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Opinion: Negotiating Non-Performing Loans for the second time

In the last six months we went through re-negotiation of Non-Performing Loan agreements and we would like to share this experience.

The facts Many companies have negotiated Non-Performing Loans in 2014 and 2015 based on the assumption that their business would have fully recovered and achieved its pre-crisis turnover. These assumptions were accepted by the banks as they believed in a speedy recovery of the economy and it suited their financial reporting. This initial negotiation resulted in high annual loan instalments gradually which companies are unable to pay. 

The Bank 
As the viability of the banks is still under threat by a large amount of Non-Performing Loans (NPLs), banks are NOT keen to re-negotiate old NPLs. Under these circumstances the initial reaction of the banks is negative. 

The solution 
In order to persuade the banks to re-enter loan negotiations, the company needs solid evidence that the instalments agreed cannot be repaid. This can be demonstrated through recent financial statements, management accounts but more importantly through the presentation of a well prepared Business Plan or at least a Cash Flow Forecast. These should be explained in detail and be conservative in nature. Based on the Business Plan or the Cash Flow Forecast the company should be able to recommend a new repayment schedule and allow room for negotiation! 

A word of caution 
If the new repayment schedule is well documented, some banks are likely to eventually accept it after long and difficult negotiations. However, companies must be very careful in keeping up with the revised payments as it is very unlikely that the banks will give them another chance to re-negotiate in the near future!


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