DOES THE MANAGEMENT OF COLLECTION FAVOR OR AFFECTS THE MANAGEMENT OF

CREDIT RISK IN THE LENDING INSTITUTIONS IN COLOMBIA?

Juliana Bonilla Trujillo

Universidad Piloto de Colombia
2018

Collection is named how a process in which the perception of a payment becomes effective with a
view to purchase, for the presentation of a service, cancellation of a debt etc., the management of
collection is a process recognized in the financial area as a very complex activity for those who
realize it, the executives of the companies face to you fight on the part of the clients to whom the
service one gives them.
It is for this for what the companies there take charge forming executives capable of dominating
complex situations by means of a telephonic collection or presenile; to acquire skills of empathy,
communication, procedures, times and follow-up for the collection, they are fundamental to be
successful in this labor, the management of collections or conciliation with clients has changed
concept leaving aside what one saw before as default and periodization of high amounts of
management it is necessary to be identified nowadays as a success since the specialization of
collection every time is more it fulfills the rules of efficiency and efficiency.
The process of collections of the financial institution initiates with the design of collection policies,
which are established by the high direction of agreement by the indicators of the management of
the portfolio, quality of portfolio, unproductive portfolio on brute portfolio, portfolio conquered on
brute portfolio, provision of portfolio on defeated portfolio and provision of portfolio on brute, later
portfolio, to a follow-up and analysis of results across indicators defined before by the high places
executive. For the process of collections nowadays different strategies appear as:
Definition of strategic aims, Production of a picture of control, Definition of strategies, tactics and
campaigns, Definition of collection mechanisms I Design of collection model. The strategies they
divide in three collection stages (early management, management happens and advanced
management), which are defined by the age of default and the type of product of which it has the
client, for previous the financial institution possesses an information system and / or application that
takes charge showing the information of the client in its entirety like they are: General information of
the client, obligations that the client has nowadays with the bank, guarantees, typology of
negotiations, strategy of assignment and other relevant information to realize an ideal work of
collection.
For what it refers, early management it is directed for client by defaults between zero ninety days,
this collection is realized across agents of the call center or offices; where the client is contacted
telephonically or this one approaches the office in order to offer him different alternatives of
payment that allow to the user to be placed a day by his obligations or to be anticipated to some
external contingency that prevents with the fulfillment of the same one. For previous the collection
agent defines a protocol of call where must to him inform to the financial consumer all the
characteristics of mechanism of normalization (rate, term, value of the quota, yes or it does not
have bearing before head offices of risk, between others), the previous thing in order to avoid
possible claims on the part of these already is to the bank or to an entity of external control, likewise
all this information must remain registered in the information system. 1
In addition, nowadays there exist several experts in data mining that they entrust of the
management and administration of portfolio, nowadays the levels of risk are assumed by the
ambition of each one of the companies and for his policies taking this to a good evaluation of credit
administered by the equipment of collections.

