disaster preparedness and management. objectives create greater awareness for rural banks on how to...
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Disaster Disaster Preparedness and ManagementPreparedness and Management
ObjectivesObjectives
•Create greater awareness for rural banks on how to better manage the impact of natural disasters on their operations.
•Present options and measures to manage the impact of disaster for both the banks and clients.
Framework for Disaster
Preparedness and Management
Disasters
RISKS
Rural Banks Clients
IMPACT
Framework for DisasterPreparedness and Management
Liquidity
Income Portfolio Quality(PAR)
RISKS
A Framework for A Framework for
Disaster Preparedness & Management Disaster Preparedness & Management
DISASTERS
Banks Banks On LiquidityOn Liquidity1. Temporary decline in inflows from affected clients2. Temporary increase in outflows to affected clientsOn Portfolio QualityOn Portfolio Quality3. Medium-term decline in repayment rates and/or new loan demandOn ProfitabilityOn Profitability1. Less collection means less income2. Less or no disbursement means less generation of profit
Clients Clients 1. Temporary inability to earn income2. Damage to or destruction of income-generating assets3. Increased basic expenditures4. Damage to or destruction of household assets5. Loss of lives
IMPACT
1. Less savings; possibility of withdrawals2. Less or no repayment of amortization3. May need new loans
A Framework for A Framework for
Disaster Preparedness & Management Disaster Preparedness & Management
DISASTERS
IMPACT
Coping MechanismsCoping Mechanisms
Response & Response & RecoveryRecoveryMeasuresMeasures
Banks Banks InstitutionalInstitutional
PreparednessPreparedness
ClientsClientsClient Client
PreparednesPreparednesss
Disaster PreparednessDisaster Preparedness
ASSESSMENT OF RISKSBasic Questions to Answer
1. Are my clients located in a disaster-prone area?2. Is my institution located in a disaster-prone area?
Institutional Preparedness• Adopt a Disaster Preparedness Manual• Have in placed a working MIS• Observe Liquidity planning and management• Strictly implement a portfolio management system• Conduct periodic staff monitoring and training
Client Preparedness• Assess preparedness of clients• Anticipate possible needs in line with continued access to financial services
• Disaster Preparedness Manual
- Access to information
- Infrastructure and equipment
- Staff security
- Communications
- Access to clients
- Market shocks
Disaster PreparednessDisaster Preparedness
• Install adequate and functioning management information system (MIS)
- Ensure the safety of data
- Ensure adequate capacity to offer preparation, response and continue banking services for clients - Train human resources
Disaster PreparednessDisaster Preparedness
• Liquidity management measures
- Observe strict asset and liability management
- Ensure that bank has ready credit lines which the bank can draw from in times of emergencies
- Negotiate for flexible conditions on existing loans with fund providers
Disaster PreparednessDisaster Preparedness
• Ensure strict portfolio management system - Carry out regular loan portfolio analysis (daily, weekly, monthly)
- Classify loans based on PAR Ageing - Establish trigger points (PAR ceilings by AO, Branch)
- Observe delinquency alarm signals
- Observe proper loan loss provisioning
Disaster PreparednessDisaster Preparedness
• Provide periodic refresher training on the bank’s disaster preparedness plan to staff
Disaster PreparednessDisaster Preparedness
Disaster preparedness is not a one-time process.
It is a process that happens daily in many facets of the bank’s activities.
Before deciding on recovery measures to take:
• Conduct Portfolio Review Current vs. Delinquent loan account New vs. Repeat loans Determine risk exposure against savings balance
• Conduct on-site field verification Verify damage to whole community, and client’s
business and household Establish client’s ability to re-establish business Ascertain other sources of income
WHEN DISASTER STRIKES: Disaster WHEN DISASTER STRIKES: Disaster ManagementManagement
• Modified Policies and Procedures
Imposing a moratorium on lending
Restructuring loan
Refinancing
Write-off
• Product Modifications
Withdrawal of compulsory savings
Provide emergency loans
Shift from group-based liability to individual liability during a disaster
Disaster ManagementResponse Measures/ Options
Disaster Response Measures & Disaster Response Measures & OptionsOptions
Response Measure Considerations Possible Impact
I. Moratorium on Lending
a) General – New &
Repeat Loans?
b) Selective – New
Loans only?
