Loans or credit is a common thing to do. Especially in financial institutions. Before you apply for a loan, make sure your credit collectability score is in the good category.
This aims to ensure that prospective debtors have the ability to pay the principal and interest installments.
Do you know what credit collectibility really is? Let's find out more in the following article.
Definition of Collectability
Credit collectibility is a person's financial track record. This track record is calculated based on collectability status which is divided into 5 levels, namely collectability 1 to 5.
The five collectability statuses have their respective meanings. Each existing status will determine whether the debtor is eligible or not in receiving the loan. Credit collectability applies not only to banks but to other official financial institutions.
The definition of collectibility according to the Financial Services Authority (OJK) is a condition of payment of principal or installments of principal and interest on loans by customers (debtors) that affects the probability of receiving back funds invested in securities or other investments.
Referring to Bank Indonesia regulations, the collectibility of a loan can be grouped into five groups, namely current, special mention, substandard, doubtful, and collectibility.
Credit Collectibility Regulations According to Bank Indonesia
Referring to the decision of Bank Indonesia (BI) No.7/2/PBI/2005 concerning Asset Quality Assessment of Commercial Banks, the following are 3 factors seen from the collectability score of prospective debtors.
1. Business Prospects
The business prospect factor is the most important review. In this case, the financial institution as the creditor will ensure 4 crucial points regarding the fate of the debtor in the future.
4 consists of the market situation, potential for business development, the position of the debtor in the current competition, management's ability to manage the business and protect the environment, and other points, namely the form of support from the community or affiliates.
2. Debtor Performance
Furthermore, the second factor as well as supporting the main factor is the debtor's performance. In this factor, there are 4 main points that will be studied, including profits or profits obtained, transparency of business activities including organizational structure and capital, cash flow, and sensitivity to market risk.
3. Ability to Pay
The last factor is the debtor's ability to pay. As we already know, credit collectibility is a score that determines whether or not a debtor is eligible for a loan.
Therefore, the ability to pay is definitely one of the most important. The points considered in the ability to pay to include timeliness of payments, complete and accurate information about the debtor's finances, completeness of documents, compliance with credit agreements, and the last is the suitability of data usage.
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5 Levels of Credit Collectibility Score
After we know what collectibility is and the regulations that govern it, then we will discuss the score or level of collectibility.
Based on the provisions of Bank Indonesia (BI) No. 7/2/PBI/2005 in BI circular letter No. 7/3/DPNP dated January 31, 2005, concerning Asset Quality Assessment for Commercial Banks, BI Regulation No. 14/15/PBI/2012 concerning Asset Quality Assessment for Commercial Banks, and the Financial Services Authority (OJK) Decree No. 29/POJK.05/2014 concerning the Implementation of Financing Company Businesses, there are 5 levels of credit score quality for prospective debtors. The explanation is as follows.
1. Col-1 (Pass)
Kol-1 or Kolek 1 which means PASS is the highest collectibility status. At this level the debtor has a good track record, performing loans (PL). Never experienced delays in payments or problems in the form of loan arrears.
Debtors who fall into this level tend to find it easier to obtain loans from financial institutions.
2. Col-2 (Special Mention)
Kol-2 or Kolek 2 which means IN SPECIAL ATTENTION or often abbreviated as DPK is a level 2 collectability status.
At this level, the debtor has a track record of experiencing delays in payment of principal and interest that exceeds the due date. That is for 30 - 90 days.
Although it is still included in the performing loan (PL), generally financial institutions consider people with this collectability score to be considered bad.
In the case of non-performing loans at the Col-2 level, the handling that will be carried out by the financial institution for debtors with this level is in the form of ordinary collection or restructuring based on an agreement between the debtor and creditor.
3. Col-3 (Substandard)
Col-3 or Kolek 3 which means LESS CURRENT is collectibility status level 3 where the debtor experiences delays in payment of principal and interest for 90 - 120 days after the maturity period ends.
In the case of non-performing loans at the Col-3 level, the financial institution is obliged to issue the first warning letter (SP). And start calculating accruals for outstanding principal and interest arrears, ongoing penalties arrears, bookkeeping administration arrears, and other arrears through the issuance of factoring.
4. Col-4 (Doubtful)
Col-4 or Kolek 4 which means DOUBT is the collectability status of level 4 which indicates a delay in payment, both principal and interest installments.
The delay in payment lasts between 120 - 180 days from the expiration date.
At this stage, Col-4 can be manually shifted to Col-5 if the financial institution has obtained confidence that the debtor is not only unable to pay his obligations, but also does not have the good faith to settle his obligations. At this stage, financial institutions are obliged to issue a warning letter-2 and warning letter-3 to debtors.
Not only that, in the case of non-performing loans at the Col-4 level, financial institutions can already assume that the principal and interest installments are not paid and are ready to take the settlement of non-performing loans through the auction of collateral in accordance with Article 6 of Law No. 4 of 1996 concerning Mortgage Rights on Land. Along with Objects Related to the Land.
5. Col-5 (Loss)
Col-5 or Kolek 5 which means Loss of Credit is a level 5 collectibility status which is often referred to by another name for Bad Credit.
At this level, the debtor has the status of a non-performing loan (NPL) because it is unable to pay the principal and interest installments beyond the due date. That is 120 - 180 days.
In the case of non-performing loans at the Col-5 level, financial institutions are obliged to settle non-performing loans by auctioning off the debtor's collateral to cover the risk of bad loans.
Prior to the auction, three warning letters were sent, issued factoring, and reported the history of credit handling and settlement, starting from the history of collection, negotiation, and restructuring (if there is a restructuring).
How to Check Collectibility
Credit collectability can be checked through the OJK (Financial Services Authority) through a system called the 'Financial Information Service System (SLIK)'.
To be able to see the OJK SLIK, you can see it on the following page Easy and Fast! How to Check the Latest Online and Offline OJK SLIK.
How to Fix Collectibility Status
The collectibility state is not permanent. You can update it by following the steps below.
1. Pay the principal and interest on time
2. Pay off debt, not in arrears
3. If you have paid off the debt, immediately ask for a settlement letter stating that the loan is free
4. Use a credit card no more than the specified limit
5. If you are blacklisted (BI blacklist), immediately contact the bank or OJK (Financial Services Authority) and pay off the loan
How to Calculate Collectibility
Collectibility cannot be calculated numerically. However, you can still estimate your collectibility score.
The method is quite easy. You just need to remember the last time you paid off a loan. If you pay it off no later than the due date, then your collectibility score is at the top of the list, namely Col-1. And that means that your next loan application can be processed easily.
If you are still confused, consider the following example.
A debtor named Mr. Andre has applied for a loan from a financial institution. The loan has a maximum repayment period of one year. If Mr. Andre wants to have a score of Kol-1 (Current), then Mr. Andre must pay the principal and interest on the loan no later than the 10th of every month.
At first, Mr. Andre routinely paid before the 10th. Unfortunately, in the third month, Mr. Andre experienced a late payment which resulted in the debtor status which was originally Current (Col-1) changed to Under Special Mention (Col-2).
Mr. Andre's collectibility status has decreased to Substandard (Col-3) after 90 days have passed and he has not made a payment. The status has decreased to Doubtful (Col-4).
Mr. Andre wants to change the status to Kol-1 (Current), therefore Mr. Andre insists on trying to repay the loan. After paying off, a few months later, Mr. Andre's collectibility status changed back from normal to Current (Col-1).
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