending settlement. Among the affected branches were branches 8282 and 8312 of the Santiago de Cuba municipality, with 83% and 91% respectively of the total debt.
Mail work in 2012 regarding the recovery of credits to the population decreased, presenting an unstable and insufficient behavior, starting from the total number of retirees and assisted who charge by mail, see in figure 2.6, which led to the realization of various Meetings called by the Provincial Party with provincial leaders and directors of bank branches and mail agencies of the Santiago de Cuba municipality, with a view to improving work on the recovery of loans to the population.
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Figure 2.6: Amount of CCP collections by branches.
Likewise, a non-probabilistic sampling process was developed where 23 knowledgeable about the subject was taken as a sample, among which are a commercial specialist who receives mail settlements (3), recovery manager (5), commercial managers (3), branch directors (8), in addition to 2 specialists and 2 provincial-level directors of the commercial sub-department, the criteria on the subject were interviewed (Annex 1) in an unstructured manner, generally coinciding with those summarized below:
- The process of settlement of the charges made by the CCP when it is settled in the bank branches is delayed, detecting that the incidence is not the same in all the branches, it is not the same what happens in the towns to what happens at the level despite the fact that there is a contract between both institutions where obligations and claims are established. The executives of the BPA branches consider that what is established therein is not enough.
The branches with the greatest problems in the recovery of credits are located in the municipality of Santiago de Cuba, where the branches of the city are the ones with the highest incidence due to their interrelation with various agencies of the ECC. Based on the fact that one of the problems corresponds to the fact that the credit settlements by the ECC agencies are not executed in the same way in all the banks of the municipality of Santiago de Cuba, visits were made to each of those involved, reviewing how the process is carried out. of credit settlements by the CCP, yielding the following incidents:
- The CCP at the city level goes through a process that delays settlement and control is lost, since the postman, after collecting the credits from the customer, clears it at his mail agency in the accounting department, said department after After receiving all the settlements from the postmen and the window, it relates each of the coupons with the credit code and the name and surnames of the client, joining everything in a single settlement. Later, through the C-5, it is settled at the BANDEC branch, where it carries out its operations. And this is the one who sends the collection made to the BPA.At the city level of the municipality of Santiago de Cuba, the same bank branch interacts with several CCP agencies (See Annex 4).At the village level due to the non-existence of BANDEC branches in them,The ECC agencies carry out their settlements directly at the BPA branches, which have established in their computer system complying with the MIP, the completion of the credit settlements by the ECC which function as a separate settlement from the C-5 model of the ECC. Currently from the commercial menu the debt of the different credit matters (01, 02,10) of the branch itself is posted, because the debt can only be from the branch, the amount of the loan is not captured in each entry monthly payment, since the system searches the database and displays on the screen the amount of the monthly payment to be amortized. When saving the operation, the system automatically posts to the corresponding accounts.which has established in its computer system, complying with the MIP, the completion of credit settlements by the CCP, which function as a separate settlement from the CCP C-5 model. Currently from the commercial menu the debt of the different credit matters (01, 02,10) of the branch itself is posted, because the debt can only be from the branch, the amount of the loan is not captured in each entry monthly payment, since the system searches the database and displays on the screen the amount of the monthly payment to be amortized. When saving the operation, the system automatically posts to the corresponding accounts.which has established in its computer system, complying with the MIP, the completion of credit settlements by the CCP, which function as a separate settlement from the CCP C-5 model. Currently from the commercial menu the debt of the different credit matters (01, 02,10) of the branch itself is posted, because the debt can only be from the branch, the amount of the loan is not captured in each entry monthly payment, since the system searches the database and displays on the screen the amount of the monthly payment to be amortized. When saving the operation, the system automatically posts to the corresponding accounts.Currently from the commercial menu the debt of the different credit matters (01, 02,10) of the branch itself is posted, because the debt can only be from the branch, the amount of the loan is not captured in each entry monthly payment, since the system searches the database and displays on the screen the amount of the monthly payment to be amortized. When saving the operation, the system automatically posts to the corresponding accounts.Currently from the commercial menu the debt of the different credit matters (01, 02,10) of the branch itself is posted, because the debt can only be from the branch, the amount of the loan is not captured in each entry monthly payment, since the system searches the database and displays on the screen the amount of the monthly payment to be amortized. When saving the operation, the system automatically posts to the corresponding accounts.When saving the operation, the system automatically posts to the corresponding accounts.When saving the operation, the system automatically posts to the corresponding accounts.
