September 2021 Issue No. 84 Managing delinquency

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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.