AskBFC: During the loan restructuring process when considering different groups of clients should individual or package approaches be made

May 2020 • Yurii Voychak, MSME and Agrilending Consultant (BFC, Nepal)

I would say that all banks in Nepal are actually in the same situation so this question is relevant for all Risk Managers who are working on loan portfolio analysis and restructuring strategies that can be implemented.

It is understandable that banks do not want to take extra steps in working with clients or sectors who have not been prescribed by the Central Bank (NRB) in its general recommendations and circulars.

But, what we should note (as Banking consultants) is that the issue of working with clients in an economic crisis is reflective of the ability of the Bank to find the right solution for any loan client. So that on the one hand the client will have opportunity to continue to conduct his business, if the bank sees positive prospects of the current client, it is even possible to support the client with additional financing, to make repayment schedule mode more flexible and change it for some period, which will in fact can support the borrower to return to the pre-crisis level of income step by step.

On the other hand, it is important not to overestimate the reality and be able to identify those categories of customers who cannot fulfill their loan obligations and of course in this scenario it is necessary to use other debt collection tools and measures.

If we talk about the client segment (small and medium business, mid-corporate, corporate), then the restructuring tools should be selected individually for each borrower, since it requires taking into account various risk assessment factors (first of all, analysis type of business activity, market position, suppliers and customers, account receivables, loan term, repayment schedule, collateral type and value, guarantor, liabilities, etc.). It can be clarified only during individual monitoring on every business client separately.

At the same time, when it comes to the segment of individual clients (retail) or employees who have small retail loans, but due to the economic crisis, their incomes have decreased (for example only 50% of monthly installment can be payed), here you can use the package approach to the restructuring process.

Anyway, all restructuring tools should be developed and approved first by HO level to avoid increasing of NPL ration and additional provisions for overdue loans. Important to deliver regular online trainings for Risk Managers, BMs, RMs on the approved restructuring approach to avoid misunderstanding at Province level.