Developed by: Raike R.

Quiñones

Zero Tolerance vs Delinquency

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Developed by: Raike R. Quiñones

Agenda
What is loan delinquency?
What is “zero tolerance to delinquent
loans”?
Characteristics of loan delinquency (what
makes it distinct from other problems?)

Costs of loan delinquency

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Developed by: Raike R. Quiñones

What is Loan
Delinquency?

Any loan account with a missed

amortization of even one day is a
delinquent account

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Developed by: Raike R. Quiñones

What is “zero tolerance to

delinquent loans”?
Zero Tolerance means that NO LEVEL OF
DELINQUENCY IS ACCEPTABLE.
It is the bank management & staff ’s attitude towards
loan delinquency -- namely, that no level of late
payment is acceptable.. It is an institutional culture
in which late payments are strongly unacceptable.
The bank is willing to aggressively pursue past due
clients, whatever the cost, to establish and maintain
zero loan delinquency.
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Developed by: Raike R. Quiñones

Why zero tolerance?

 Loan delinquency can weaken and ruin a lending institution.

 Unless aggressively controlled, delinquency can spread and
worsen, leading to high levels of default.
 Pursuing the collection of delinquent loans swiftly and
aggressively facilitates the development of a strong credit
discipline among the clients.

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Developed by: Raike R. Quiñones

What makes loan delinquency

distinct from other problems?

The costs of delinquency are hidden. The true level of

loan delinquency can be concealed, making it difficult to
recognize the true extent of the problem.
Lenders tend to attribute delinquency excessively to
external factors. Consequently, they do not confront and
resolve the causative factors within their control.
Delinquency is contagious. It tends to spread and worsen,
leading to high levels of default, unless it is aggressively
controlled.
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Developed by: Raike R. Quiñones

The costs of delinquency

Quantifiable costs
Non-quantifiable costs

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Quantifiable costs

Delinquency has numerous

effects on a bank’s
Cost structure
Income
Financial condition

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Quantifiable Costs
Effects on Cost Structure

On the bank’s side:

- General portfolio
management
-Additional efforts to decrease
delinquency
On the borrower’s side

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Quantifiable Costs
Effects on Income

Postponed or lost income

Slows down the rotation of the
business portfolio

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Developed by: Raike R. Quiñones

Quantifiable Costs
Effects on Financial Conditions

Loan loss reserves or provisions for bad

debt’s negative impact on the bank’s
income.
Loan losses ultimately decreases the
bank’s resources.

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Developed by: Raike R. Quiñones

Non-quantifiable costs

Deterioration in staff morale

Ineligibility to access funds for portfolio
expansion from external funding sources
Breakdown of credit discipline among
clients

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Non-quantifiable costs
Less access of microenterprises to formal
credit -- the bank has less funds to lend
while other banks will be more reluctant to
lend.
Damage to delinquent borrower’s
reputation and business, leading to a more
desperate economic situation for his/her
family
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