3 May 2010
Dictionary - Restructured Loan in Conjunction
Posted by selfprofit under: Debt .
Troubled Debt Restructuring - Condition where a lender grants a concession to a borrower in financial difficulty. The Statement of Financial Accounting Standards No. 15 (FASB 15) divides debt restructuring of nonperforming loans, where the loan payments are past due 90 days or more, into two categories: (1) loans where the borrower transfers assets to the lender; and (2) those where credit terms are modified. The latter includes foreclosures, reductions in the interest rate, extension of the maturity date, and forgiveness of principal and/or interest payments.
More info - http://www.answers.com/topic/troubled-debt-restructuring-in-accounting.
Before giving the final decision, the bank should consider whether the borrower has defaulted on any debt; has declared bankruptcy; is unable to service the debt; or has credit available.
That is why a credit analysis should be performed for a restructured loan in conjunction with troubled debt restructuring to determine the borrower’s ability to repay the loan and any estimated credit loss. If the modified loan is considered to be a TDR, then the guidance in FASB Statement 114, “Accounting by Creditors for Impairment of a Loan,” should be followed.
The credit quality of restructured loans should be reviewed regularly. And the bank should periodically evaluate the restructured loan for impairment to determine whether any additional amounts should be charged off against the allowance for loan and lease losses.