Despite the fact that the BPA to control the ECC, the retirees and assisted people who collect in their agencies and have bank debts, created a payment center named Deuda de Correo, as it does not function as the payment centers of the companies that carry out their Settlements with checks, due to the forms of settlements described above, it is not constantly updated making it more difficult to control and settle the collections made by the CCP.
The ECC and BPA reconcile with the established periodicity the amount and amount of the collections made by ECC to retirees and pensioners. The BPA preferentially serves the CCP to carry out operations related to the liquidation of bank debts collected from retirees and pensioners, in the hours established for it. To anticipate and solve in advance the problems that may arise with said payment and with the collection of bank debts, the representative of the BPA in each municipality meets monthly with the representatives of the National Institute of Social Security (INASS), the Ministry of Labor and Social Security (MTSS) and ECC, before the date of payment to retirees and pensioners.
Thus, the claims presented by retirees and pensioners or by the parties in relation to the collection of debts to retirees and pensioners by ECC will be answered within the time established in the agreement. With the objective of not affecting those debtors, retirees and pensioners, from whom the ECC collects their bank debts and does not settle them at BPA.
The BPA decided to amortize the debts of these retirees and pensioners for the amount of the monthly payments, verifying that they were charged and not settled. When the debtor client has shown by presenting proof of payments that he has already made the payment of the monthly payments, the items in the account remain in force until the debt has been presented and signed by Correos for analysis and subsequent conciliation. When the list of customer bank debt repayments that were made at their offices is presented to ECC and they settle the amount owed, the item originated by this concept will be eliminated. Once the Cuban Post Office liquidates what is charged to retirees and pensioners and not paid to the Bank,The pending item will be eliminated and the commission will not be paid to Correos of CUP 1.50 for each collection.
For the best development of the research work, three surveys were conducted aimed at personnel working at the level of bank branches and mail agencies in the city of Santiago de Cuba (Annexes 5, 6, 7). The samples for the interviews were conducted in the ECC agencies of Zone 1,2, 3, 4, 5.
In determining the current situation of the portfolio, out of a total of 68 postmen, 44 were surveyed for 64%. An interview was conducted with all the executives at the agency level of the ECC (10) and the total administrative staff of the bank branches related to the mail areas involved in the BPA (12).
The results obtained show that the CCP, with respect to the recovery of social loans, should improve internal control of settlements at the postman level and settlements at the mail unit level to the bank and see this activity as a way to increase its income and therefore the standard of living of its workers. Therefore, the credit settlement mechanism should be improved so that the settlement in time to BPA is feasible.
Theoretical foundation
That the postmen settle directly in the bank branch or savings banks of the BPA that serves their posting area, which will allow, in addition to not moving the cash over long distances, guarantee a more effective settlement over time and with greater control. The BPA is recommended to consider the following proposal:
First: Create a payment center for each postman, where the code will be composed of the number of the post office to which the postman belongs and the posting area.
Second: Enable the folders for each of the payment centers created, filing the reports of each settlement made and the model 13-6, according to the following steps:
- Form 13-6 will be filled out, registering the identity card, name, surname and signature of the postman who will work in the area, in addition to the established code of the payment center. To register customers at the payment center, the Postmen will fill out the form (S-1) with this form, will carry out a survey of its database, being able to verify if the client has credit, then will fill out form 02-23 joining the two forms and filing it in the credit file. Then it will be transferred to the credit for the corresponding postman's payment center.
Third: Settlements and reconciliation with mail. The salesperson will issue 4 copies of the report issued by the system for each settlement of the postmen, all processed by the cashier for the cashier to sign, stamp and date, as proof of the cash deposit. The first copy is from the postman, the second for BPA accounting, the third for the recovery or commercial manager, who will file one in the folder of the payment center to which it belongs and the fourth copy will be delivered to the person authorized by the ECC agency administrator to collect document copy of the printed report of all their mailmen monthly for their checks. During this process, the signature of the recipient, the delivery date, the signature of the delivery person, and the stamp of both entities will be collected.This document will be the one that will subsequently be used for the monthly reconciliations of BPA with the ECC.
As a summary of the chapter, it is concluded that the policies proposed to reduce the high rates of recovery of credits to the population granted to the segment of natural persons by the BPA branches in the Santiago de Cuba municipality, should promote a cleanup of the loan portfolio in them and therefore, a higher level of efficiency and effectiveness in the bank's economic management.