• Staff will require training to implement this procedure particularly on how and when to inform clients to ensure that it does not create a crisis of confidence
• Should define the time period for implementing the policy
• May result to a temporary excess of liquidity
• If not done properly, may result to a crisis of confidence
• May negatively affect bank’s ability to generate income
Modification of Policies and Procedures
Disaster Response Measures/OptionsDisaster Response Measures/Options
Response Measure Considerations Possible Impact
II. Options for Restructuring Loans
Option 1: Bank continues to collect interest payments while principal repayments are restructured
• MIS must be able to track interest payments without principal payments
• MIS must be capable of altering loan terms
• Liquidity projections of the bank must be altered
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• Interest payments minimizes impact of delayed payments to the banks liquidity
Response Measure Considerations Possible Impact
II. Restructure Loans –
Option 2: Bank charges additional interest payments to compensate for extended loan period
• MIS must be capable of altering loan terms
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• This puts greater strain on liquidity as no payments is expected for a period of time
• This however helps to reduce losses as full interest payments are made
• Allows clients sufficient time before payments are required
Disaster Response Measures/OptionsDisaster Response Measures/Options
Response Measure Considerations Possible Impact
II. Restructure Loans –
Option 3: Bank extends the term of the loan by, say, 1 month during which time no additional interest is charged
• MIS must be capable of altering loan terms
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• This strategy foregoes potential interest income to compensate for possible losses
• Allows severely affected clients time before payments are required
• May affect bank’s profitability
Disaster Response Measures/OptionsDisaster Response Measures/Options
Response Measure Considerations Possible Impact
III. Refinancing
Providing an additional loan to an existing good client to assist in the full recovery of his/ her business
• MIS must be capable of capturing additional loan to client
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• Bank is liquid enough to service additional loan requirements
• Bank is able to keep its good clients
Disaster Response Measures/OptionsDisaster Response Measures/Options
Response Measure Considerations Possible Impact
IV. Write-off • Candidates for write off are loan accounts with PAR more than 90 days
• Bank has adequate loan loss reserve
• A special unit or dedicated account officers are in place to pursue remedial management measures
• Flexibility to negotiate with clients on various ways to settle delinquent account
• If collected, it is realized as other income
• Written-off account is recognized by BIR as an expense; hence lesser income tax for the bank
• Instead of following-up on non-productive accounts, AOs can instead generate new loans
Disaster Response Measures/OptionsDisaster Response Measures/Options
Disaster Response Measures/OptionsDisaster Response Measures/Options
Savings Context What to do
Compulsory Savings
• In normal times, used as a substitute collateral, hence tied to client’s loan•In times of disaster, clients should allowed access to address emergency needs
Make compulsory savings semi-flexible (allow a percentage of the savings balance to be withdrawn by the client)Caution: Don’t ask clients to return all amounts withdrawn before giving client another loan
Voluntary Savings
• Used for asset-building purpose which the client can access anytime•One of the best coping mechanisms for clients during times of disasters
Design an “emergency needs” savings product that clients will regularly save for with affordable amounts, with no restrictions on withdrawals
Savings: One of the best coping mechanisms for clients
Disaster Response Measures/OptionsDisaster Response Measures/Options
Response Measure
Considerations Possible Impact
I. Withdrawal of Compulsory Savings
• MIS must be capable of tracking extraordinary withdrawals
• Consider looking for alternative sources of funds
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• Will have an impact on the banks liquidity situation
• However, this will enable the bank to earn loyalty of its clients, and may encourage more savings especially if CS is made semi-flexible
Product Modification
Disaster Response MeasuresDisaster Response Measures
Response Measure
Considerations Possible Impact
II. Provide Emergency Loans
• MIS must be capable of tracking multiple loans of different products from one client
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• Will require additional sources of funds since additional disbursements are to be made before the projected payment of outstanding loans
• This loan will assist clients in good standing but will be a burden to those with history of missed payments
Response Measure
Considerations Possible Impact
III. For group lending: Shift from group-based liability to individual liability, as an interim policy of the bank
• For members of centers that demonstrate varying levels of repayment capacity
• May require designing of a transition product
• MIS must be capable of handling the change to individual loans
• The bank should be prepared to handle a substantial increase in transaction flow
• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them
• Impact on liquidity depends greatly on clients’ response
• It may encourage prompt repayments from clients who are able to, but also removes the guarantee for those who are not
• It may encourage payments and increase loan disbursements
Disaster Response Measures/OptionsDisaster Response Measures/Options
• Non-Financial Emergency Responses
Before a disaster:
Training on Risk/Disaster awareness
Information Dissemination
After a disaster:
Distribution of emergency/relief supplies
Disaster ManagementResponse Measures/ Options
Non-Financial Emergency ResponsesResponse Measure
Considerations Possible Impact
• The banks’ loan portfolio must be under control and liquidity position adequate before venturing to these
• Assess the banks human resource capability to undertake additional tasks
• Additional funds to cover costs of these services
• Accounting system must be able to track costs separately
• Clients who do not receive sufficient explanation as to why, how and for how long these services are offered could start to see the bank as a relief agency and fail to make future payments
• Getting involved ensures the survival of the bank during and after the crisis
Disaster ManagementResponse Measures/ Options
Non-Financial Emergency ResponsesResponse Measure
Considerations Possible Impact
• The banks’ loan portfolio must be under control and liquidity position adequate before venturing to these
• Assess the banks human resource capability to undertake additional tasks
• Additional funds to cover costs of these services
• Accounting system must be able to track costs separately
• Clients who do not receive sufficient explanation as to why, how and for how long these services are offered could start to see the bank as a relief agency and fail to make future payments
• Getting involved ensures the survival of the bank during and after the crisis
Disaster ManagementResponse Measures/ Options
Reference material:
Miamidian, Arnold, Burrit and Jacquand, Surviving Disasters and Supporting Recovery: A Guidebook for Microfinance Institutions, The World Bank, February 2005
Disaster Preparedness and Management