The document discusses the Power of PESOS, which is a framework that uses 5 key ratios - Portfolio quality, Efficiency, Stability, Operations, and Structure of assets - to assess the financial performance and risk management of cooperatives. It defines each ratio and what it measures. The framework helps management identify issues, focus areas for intervention, and can be used as a supervisory/regulatory tool. Regularly monitoring PESOS ratios can help cooperatives develop action plans like increasing provisions for loan losses, improving expense management, and increasing allocations to reserve funds.

1. Power
of
P. E. S. O.
S.

2. The Power of P E S O S
BOOKKEEPER’S TRAINING
August 26, 2013

3. W
hat is
P E S. O. S. ?
. .

4. P - PORTFOLIO QUALITY
E - EFFICIENCY
S - STABILITY
O - OPERATIONS
S - STRUCTURE OF
ASSETS
These are indicators for the financial
performance of savings and credit
cooperatives and other types of cooperatives
with savings and credit services.

5. 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.

6. PESOS BASED
A framework for risk
based reviews and
assessment of the credit
cooperative’s risk
management practices.
A toolkit for good Cooperative Governance.
A risk assessment tool.

7. PURPOSES:
 Supervisory &
Regulatory Tool
 Management Tool

8. As Supervisory and
Regulatory Tool
For supervisory and/or regulatory body designated
To ensure safety and
stability of credit
cooperative through
necessary operational
and financial discipline
that would surely
protect the money of
the members.

9. As Management Tool
For BoD, GM and key implementers
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.

10. PESOS

11. 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 less
15 %.

12. 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
Standard: 100% 12 months past due
5%

13. 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
Standard: 35% 12 months past due
5%

14. 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

15. 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%

16. 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%

17. 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%

18. 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

19. EFFICIENCY
6. Administrative Efficiency
Measures the cost of managing the
coop’s assets.
Formula:
Administrative Costs
Average Total Assets
Standard: 3% to 10%
2%

20. STABILITY ………30%
1. Solvency
Measures 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%

21. STABILITY
2. Liquidity
Measures the coop’s ability to serve its
members’ withdrawals and deposits
on time.
Formula:
Liquid Assets-ST Payables
Total Deposits
Standard: Not less than 15%
10%

22. 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%

23. OPERATIONS
1. Performance of Membership Growth ….10%
Determines the performance of change
in membership vis-à-vis target.
Formula:
Actual Increase in the # of Members
Target Increase in the # of Members
5%
Standard:
Target set in the Developmental Plan

24. 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%

25. STRUCTURES OF ASSETS – 15%
1. Asset Quality
Measures the percentage of total assets
that are not producing income.
Formula:
Non-Earning Assets
Total Assets
5%
Standard: Not more than 5%

26. STRUCTURES OF ASSETS
2. Asset Structure - 1
Measures the percentage of total
assets financed by deposits
Formula:
Total Deposits
Total Assets
Standard: 55% - 65%
5%

27. STRUCTURES OF ASSETS
2. Asset Structure - 2
Formula:
Total Loans Receivables
Total Assets
Standard: 70% - 80%
2%

28. STRUCTURES OF ASSETS
2. Asset Structure - 3
Formula:
Total Share Capital
Total Assets
Standard: 35% - 45%
3%

29. 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%

33. PESOS RATINGS SUMMARY
P PORFOLIO QUALITY (25% )
1 Portfolio at Risk (PAR)
2 Allowance for Probable Losses on Loans
more than 12 months past due
3 Allowance for Probable Losses on Loans
1 to 12 months past due
E EFFICIENCY (20% )
4 Asset Yield
5 Operational Self-Sufficiency
6 Rate f Return on Members' Share
7 Loan Portfolio Profitability
8 Cost per Peso Loan
9 Administrative Efficiency
S STABILITY (30% )
10 Solvency
11 Liquidity
12 Net Institutional Capital
O OPERATIONS (10% )
13 Performance in Membership Growth
14 Trend in External Borrowings
S STRUCTURE OF ASSETS (15% )
15 Asset Quality
16 Asset Structure: Total Deposits/Total Assets
17 Asset Structure: Total Loans/Total Assets
18 Asset Structure: Total Share Capital/Total Assets
TOTAL PESOS
15
5
5
25
4
4
4
4
2
2
20
10
10
10
30
5
5
10
5
5
2
3
15
100

34. What is the
“POWER OF PESOS”???

35. The Power of PESOS
It will help the management
identify ratios which
require attention and focus
Identify necessary
intervention

36. 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

37. The Power of PESOS
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

38. 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


39. Thank you!!!