1
Management of credit risks, military new university Granada (2017)
A good administrator of collections this one focused in the suitable assignment of the different
resources, for this needs to know the probability of payment of the client, with this information the
managers of portfolio can assign mas I practice the resources of an efficient, objective and
opportune way, they created a predictive model who helps to determine the periodization and the
administration of resources of the persons a Score of Preventive Collection, which includes different
internal and external variables, from the head office of risk, historical information of management,
behavior of the client; the previous information was helping with correct form to the correct
assignment of resources and for this it will allow to generate a good administration of collections. 2
The remuneration of the activity must not be based only on the level of collection, suitable
alternatives of payment must be managed for the consumer, the expenses generated by the
collection must answer to an effective management in the collection of the obligation, only there can
be generated (honorary) expenses of requiring a preliminary examination collection after that there
begin the actions of juridical collection, the management of collection must be realized with qualified
and suitable personnel, to abstain from informing on the default and the development of the
management of collection to third parties that they do not do part of the credit relation. To abstain
from using the personal information of third parties in order to obtain information of the debtor.
This model in addition uses external reports of the head office of risk, past trends, frequencies of
payment etc.., with this information the probability of payment is calculated in the future. Once there
qualifies the punted of every client of the segment of portfolio in high risk, moderate risk, low risk
and very low risk following a few good practices of the financial superintendence.
The lending institution in the commercial activity is a process of compatible and profitable business
with high expectations of the consumers, has done that great part of the trade of goods semi
durables and durables offer as the first option now of closing a sale with the clients. This happens
due to lack of necessary resources, the informality in the policies, the ignorance of the business,
etc. …, It Is as well as the establishments remain exposed without realizing to operative risks, of
wash of assets, of credit, of market and of liquidity.
This leads that the companies remain exposed and happen to present serious financial problems
that sooner or later finish with the structure of the heritage and in turn they lose opportunities of
business since on not having had a good process and of form structured of grant it generates a
portfolio of low quality, being a few assets that it could not negotiate, do not even not even be does
not even sell, could serve in the profitable operations for the company.
The credit risk refers to the probability of loss due to the evil functioning of a borrower of doing
payments on any type of debt. The management of credit risks is the practice of those losses
mitigate for the comprehension the sufficiency of both the capital of a bank and reservations of loss
of the lending’s in any time in view of taking a process that has been a challenge for a long time for
financial institutions.
The global financial crises that happen believe a tightening of the credit that continues with the
management of credit risks that test the regulatory project. Consequently, the regulators began to
demand more transparency, they wanted to know that a bank has the clients' careful knowledge
and his risk of associate credit. And new Basle the III regulations will create a load furthermore big
regulatory for banks.3
To expire with the strongest and regulatory requirements it is necessary to absorb the costs of
investment more high places for the risk of credit, many banks check his accesses to the credit risk.
Better the management of credit risks also presents an opportunity of enormously of improving the
total functioning and assuring a competitive advantage.
For the establishments of a credit it enters default all those cases that present breach I concern give
him the originally agreed conditions, we’ll be as for the date of payment or the value of the quota for
the capital, interests, commissions, sure and other before approved concepts.
2
Analysis of the management of collections, OLIVER DARIO DAVILA (2015)
3
Credit risk management (2018)
The use of the technology has expanded mas there of his original intention, which was to evaluate
only the credit risk. Nowadays, the technology allows to evaluate the profitability with base in the
risk and in the behavior, with the cash of establishing different initial and consistent limits. In
addition, it supports the activities related to the service of lending’s including the detection of frauds,
the mitigation of losses and the intervention against the delinquency.
The activities that the lending institutions realize in development of his corporate purpose take
implicit risks that seem to be inevitable. It is as well as the operations of capture and placement of
the resources of the public they expose these intermediaries to different circumstances that must be
known and be controlled adequately. In consequence, if certain risks are natives to the financial
activities it is important to establish prudential rules for his management.
Of the used approaches, two currents are identified, namely: the schemes of qualification that are
based on a weighting (qualitative or quantitative) of the factors that have been identified as the
determinants in the fulfillment of the obligations, and those who are based on concepts of
fundamental type, projecting economic and financial variables in the time and his impact in the
financial statements of the company, up to determining the conditions under which it would be in
bankruptcy from the countable point of view.
The principal object of the present work is the credit risk, specifically his suitable administration.
With such an intention we will examine some of the most important prudential tools established in
the regulation and supervision that they have as purpose identify, evaluate, monitor and control or
mitigate this risk. Of equal way, in Colombia during the last decade different mechanisms have
been implemented directed when mitigated this class of risk, which have allowed to structure finally
a system of administration of the same one that has deserved the praise and the emulation of other
bank supervisors of the region.4
For the bank of the republic Colombia to monitor the credit risk is fundamental to preserve the
stability of the financial Colombian system, even more if it appreciates that the credit portfolio
represented about 60,5%1 of the total of the assets of the establishments to June 2013. For the
lending institutions it is born in mind that the guarantees constitute one of the principal abates of the
credit risk in case of breach on the part of the debtors and, in consequence, an additional protection
for the resources of the public, there join new limits to that the lending institutions must attend for
the suitable valuation of the guarantees received as support of the credit loan functions.
There are three principal policies that help with the management of risk in the credit management:
·Restrictive Policies Characterized by the credit concession in extremely short periods, strict
procedure of credit and a politics of aggressive collection.
·Liberal Policies the liberal policies tend to be generous, grant credits considering the competition,
they do not press energetically in the collection process and are less demanding in conditions and
establishments of periods for the payment of the accounts.
·Rational Policies must apply in such a way that it is achieved to produce a normal flow of credit and
of collections; they are implemented by the intention of which the aim of the account administration
is fulfilled for charging and of the financial management in general. This aim consists of maximizing
the performance on the investment of any company two for the payment of the accounts.
" As it is demanded by any system of management of risks, it is essential that the high direction
leads the totality of the process, fixing the criteria of acceptance of the risks that are wanted to
manage inside the company, analyzing and evaluating the existing risks to every instant, so much
worldwide for the whole entity as of way disintegrated by business units, taking the decisions brings
over of the new transactions and changes in the profile of global profitability - risk of the entity and
evaluating the obtained results explaining his origin and the connection with the assumed risks " 5

4
The administration of the credit risk in the lending institutions: critical comparison of the
international standard and his implementation in Colombia (2017)
5
Baquero Herrera, System of credit administration for the clients (2010)
For the entities of financial sector, it performs supreme importance the measurement of risks and
with more degree of importance that of Credit, the previous thing since his corporate purpose is the
placement and the capture of resources; which makes them more vulnerable to these. For this of
supreme importance to go to the forefront of the market and to implement policies, procedures and
infrastructure; in order to mitigate or to minimize the risk of agreement with the stipulated for the
entity of corresponding control. At the same time, these entities must offer to his users and / or
consuming financiers alternatives that they allow him to accede of a just and reasonable form and
not damaging his rights to the need that these have to be able to reach an agreement of payment,
considering that, many of these negotiations are proceeded by the only end of fulfilling an indicator
or decrease of same without realizing the meticulous process that is effected when the operation is
granted, transporting a higher degree of risk inside the operation of collections.
For the case of the companies of the financial sector before realizing a sale on credit they must
realize an analysis of credit risk and verify across financial indicators on the basis of historical
information if the respective operation is viable. In case of suitable being it will be necessary as far
as possible to ask for certain guarantees him. It is important to determine the solvency of the
company that is requesting the credit, always with relation which his current assets overcome
widely the liabilities eligible short-term. To realize a management of risks allows to the financial
companies to take guessed right decisions on if it is suitable or not to grant a credit to a new buyer
or to ancient clients who present signs of alert before a situation of a possible non-payment of
portfolio. The previous thing will save money for I do not pay, and he will avoid selling defaulters.
The management of the credit risk a systematic application of policies and procedures to analyze,
to evaluate and finally to be able to establish the measures to the moment to grant a credit to a
client turns to the being into a fundamental tool. With the proposed exposition there is looked that
this structured scheme is useful for the companies of the not financial sector that seek to obtain
competitive advantages across the sales on credit diminishing in possibly this type of risk. For the
credit risk the lack of control in the process of credit administration, from his grant, up to the
recovery of portfolio, implies strengthening the procedures, policies and skills of the personnel; it is
necessary to stress that a good administration of the credit risk increases the usefulness and for
ende generates value added to the business.