CREDIT RISK MANAGEMENT

OF
SOLID EMPLOYEES DEVELOPMENT COOPERATIVE (SEDCO)

Submitted by:
Cabarrubias, Crismie M.
Moreno, Je-an E.

Chapter I
INTRODUCTION

Company Background
Solid Employees Development Cooperative (SEDCO) was organized in
2003 with the capital of One Million Five Hundred Forty-Eight Thousand Pesos
(Php 1,548,000.00). The cooperative was based within Caraga Region 13 with
principal office located at DAR Regional Office, Libertad, Butuan City. The regular
members of the cooperative are employees in the Department of Agrarian
Reform (DAR).
The primary purpose is to generate funds and provide credit to the
members for livelihood, to distribute goods and commodities to members and
non-members at the low price and to provide housing benefits for its members.
The products and services offered are categorized into three (3) the
members saving operation, lending operations, and other services. Member
saving operation includes banking and loan. Lending operations are a regular
loan and ATM. Other services are PAL ticket, canteen, and catering.
Solid Employees Development Cooperative (SEDCO) operates and
advocates the values of self-help, self-responsibility, democracy, equality, equity,
and solidarity.

SEDCO has the flow of management that follows the following.

Board of Directors

Manager

Credit Committee

Bookkeeper

Treasurer

Business Operation Officer

Teller/Cashier

Clerk I

Figure 1. ORGANIZATIONAL CHART

Vision
A competitive, financially viable and sustainable coop with committed and
empowered members whose ideals are geared for the enhancement of their
socio-economic well-being. (As approved in 2003)
Mission
To provide livelihood programs and the provision of social services that will
improve the quality of the life of its members. (As approved in 2003)

Company Goals
To manage the resources of the coop effectively and efficiently. To
establish, maintain, enhance system and strategies relating to the basic and
immediate needs of its members.

Case Overview
The cooperative is facing incremental delinquency in collection monthly
which minimizes its ability to generate income. The management has an
insufficient monitoring, lack of attention and enforcement of default payments.
Currently, the coop can cater other services despite increasing
delinquencies. However, the management implements the cooperative securities
like collateral and strictly evaluates the capacity of members for acquiring loans.
Employees Sentiments
Based on the interview conducted the cooperative manager cannot
comply the updated ledger of each members account because of conflict of
interest as the manager of the cooperative while at the same time as an acting
accountant in DAR. The cooperative must have an internal auditor to monitor the
monthly transactions.
Customers Feedback
Based on the preliminary interview to customers, they experienced the
difficulty for applying a loan especially if there is a delinquency record. The

management must put a full-time manager to focus the responsibility to avoid

hassle process of approving loan.

Case Problem
The possible bankruptcy occurs of the operations due to the loss of asset.
Approving of loans will decline and inflation of interest rate. Implement and
coordinate policy responses among the different responsibilities.

Objectives of the Study

The main objective of the study is to make an analysis on how to assess
the financial performance. To manage the credit risk in the entire portfolio as well
as the risk in individual credits or transactions that help to the long-term success.

Scope and Limitations

The study focuses on credit risk that covered the financial, operations,
customers account and receivable portfolio using the tool of measuring the risk of
However, the study is limited only to the Statement of Financial Position,
Profit and Loss Statement for analysis for the year 2010 and 2014.

Definition of Terms
Credit Risk

The difficulty of applying a loan to the

Delinquency

borrowers that have a delinquent payment.

Refers to the situation where a borrower is
late or overdue on a payment, such as
providential loans, business loans, salary
loans, or micro-credit.

Financial Performance

Refers to measure on how to use assets from

its primary mode of business and generate
revenues.

Financial

performance

is

companys ability to generate new resources,

from day to day operation.
Profitability
The ability to generate earnings as
compared to its expenses and other
relevant costs incurred during a
specific period of time.
Solid Employee
A term used to describe for building
strongly a cooperative.

Chapter II
REVIEW OF RELATED LITERATURE
The cooperative should consider the credit risk portfolio as well as the risk
of individual credits and standard sources in the cooperative credit department
would turn further insight to meet the goals.
In some credit saving cooperative is facing serious and fundamental
problems, a lack of understanding of everything connected with the processes by
which this particular form of cooperative operates. Thus, in the everyday life of
the cooperative, a basic, simple formula enabling us to determine its operating
and service costs is lacking therefore the financial institution should find an
efficient balance of the risks incurred by the financial activity and achieving an
increase of profits.
According to Vinod Venkiteshwaran (2014) the increased of credit risk
resulting from distress that could improve the internal liquidity and credit quality,
however, the opportunities of the guaranteed loan is necessary for reducing the
profitability and liquidity pressures of the financial institutions.

In some credit saving cooperative is facing a serious and fundamental

problems, there is a lack of understanding of everything connected
with the processes by which this particular form of cooperative

operates. Thus, in the everyday life of the cooperative, a basic, simple

formula enabling us to determine its operating and service costs is
lacking therefore the financial institution should find an efficient
balance of the risks incurred by the financial activity and achieving an
increase of profits.

According to Merton (1974) a firm will default when its market value is lower
than the value of liabilities. The payment to the debt holders at the
maturity of debt therefore the smaller of the face value of the debt or
the market value of the of the firms assets

According to Vinod Venkiteshwaran (2014) the increased of credit risk

resulting from distress that could improve the internal liquidity and
credit quality, however, the opportunities of the guaranteed loan is
necessary for reducing the profitability and liquidity pressures of the
financial institutions.

BIBLIOGRAPHY
Galuman, Jose (2005). The report of IC project: New York
Ankrah, Dragisa (2015).Credit risk management, Journal of Credit Risk, vol. 3.
Bonti, G, M Kalkbrener, C Lotz and G Stahl (2006). Credit risk concentrations
under stress, Journal of Credit Risk, vol 2, no 3, pp 115-136.
Bloomfield,

Robert

Bloomfield

(2012)

Credit

risk:

Johnson

School

of

Management Cornell. New York

Merton, Robert C. (1974).On the Pricing of Corporate Debt: The Risk Structure
of Interest Rate, Journal of Finance, pp.449-470l

APPENDICES
Dear Respondents,
The researchers; a fourth year BSBA major in Financial Management student of
ACLC College of Butuan (AMA Education System); are currently conducting a
case study entitled Credit Risk Management in Solid Employees Development
Cooperative (SEDCO) .Anent to this, we are seeking for your cooperation and
honesty in answering this questionnaire for our survey. I assure you that all the
information given will stay confidential.
Thank you and God Bless!

Yours Truly,
Crismie M. Cabarrubias
Je-an E. Moreno

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Survey Questionnaire
How will rate the products and services of the cooperative

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