Presentation Outline

Understanding Microfinance Performance of Rural Banks through the

MABS EAGLE Standard and Rating System

Presentation OutlinePresentation Outline

I. Background on the EAGLE Rating System

II. The EAGLE Rating Process

III. The EAGLE Components

IV. The EAGLE Grades

V. Performance

BackgroundBackground

•The EAGLE Rating System assesses the The EAGLE Rating System assesses the performance of the micro-enterprise performance of the micro-enterprise finance finance portfolio;portfolio;•A management tool for rural banks for A management tool for rural banks for monitoring and evaluating factors monitoring and evaluating factors affecting affecting its microfinance operations.its microfinance operations.

EAGLE Rating ProcessEAGLE Rating Process

5. Conduct EAGLE Validation

4. Compute Initial EAGLE rating

6. Compute Final EAGLE Rating

2. Satisfy Microfinance-specific Minimum Criteria

3. Submit Various Bank Reports to MABS for

Computation of EAGLE Rating

1. Satisfy Bank-Wide Minimum Criteria

Bank

The EAGLE Rating ProcessThe EAGLE Rating Process

Step 1. Satisfy Bank-wide Criteria

1. BSP CAMELS rating 3 & above for the past

2 years

2. Overall past-due ratio less than 15% for the

past year

3. Capital adequacy At least 12%


Step 2. Satisfy MF-Specific Criteria1. Recipient of MABS Compliance Certification

2. Experience in microfinance operations

at least one (1) year

3. Number of active microfinance borrowers

New Banks (4 years or less): At least 1,000Young Banks (over 4 years to 8 years): At least 1,000Mature Banks (over 8 years): At least 2,000


5. With MIS capability to produce PAR reports with portfolio ageing

6. Has been reporting to MABS for at least one year

7. Has Operations Manual

Step 2. Satisfy MF-Specific Criteria (contd.)Step 2. Satisfy MF-Specific Criteria (contd.)

4. Dedicated and trained loan officers for microenterprise finance activities

3 (full-time)


a. MABS Performance Monitoring System (MPMS) reports

b. Other bank reports, such as: • CSOC• CSIE• Schedule of Microfinance Loans • CSIE on Microfinance Program • Schedule of Deposit Liabilities, By Size of

Accounts

Step 3. Submit various required reports to MABS

EAGLE Computation and ValidationEAGLE Computation and Validation

MABS Performance Monitoring System (MPMS) reports

Loan Portfolio Balance

Number of active borrowers outstanding

Number of microfinance field staff

Total financial expenses

Portfolio at risk more than 30 days

Portfolio at risk more than 7 days

Total financial income

Total direct operating expenses


INFORMATION REQUIRED FROM BANKS DRAWN FROM THE MPMS:

EAGLE Computation and EAGLE Computation and ValidationValidation

CSOC/BS


EAGLE Computation and EAGLE Computation and ValidationValidation

CSIE/IS

Step 3. Submit various required reports to Step 3. Submit various required reports to

MABSMABS


Sched of MF

Loans Outstanding


RB Form 3A.1

RB Form 3A.1 Deadline: 15 banking days after

Revised 2002 end of reference period

Submission: DRB/SRSO

Address Bank Code

CONSOLIDATED STATEMENT OF INCOME AND EXPENSES

ON MICROFINANCE PROGRAMFor the Quarter ended December 31, 2004

Rec.No. A M O U N T

1. TOTAL OPERATING INCOME 05 - a. Interest Income 10 -

(1) Interest - Loans and Discounts 15(2) Interest - Restructured Loans 20(3) Interest - Past Due/Items in Litigation 25

b. Service Charges/Fees 30c. Other Income 35

2. TOTAL OPERATING EXPENSES 40 -

a. Interest Expenses 45 - (1) Interest - Deposits (MF Component) 50(2) Interest - Borrowings 55

b. Compensation/Fringe Benefits* 60c. Bad Debts Written Off 65d. Other Expenses 70

3. Net Operating Income/(Loss) 75 -

* No. of Field Staff

Note: for No. of Field of Staff fill in G35Note: Reporting period:

For the Quarter Ended:March 31 January 1 to March 31June 30 January 1 to June 30Sept. 30 January 1 to September 30Dec. 31 January 1 to December 31

PARTICULARS

Period Covered:

