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Additional measures are not considered to be viable stand-alone restructuring options as they do not result in an immediate reduction in the loan. However, when combined with one or more of the previously identified options, they can provide incentives for repayment or strengthen the bank's overall position.
i.
Loan-to-asset swap - transfers a loan, or portion of a loan, into “other assets owned" where the ultimate collection of the original loan requires the sale of the asset. This technique is generally used in conjunction with conditional loan forgiveness or partial loan repayment and maturity extension options. The management and sale of real estate properties also requires specialized expertise to ensure that the bank maximizes its returns from these assets.
ii.
Loan-to-equity swap - transfers the loan, or portion of the loan, into an investment. Generally used to strengthen the capital structure of large highly indebted corporate borrowers, it is seldom appropriate for MSME borrowers due to limited access to equity markets and difficulties in determining the fair value of illiquid securities. Like the loan-to-asset swap above, this option may also require the bank to allocate additional resources for managing the new investment. However, such measures should be in-line with the requirements stipulated by Banking Control Law (Issued by SAMA) under Article 10 subsection 2 and 4.
iii.
Loan Consolidation - more common for small loans, entails the combination of multiple loans into a single loan or a limited number of loans. This solution should be combined with other restructuring measures addressing existing arrears. This option is particularly beneficial in situations, where combining collateral and secured cash flows provides greater overall security coverage for the entire loan than individually.
iv.
Other alterations of contract/covenants - when entering a restructuring agreement, it is generally necessary to revise or modify existing contracts/covenants to meet the borrower’s current financial circumstances. Examples might include revising ratios such as minimum working capital or providing additional time for a borrower to sell excess assets.
Additional security - additional liens on unencumbered assets (e.g., pledge on a cash deposit, assignment of receivables, or a new/additional mortgage on immovable property) are generally obtained as additional security from a borrower to compensate for the higher risk loan or cure existing defaults in loan-to-value ratio covenants.
