CAUSES OF DELINQUENCY EXTERNAL FACTORS
Individual Crisis - Unpredictable individual circumstances
increases the risk of delinquency.
Situations may include the death
of relative, unemployment or salary reduction.
Natural Disasters - Floods, Hurricanes and Earthquakes may deter
profitability of projects and also give rise to restructuring of
disposable income.
State of Economy–
An economy in a recession can affect
delinquency. Recessive economies face liquidity problems hence
expected loan repayments would be negatively affected
.
Transaction Cost of Loan -
High transaction costs lead to the
reduction of funds to execute projects. Projects that are not fully
capitalized may be compromised, consequently affecting the
repayment process.
EFFECTS OF DELINQUENCY ON FINANCIAL INSTITUTION - Reduction of Financial Institution Assets due to write off loans - Loss of Credibility to Lending Programs/ Institutions - Decreased Long - term institution viability - Increase in Loan Loss Provisioning - Delayed Earnings
