Conference highlights study of rural bank performance, recent trends, and proposed improvements to the EAGLE assessment

Eo MasilunganOn the first day of the 2010 RBAP-MABS National Roundtable Conference held in Manila, Eo Masilungan, MABS Research and Monitoring Coordinator, reported the results of the program’s EAGLE Assessment tool for rural banks offering microfinance services.  EAGLE, an acronym for five key performance areas (Efficiency, Asset Quality, Growth, Liability Structure, and Earnings), is a set of standards against which each MABS participating banks microfinance performance are measured. The EAGLE assessment is used by bank management as a tool for monitoring and evaluating factors affecting a rural bank’s microfinance operations.

Some interesting trends of the most recent EAGLE assessments based on last year’s results were noted.  A greater number of rural banks are becoming more cost efficient in its microfinance operations – 24% of all participating banks reached the standard of 10% cost-to-earnings ratio in 2009 as compared to only 11% reaching the target in 2008.  However, account officer (AO) productivity and growth in outreach and portfolio volume are trending downwards.  The number of borrowers per AO was 94 for individual loans and 271 for group loans for 2009, down from 104 and 299 respectively in 2008.  Similarly, there was a 10% decrease in the number of borrowers and gross microfinance loan portfolio across all regions of the Philippines in 2009.

The portfolio at risk rate (PARR), a measurement used to assess Asset Quality, remained unchanged from 2008 to 2009.  On a more positive note, more banks achieved a 1:1 deposit to loan ratio, from 40% of participating banks in 2008 to 60% in 2009, and most of them attained good returns on their microfinance portfolio.

Overall, 12 out of 45 banks received EAGLE scores of A.  As one can see, there is significant room for improvement in these five performance areas.  Rural banks were encouraged to consult with a MABS Microfinance Specialist to review their assessment and focus on areas to improve their performance.

Mely AgabinNext, MABS Deputy Chief of Party, Mely Agabin, discussed the proposed modifications to the EAGLE assessment scoring system, which was developed and installed in 2003.  The microfinance industry has seen some significant changes over the past few years with many more players and, hence, stronger competition, more extensive portfolio of products, and a maturing of the industry which all warranted a review of the scoring system.  Proposed changes to the EAGLE assessment scoring system and requirements for an AA EAGLE assessment target include: a BSP Camels composite rating of at least 3.0 (instead of 3.5 due to the changes in the BSP CAMELS tool which now rounds down 3.5 scores to 3.0); setting minimum active borrower targets – 1,000 (for new and young banks with less than 8 years in microfinance) to 2,000 (for mature banks engaged in microfinance for 8 or more years); dropping the Cost/Active Borrower indicator (due to differences in costs across various regions); increasing the weight of the Loan Officer Productivity indicator; changes in growth targets (depending on the age of the microfinance operations of the bank with different targets for new, young, and mature); and a decrease in the annual microfinance net returns from 35% to 20% (taking into account a maturing of the industry and greater competition which is now expected to result in lower effective interest rate spreads).  When approved by the MABS program Steering Committee, the changes will be applied in the EAGLE Assessments for MABS participating rural banks.

What is your EAGLE score?  What did you learn from your score?  What changes do you need to work on to improve the performance of your bank?  Please feel free to share your stories and experiences by replying to this post.

Until next time, Mabuhay ang Rural Banking!