Regional Finance Improvement via Loan Restructuring by Regional Banks

Abstract

Regional banks have proactively restructured their loans to small business borrowers in corporate recovery phases. Most of the loan restructurings take the form of relaxing the payment schedule and extending the loan maturity. Loan restructurings can result in banks’ loan downgrading, thereby increasing their bad loan ratio.

This study clarifies that restructured loans with enhanced credit competency of borrowers can help banks to be free from bad loan classification, which can further legitimize banks’ supporting attitude toward regional troubled borrowers. This study also discovers the mechanism of loan restructuring, to which regional bankruptcy cases and banks’ bad loan ratio can lead.