Name of Bank


Schedule 5, RB Form 2ARB Form 2A Schedule 5

(Revised 2000)

44685Code

Rec. No. of No. of No. of No. of No. of

Deposit Size No. Accts. Amount Accts. Amount Accts. Amount Accts. Amount 4/

Accts. Amount

1. 15,000 and Below 140 - - - - -

2. 15,000.01 - 40,000 141 - - - - - -

3. 40,000.01 - 60,000 142 - - - - - -

4. 60,000.01 - 80,000 143 - - - - - -

5. 80,000.01 - 100,000 144 - - - - - -

6. 100,000.01 - 125,000 145 - - - - - -

7. 125,000.01 - 150,000 146 - - - - - -

8. 150,000.01 - 200,000 147 - - - - - -

9. Over 200,000 148 - - - - - -

Total 150 - - 1/

- - 2/

- - 3/

- - 4/

- - 5/

No. of Depositors*:

1/ Must Tally with Record No. 180 of the Main Report Page 3 of 3 pages

2/ Must Tally with Record No. 181 of the Main Report




*A depositor (and/or in trust for) who has several types of accounts (i.e., currents, savings, time, etc.) should be counted as one.

RURAL BANK OF____________________Name of Bank

SCHEDULE OF DEPOSIT LIABILITIES BY SIZE OF ACCOUNTJanuary 31, 2004

P E S O D E P O S I T S

Totals Demand Now Savings Time

EE – Efficiency – 30%

AA – Asset quality – 30%

GG – Growth – 10%

LL – Liability structure – 10%

EE – Earnings – 20%

The EAGLE ComponentsThe EAGLE Components

Cost Efficiency (10%)Cost Efficiency (10%)

- Highlights personnel and

administrative expenses relative

to the loan portfolio

Loan Officer Productivity* Loan Officer Productivity*

(20%)(20%)

- Measures the average number

of borrowers managed by each

account officer. Breakdown

into:

- Individual loan minimum of 150

borrowers = 10 %

- Group Loan minimum of 300

borrowers = 10 %


Efficiency (30%)Efficiency (30%)


Efficiency, 30%

Earnings, 20%

Growth, 10%

Liability Structure, 10%

Asset Quality,

30%

PAR 7, 10%

PAR 30, 10%

LOAN LOSS RESERVE RATIO , 5%

LOAN LOSS RATE, 5%

Asset Quality (30%)Asset Quality (30%) PAR > 7 days (10%) and PAR > 7 days (10%) and

PAR > 30 days (10%)PAR > 30 days (10%)

- Show the degree of risk of the

total microfinance portfolio

Loan Loss Reserve Ratio (5%)Loan Loss Reserve Ratio (5%)

- Indicates the degree of

protection of the bank against

expected losses due to

delinquency

Loan Loss Rate /Write-off Loan Loss Rate /Write-off

Ratio (5%)Ratio (5%)

- Indicates the level of actual and

adjusted write-off over ave.

loan outstanding.

• Growth in active clients Growth in active clients (5%)(5%)

– Active borrowers as of end of period vs. active borrowers as of end of previous period

• Growth in loan portfolio Growth in loan portfolio outstanding (5%)outstanding (5%)

– Loan portfolio as of end of period vs. loan portfolio as of end of previous period


Earnings, 20%


Asset Quality, 30%

Efficiency, 30%

Growth in Volume of microfinance portfolio, 5%

Growth in No. of Outstanding Clients, 5%

Growth, 10%

Growth (10%)Growth (10%)


Growth, 10%

Efficiency, 30%

Asset Quality,

30%

Liability Structure,

10%

Earnings, 20%

Liability Structure (10%)Liability Structure (10%)

• Deposit to Loan Ratio Deposit to Loan Ratio (10%)(10%)

– Looks at the ability of the bank in terms of liquidity management.

