Power of

P. E. S. O. S.

The Power of P E S O SThe Power of P E S O S

BOOKKEEPER’S TRAININGAugust 26, 2013

What is

P. E. S. O. S. ?

P - PORTFOLIO QUALITY

E - EFFICIENCY

S - STABILITY

O - OPERATIONS

S - STRUCTURE OF

ASSETSThese are indicators for the financial performance of savings and credit cooperatives and other types of cooperatives with savings and credit services.

PESOS RATIOS GOALS:

• P ortfolio Quality

• E fficiency

• S tability

• O perations

• S tructure of Assets

A toolkit for good Cooperative Governance.

A risk assessment tool.

A toolkit for good Cooperative Governance.

A risk assessment tool.

A framework for risk based reviews and assessment of the credit cooperative’s risk management practices.

PESOS BASED

PURPOSES:

Supervisory &

Regulatory Tool Management Tool

To ensure safety and stability of credit cooperative through necessary operational and financial discipline that would surely protect the money of the members.

As Supervisory and Regulatory Tool

For supervisory and/or regulatory body designated

To ensure that the cooperative is operating efficiently and effectively and satisfying the needs/wants of the members and community in general and keeping the cooperative viable at all times.

As Management ToolFor BoD, GM and key implementers

P E S O S

PORTFOLIO QUALITY - 25%

1. PORTFOLIO AT RISK (PAR)

Measures the risk of default in the portfolio.

Formula:

Balance of Loans with 1 day missed payments Total Loans Outstanding

Standard: 5% or less15 %.

PORTFOLIO QUALITY

2. Allowance for Probable losses on loans

Measures the adequacy of the allowance for probable losses on loans

a) Formula 1:

Amount of allowance for loans

over 12 Months Past Due_____

Total Loans Outstanding over

12 months past dueStandard: 100%5%

PORTFOLIO QUALITY

2. Allowance for Probable losses on loans

Measures the adequacy of the allowance for probable losses on loans

b) Formula 2:

Amount of allowance for loans

1 to 12 Months Past Due_____

Total Loans Outstanding

1 to 12 months past dueStandard: 35% 5%

EFFICIENCY - 20%

1. Asset Yield

Measures the ability of coop’s assets to generate income.

Formula:

Undivided Net Surplus

Ave. Total Assets

Standard: At least Inflation Rate

4 %.

EFFICIENCY

2. Operational Self-Sufficiency

Measures the ability of coop to sustain its operation.

Formula:

Interest Income from Loans +

Service Fees+Filing Fees+Fines Financing Costs+Admin Costs

Standard: more than 100%

4%

EFFICIENCY

3. Rate of Return on Members’ Share

Measures the earning power of members.

Formula:

Interest on Share Capital

Average Share Capital

Standard: Higher than Inflation Rate

4%

EFFICIENCY

4. Loan Portfolio Profitability

Measures how profitable the loan portfolio is.

Formula:

Int. Inc. from Loans + SF+ FF+ Fines

Average Total Loans Outstanding

Standard: More than 20%

4%

EFFICIENCY

5. Cost per Peso Loan

Measures the efficiency in managing the loan portfolio.

Formula:

Financing Cost + (Admin Cost – Member Benefit Expense )

Average Total Loans Outstanding

Standard: P0.10 per P1.00 loan

2%

EFFICIENCY

6. Administrative Efficiency

Measures the cost of managing the coop’s assets.

Formula:

Administrative Costs

Average Total Assets

Standard: 3% to 10%

2%

STABILITY ………30%

1. SolvencyMeasures the degree of protection that the coop has for members’ savings and shares in the event of liquidation of the coop’s assets and liabilities.

Formula:

(Assets+Allow)-([Total Liab-Deposits] +Past Due Loans+LR+LUL)

Deposits + Share Capital

Standard: At least 110%10%

STABILITY

2. Liquidity

Measures the coop’s ability to serve itsmembers’ withdrawals and deposits on time.

