Bank NPLs (25) - The Customer's Options in a New Debt Order


Tuesday, June 09, 2020 /  06:15 AM / by Debtors Africa/ Header Image Credit:   EcoGraphics

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As the opportunity for debtor delinquency narrows, debtors that find themselves in difficult situations as a result of either external or internal factors unanticipated at the time of applying for the credit could adopt a few strategies that may likely lead to mutually beneficial outcomes for both borrower and lender, some options that could be adopted are listed below:


  • Debt workout- A debt work out involves both the borrower and the lender reviewing existing business conditions and agreeing on new loan repayment schedules based on a good faith commitment of the borrower to the new loan repayment programme. The recent COVID-19 situation would disrupt loan repayments of virtually every business, but this does not have to lead to loan delinquency if the lender and borrower review business realities and revise previous forecasts and adopt new scenario approaches to repayment

  • Sale and Lease Back Options- In a situation where the customer has working physical assets the lender could agree a Sale and Lease back arrangement would provide the customer with wider room to manoeuvre loan repayment without compromising working capital. The customer could sell its production plant to the lender and the lender would lease back that same plant to the customer, allowing the customer meet recurrent working capital obligations such as payment of suppliers and workers while building cash flow to meet loan commitments.

  • Management factoring- Some situations may see loan delinquency being a problem of the quality and experience of management and poor internal control. In this situation the customer could agree to a 'handholding' resolution strategy where the lender brings in a manager with operational turnaround experience to mentor the borrower and help in improving operational discipline, cash flow and profitability. A time frame for this framework would be agreed after which an evaluation is done and a mutually agreed future relationship documented and approved by both parties.

  • Blended Cash flow Resolution- Customers who have new businesses that could generate cash flows that could pay off old loans could propose a blended repayment cash flow arrangement. The option would involve a bank agreeing to fund a new transaction subject to full domiciliation of project inflows while restructuring the old debt in a way that repayment is 'blended' with the new loan. To achieve this outcome the customer may need to convince the lender of a capacity to respect the terms of the new repayment structure and demonstrate character discipline upon which the new repayment schedule would work barring any known unknown disruptions (grey swans).



The emerging global economy requires more credit but it also requires more confidence in the credit-to-debt-to-credit loop. The stronger the integrity and the deeper the financial resources that support the loop the better the financial system and economy becomes. The spread of the digital economy, big data, artificial intelligence and informatics will lead to new approaches of credit evaluation, initiation, monitoring and recovery.  

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Related Reports (PDF)

1.      Download the Full PDF Report - Debtors Africa, May 13, 2020

2.     Executive Summary PDF - Proshare, May 14, 2020

3.     AMCON and Financial Services Debt Burden in Nigeria - Aug 17, 2018

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