Bank-wide Gross Bank-wide Gross Loan PortfolioLoan Portfolio

15. DEPOSIT LIABILITIES (Schedule 5) 180 -

a. Demand - 181 -

1. Taxable Demand Deposits 189

2. Non-Taxable Demand Deposits 190

b. Savings Deposits - 182 -

1. With Automatic Transfer - 183 -

a. Taxable Deposits 191

b. Non-Taxable Deposits 192

2. Without Automatic Transfer - 184 -

a. Taxable Deposits 193

b. Non-Taxable Deposits 194

c. Time Certificate of Deposits - 185 -

1. Taxable Deposits 195

2. Non-Taxable Deposits 196

d. NOW Accounts - 186 -

1. Taxable Deposits 197

2. Non-Taxable Deposits 201

L I A B I L I T I E S

Code

CONSOLIDATED STATEMENT OF CONDITIONAs of _________________________

_____________________________________

____________________________________Name of Rural Bank

Address

ADDITIONAL INFORMATION: 1. TOTAL LOANS PORTFOLIO - GROSS (Schedule 2) 900 -

a) Current 901 -

b) Past Due 902 -

c) Items in Litigation 903 -

2. Less: Specific Loan Loss Provision 904 -

3. Loan Portfolio (Net of Specific Loan Loss Provision) 906 -

4. Less: GENERAL LOAN LOSS PROVISION 910 -

5. LOAN PORTFOLIO - NET 920 -

6. Total Allowance for Probable Losses 460 -

a) 2% General Provision for Probable Loan Losses 461 -

b) Allowance for Probable Losses on Loan Accounts and Other Risk Assets 462 -

b.1 Loans 463 -

b.2 Other Risk Assets 464 -

7. Total Non-Performing Loans (Cir. No. 202 dated May 27, 1999) 930 -

a) Non-performing Regular Loans (Other than Restructured Loans) 931

b) Non-performing Restructured Loans 932

7a. Loans Classified as "Loss" which are fully covered by Allowance for Probable

Losses 933

7b. Outstandng Credit Receivables Classified as Loss 934

in the latest BSP examination, net of write offs, recoveries and collections7bc Credit Card Receivables classified as loss by the bank as of this month 935

Total Bank-wide Total Bank-wide Deposit LiabilitiesDeposit Liabilities

1. TOTAL LOANS PORTFOLIO - GROSS (Schedule 2) 900 -

15. DEPOSIT LIABILITIES (Schedule 5) 180 -

==


Growth, 10%

Efficiency, 30%

Asset Quality, 30%


Earnings, 20%

Earnings (20%)Earnings (20%)

Loan Portfolio ProfitabilityLoan Portfolio Profitability (20%)(20%)- measures the bank’s ability to generate earnings with a given asset base.

Average outstanding microloan portfolio for the Year being rated

* Data culled from MPMS based on bank’s submission: Total financial income Less: Total financial expense Total direct operating expense Required Loan Loss Provision per BSP Circular 409 Net MF Operating Income

Net MF Operating Income*==

Loan Portfolio Loan Portfolio ProfitabilityProfitability

(20%)(20%)

EAGLE StandardEAGLE Standard

Components Components (Indicators)Standard Standard

(EAGLE Score of 5)(EAGLE Score of 5)

EFFICIENCYEFFICIENCY

Cost efficiency < 10%

Loan officer productivity – group loan > 300

Loan officer productivity – individual loan > 150

ASSET QUALITYASSET QUALITY

PAR Over 7 Days < 5%

PAR Over 30 Days < 3%

Loan Loss Provision > 100%

Loan Loss Rate < 2%

EAGLE StandardEAGLE Standard

Components Components (Indicators)StandardStandard

(EAGLE Score of 5)(EAGLE Score of 5)

GROWTH IN PORTFOLIOGROWTH IN PORTFOLIO

Growth in Active Borrowers New: _______20%Young: _____ 15%Mature: ____ 10%

Growth in Loan Portfolio New: _______20%Young: _____ 15%Mature: ____ 10%

LIABILITY STRUCTURELIABILITY STRUCTURE

Liability Structure > 100%

EARNINGSEARNINGS

Earnings > 20%

Components Components (Indicators) FormulaFormula

EFFICIENCYEFFICIENCY

Cost efficiency Total Direct Operating Costs, Sum for Period being rated

Avg. MF Gross Loan Portfolio, Period being rated

Loan officer productivity – group loan

Avg # active borrowers, Group Loans, For Period being rated

Avg # MF field staff, Group Loans, 1st 9 mos. for Period being rated

Loan officer productivity – individual loan

Avg # active borrowers, Indiv. Loans, For Period being rated

Avg # MF field staff, Indiv. Loans, 1st 9 mos. for Period being rated

Performance Indicators & Corresponding FormulaPerformance Indicators & Corresponding Formula


