Banks should implement a well-defined restructuring policy aligned with the concept of viability that recognizes in a timely manner those borrowers who are non-viable. The policy should ensure that only viable restructuring solutions are considered, which should contribute to reducing the borrower’s balance of credit facilities.
|
Long-term restructuring measures should only be considered viable where the following conditions are met:
|
| i. | The bank can demonstrate, based on reasonable documented financial information, that the borrower can realistically afford the restructuring solution.
|
| ii. | Outstanding arrears are addressed as part of the restructured terms. That does not necessarily mean full repayment, and should not conflict with the potential reduction in the borrower’s balance in the medium to long-term that could be required to align with the borrower’s loan service capacity.
|
| iii. | In cases, where there have been previous restructuring solutions granted in respect of a loan, the bank should ensure that additional internal controls and early warning signals are implemented, so that the subsequent restructuring treatment meets the viability criteria. These controls should include, at a minimum, approval of a designated Senior Management Committee.
|
Short-term restructuring measures should only be considered viable where the following conditions are met:
|
| i. | The bank can demonstrate, based on reasonable documented financial information, that the borrower can realistically afford the restructuring solution.
|
| ii. | Short-term measures are to be applied temporarily where the bank has satisfied itself and is able to attest, based on reasonable financial information, that the borrower demonstrates the ability to repay the original or agreed modified amount on a full principal and interest basis commencing from the end of the short-term temporary arrangement.
|
| iii. | The solution approved is not perceived to lead to multiple consecutive restructuring measures in the future.
|
The bank’s assessment of viability should be based on the financial characteristics of the borrower and the restructuring measure to be granted at that time.
|
Whilst evaluating borrower’s viability, due consideration need be made, that any increase in pricing (for instance, over and above driven by risk-based pricing principles) with respect to the borrower’s outstanding facilities, does not make the resultant installments, unserviceable.
|
Banks should undertake the viability assessment irrespective of the source of restructuring, for instance, borrowers using restructuring clauses embedded in a contract, bilateral negotiation of restructuring between a borrower and the banks, public restructuring scheme extended to all borrowers in a specific situation.
|
