September
2021
Issue No. 84
MANAGING DELINQUENCY
When a borrower fails to meet his/her contractual obligation as
it is due, the borrower
’
s payment is deemed to be late. Delinquency is said to occur
when payments are made late (even by one day) or regular payments are missed. It is measured by the financial institution because it indicates an
increased
risk of loss, provides warnings of operational problems and it would assist in predicting the percentage of the portfolio that would
eventually be unrecoverable due to non repayment. Pearson and Greeff (2006) notes that consistent delinquency, where at least three payments
have been missed in a 24 month period, signifies a behavioural pattern hence there is demonstrable increase in the risk that the borrower will
eventually default, by ceasing all repayments.
WHAT EVERY FINANCIAL INSTITUTION SHOULD KNOW
LOANS
MISSED
PAYMENTS
DELINQUENCY
DELINQUENCY
DEFAULT
LOANS
UNRECOVERABLE
WRITE OFFS
INTERNAL FACTORS
Noncompliance With Established Lending Policies
–
Loan
Officers granting loans
to borrowers without full
consideration of the requirements in the lending policy of the
Financial Institution.
Insider Lending
–
Loans granted to related parties (directors,
management, board members, etc)
without following proper
lending procedures.
Improper Loan Appraisal Techniques
-
The formulation of
inappropriate judgments while assessing
the viability of the
loan purpose. Examples may include the amplification of a
project
’
s
productivity, lack of or inadequate security,
unrealistic terms and schedule of payments.
