LOAN DELINQUENCY AND ITS IMPACT ON A FINANCIAL INSTITUTION


 


      There are many financial institutions that cover a wide range of financial services including savings deposit, payment scheme, fund transfer, exchange rate, brokerage, insurance, different types of credit and loans. These are basically the types of services of how financial institution can earn and borrowers are on the look-out on financial institution and to where their loan can be approved. Banks, Credit cooperatives and Micro-financing are different types of financial institutions that are very stiff and careful in controlling their finances to the best and most trusted borrowers they can ever find.


      They may even require a credit investigation, personal visitation and inquiry about the borrower’s financial capacity to pay before they can even be approved to release their loan. Some banks may even require so much legal documentary requirement just to approve such loan application.


      Creditors will jump for joy if their loan application has been approved. But no matter how tough their process there will always be time that the borrowers are still delinquent during the time of payment and this leaves the financial institution in misery. In most financial institution especially in micro-financing organization this problem can even make their company to run out of funds.  


      Delinquent borrowers are customers who can be individual or organization who’s payment is past due and it may also be a non- payment at all who often times borrowers neglect to pay their loan intentionally, therefore the financial institution will need to carry the burden brought about by delinquent customers. Sometimes financial institution especially micro-financing do not have much control about delinquent borrowers and later on write-off their status. Definitely this can cause so much impact to the bank and other financial institutions and this may cause any or all of the following;


      Delinquency payment slows down or decreases loan portfolio – If non payments were made banks, may suffer by slow moving and rotation of the returns rather than re stabilize the release of funds. They may even delay loan process if the collection is too small to capitalize. Loan portfolio decrease or non collection of funds can even put their portfolio at risk to a loan impairment situation.   


      Delinquency payment may lead to repayment problem – Funds that are release from borrowers also come from loans or investors money, if there are too many delinquent customers that may arise the potential earnings of the financial institution may be delayed and therefore their debt will snowball, when such delay of banks payment arise then they themselves maybe delinquent that brought in partial foreclosure status of the bank and therefore bankruptcy.


      Delinquency or non repayment may destabilize bank and financial institution position – Some banks that are not making good collection or having lots of delinquent customers may be taken advantage by competition to destabilize their reputation of low security bank and therefore trust in the eyes of the public and low morality may arise. Their bank position will slowly make their bank weaker and customers may turn to the competition. This was unusual causes but it may happen.


      Delinquency collection may equate to expenses rather than income, constant visitation and follow up from bank employees going through personal visitation or phone calls are also expensive that doesn’t guarantee a return. Some customers may hide and prevent this strategy which is exhausting and sometimes worthless, but it is the only way to follow up on the delinquent borrowers only to hope for a return, this even strengthens their delinquency demeanor. Analysis and legal proceedings are even more costly, even a written provision follow up requires additional expenses to the financial institution. All this may be summed up to loss in the part of the financing institution that follows up loan.


      Financial institution may have a chance to renew their strategy from delinquent customers by continuously pursuing the delinquent customers to repay the loan. They may need to ask the help of their family and the government about the delinquency of non repayment of loans. It this strategy works then the delinquent borrower should be given a written compromised agreement in your favor and hopefully this will settle the dispute but it the borrower will continue to resist such payment then the financial institution may need to arrange legal settlement to a higher court.


      It may be difficult for the bank to go through financial difficulty that is usually causes by non repayment of delinquent borrowers, they may need to assess and re analyze their condition about loan processing and customer’s selection before a total bankruptcy may be predicted.           


     



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