How do Banks Decide on Loan Restructuring
The decision of whether to restructure or not may not be a simple one. There is a need for the bank to analyze the viability of the borrower, which is the first step in loan restructuring.
Viability is the capacity to function profitably, which is affected by both economic and non-economic factors. Unless the borrower has viability, it should not continue, although carrying on in the short term to complete work in progress or to search for a buyer (capable of making it viable) may be a preferred alternative to immediate close down or fire sale.
There is no hard and fast rule to determine or assess viability. As such, it is the judgement and foresight of the banks that count. However, as a general guide, bank will undertake to answer the following questions when assessing the viability of the borrower:
The answers to these questions will assist in the assessment of the viability of the borrower. In practice, however, most banks usually give the borrower the benefit of the doubt that it is still viable and move towards compromising to restructure the banking facility.
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