Formula:

Liquid Assets-ST Payables Total Deposits

Standard: Not less than 15% 10%

STABILITY

3. Net Institutional Capital

Measures the level of institutional capital after subtracting the losses

Formula:

(Reserves+Allow for PLL) – (Past Due Loans+LUL+P Assets)

Total Assets

Standard: At least 10%10%

OPERATIONS

1. Performance of Membership Growth ….10%

Determines the performance of changein membership vis-à-vis target.

Formula:

Actual Increase in the # of Members Target Increase in the # of Members

Standard:

Target set in the Developmental Plan

5%

OPERATIONS

2. Trend in External Borrowings

Determines the percentage of change in external borrowings.

Formula:

Ending Ext. Borrowings –

Beg. External Borrowings Beg. External Borrowings

Standard:

Decreasing towards zero.

5%

STRUCTURES OF ASSETS – 15%

1. Asset Quality

Measures the percentage of total assets that are not producing income.

Formula:

Non-Earning Assets Total Assets

Standard: Not more than 5%

5%

STRUCTURES OF ASSETS

2. Asset Structure - 1

Measures the percentage of totalassets financed by deposits

Formula:

Total Deposits Total Assets

Standard: 55% - 65%5%

STRUCTURES OF ASSETS

2. Asset Structure - 2

Formula:

Total Loans Receivables Total Assets

Standard: 70% - 80%2%

STRUCTURES OF ASSETS

2. Asset Structure - 3

Formula:

Total Share Capital Total Assets

Standard: 35% - 45%3%

PESOS RATINGS SUMMARY

P - PORTFOLIO QUALITY …… 3….25

E – EFFICIENCY ………………. 6….20

S - STABILITY…………………. 3….30

O - OPERATIONS…………….. 2….10

S - STRUCTURE OF ASSETS..4… 15

TOTAL……………………….18..100

X …………... 80%

PESOS RATINGS SUMMARY

P PORFOLIO QUALITY (25%)1 Portfolio at Risk (PAR) 152 Allowance for Probable Losses on Loans

more than 12 months past due 53 Allowance for Probable Losses on Loans

1 to 12 months past due 5 25E EFFICIENCY (20%)

4 Asset Yield 45 Operational Self-Sufficiency 46 Rate f Return on Members' Share 47 Loan Portfolio Profitability 48 Cost per Peso Loan 29 Administrative Efficiency 2 20

S STABILITY (30%)10 Solvency 1011 Liquidity 1012 Net Institutional Capital 10 30

O OPERATIONS (10%)13 Performance in Membership Growth 514 Trend in External Borrowings 5 10

S STRUCTURE OF ASSETS (15%)15 Asset Quality 516 Asset Structure: Total Deposits/Total Assets 517 Asset Structure: Total Loans/Total Assets 218 Asset Structure: Total Share Capital/Total Assets 3 15

TOTAL PESOS 100 x 80%

What is the

“POWER OF PESOS”???

It will help the management

identify ratios which require attention and focus

Identify necessary intervention

The Power of PESOS

The Power of PESOS

Benefits:

•Board and management focus

•Incremental changes in innovation

•Quality, productivity and performance measurement

•Developing and applying new approaches

•Allocation of scarce resources

•Cooperative Governance and (Self) Regulataion

Indicator Intervention/Module

Portfolio Quality

•Delinquency Control•Credit Management

Efficiency •Capital Management•Asset/Liability

Management

Stability •Liquidity Management•Investment Management

Operations •Membership Growth•Trend in External

Borrowings

Structure of Assets

•Asset Quality•Asset Structure

The Power of PESOS

The Power of PESOS

SOME ACTION PLANS OF COOPS WHO REGULARLY MONITOR PESOS RATIOS

Monthly aging of loans receivables

Increased provision for allowance for

probable losses on loans

Housekeeping

In close watch with income and

operating expenses against budgeted

income and expenses

Increased % of allocation to reserve fund

Started funding the statutory reserves

Thank you!!!