ASSET ASSET QUALITYQUALITY

PAR Over 7 Days

Avg. Principal Balance of Loans with more than 7 days missed payment, for Period being rated

Avg. Gross MF Loan Portfolio, for Period being rated

PAR Over 30 Days

Avg. Principal Balance of Loans with more than 30 days missed payment, for Period being rated

Avg. Gross MF Loan Portfolio, for Period being rated

Loan Loss Reserve Ratio

Actual MF Loan Loss ProvisionRequired MF Loan Loss Provision per BSP Circular 409

Loan Loss Rate Total MF Loan Write-Offs, for Period being rated

Average Loan Portfolio Outstanding, for Period being rated



GROWTH IN GROWTH IN PORTFOLIOPORTFOLIO

Growth in Active Borrowers

(End of Rated Period, No. of Active MF Borrowers – End of Previous Period, No. of Active MF Borrowers) End of Previous Period, No. of Active MF Borrowers

Growth in Loan Portfolio (End of Rated Period, MF Gross loan portfolio – End of Previous Period, MF Gross loan portfolio) End of Previous Period, MF Gross loan portfolio

LIABILITY LIABILITY STRUCTURESTRUCTURE

Deposit to Loan Ratio Total Bank-Wide DepositsTotal Bank-Wide Gross Loan Portfolio

EARNINGSEARNINGS

Loan Portfolio Profitability

Net MF Operating IncomeAvg. Gross MF Loan Portfolio


Computing for the EAGLE GradeComputing for the EAGLE Grade

EAGLE gradeEAGLE grade is finally derived based is finally derived based on the computed overall weighted on the computed overall weighted

score.score.

The component score is then weighted to arrive at a weighted component

score.All weighted component scores are All weighted component scores are

then added to get the then added to get the overall weighted overall weighted scorescore..

A A component scorecomponent score is computed by is computed by getting the sum of the weighted scores getting the sum of the weighted scores of each component’s underlying of each component’s underlying indicators.indicators.

AA: Overall weighted score of 4.25 and above and no zero score for any individual component; To be qualified for an EAGLE Award, a candidate bank should have at least 500 average active borrowers over the last 3 months of the year.

A: (i) Overall weighted score between

3.5 and 4.24; (ii) a bank with score of 4.25 and over but less than 500 ave. active borrowers over last 3 months

B: Overall weighted score between 2.5

and 3.49 No grade: Overall weighted score less

than 2.49.

Excellent Excellent microenterprismicroenterprise finance e finance performanceperformance

Very goodVery good

AverageAverage

Below average Below average performanceperformance

The EAGLE GradesThe EAGLE Grades

So, howSo, how did did banks score in banks score in 2010?2010???

Annual AssessmentAnnual AssessmentJanuary – December 2010January – December 2010

•50 banks were evaluated

•4 scored AA; 2 are qualified for

the EAGLE Award •14 scored A•21 scored B•11 No grade

MEASURING MEASURING EFFICIENCYEFFICIENCY

Result: EfficiencyResult: Efficiency



MEASURINGMEASURINGASSET ASSET QUALITYQUALITY

Result: Asset QualityResult: Asset Quality




MEASURINGMEASURINGGROWTHGROWTH

Result: Growth – No. of BorrowersResult: Growth – No. of Borrowers

Result: Growth – Loan PortfolioResult: Growth – Loan Portfolio

MEASURINGMEASURINGLIABILITY LIABILITY STRUCTURESTRUCTURE

Result: Deposit to Loan RatioResult: Deposit to Loan Ratio

MEASURINGMEASURINGEARNINGSEARNINGS

Result: EarningsResult: Earnings

SOME BANKS HAVE SOME BANKS HAVE BEEN USING THE EAGLE BEEN USING THE EAGLE

SCORING SYSTEM TO SCORING SYSTEM TO ASSESS THEIR ASSESS THEIR

MICROFINANCE MICROFINANCE PERFORMANCE & PERFORMANCE &

EVALUATE THE AO AND EVALUATE THE AO AND BRANCH PERFORMANCE.BRANCH PERFORMANCE.

BANGKO BANGKO KABAYAN KABAYAN IS AN IS AN EAGLE EAGLE USER ….USER ….

And… EAGLE And… EAGLE WINNER WINNER SEVERAL SEVERAL TIMES.TIMES.

THANK THANK YOU!!!YOU!!!

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Presentation Outline