8.1

Article 8 of the Credit Risk Management Regulation requires LFIs to implement an appropriate process to identify, execute and manage Restructured Credit Facilities.
 

8.2

For the purpose of this regulation and these standards, restructuring events are categorised into two distinct groups:
 

8.3

Distressed restructuring: A Credit Facility must be regarded as a distressed restructuring if any of its terms are amended in a context of financial difficulty of the Obligor. This includes restructuring that commences or concludes after a Credit Facility becomes Past Due more than 90 days or falls within the unlikeliness to pay status. The assessment of financial difficulty must incorporate at a minimum the same criteria as outlined in this regulation and these standards for the assessment of SICR, and in particular the number of Deferrals as required by Article 9 on classification and provisioning.
 

8.4

Non-distressed restructuring: A Credit Facility must be regarded as a non-distressed restructuring if any of its terms are formally amended for commercial or regulatory reasons, including the intention to mitigate future financial difficulties, but excluding situations of financial distress at the time of restructuring. Such type of restructuring includes Credit Facilities for which the contractual obligations and Repayments have been made, without any history of Past Dues on the Credit Facility.
 

8.5

Examples of non-distressed restructuring are as follows:
 

8.6

Restructured accounts also include cases where a Credit Facility is fully settled by a simultaneous or subsequent disbursement of a new Credit Facility.
 

8.7

Standstill: In some circumstances, the restructuring process may take time to reach its completion. Such a situation is sometimes referred by LFIs as ‘standstill’. Any type of restructuring that is in standstill for more than 90 days, during which the Obligor is not meeting its financial obligations as per the terms of the original Facility, falls within the definition of Default defined above and, therefore, must be considered a Default event.
 

Restructuring Process
 

8.8

The restructuring process must be defined by LFIs for Retail Obligors and Wholesale Obligors separately. All distressed restructuring must follow the principles described for remediation in Article 3.14. It must follow a rigorous governance with clear accountability and must be subject to annual internal audit review. The approving authorities (whether a committee or individual) of a restructuring must be accountable for ensuring compliance with the LFI’s internal policies and procedures.
 

8.9

Approval process: LFIs must define a clear process to approve Credit Facility restructuring, including a clear delegation of authority to allow terms and conditions beyond the normal course of business. This process must mirror the process employed for issuing new Credit Facilities as articulated in Article 5 on underwriting principles.
 

8.10

Eligibility of restructuring: LFIs must design and document minimum conditions to evaluate the viability of a proposed restructuring taking into consideration the following:
 

8.11

Credit Facility structure: The structure of a new Credit Facility must be designed to (a) maximise the Repayment likelihood from the Obligor while (b) minimizing the losses and expenses incurred by the LFI. LFIs must design and enforce a policy to govern restructuring principles, focusing on the amortization schedule and with adequate controls over unfunded Facilities. In the case of a deterioration in the Obligor’s credit worthiness, the extension of overdraft limits or other similar Facilities for the Obligor to repay existing Facilities should be treated as a strong indicator of distress restructuring.
 

8.12

Viability analysis: For Wholesale Obligors in particular, LFIs must assess the viability of the Obligor upon restructuring by conducting a rigorous forward-looking analysis, based upon both quantitative and qualitative assessments. This must involve a transparent assessment of the economic environment, the state and prospects of the sector in which the Obligor operates, the Obligor’s position in that sector and the business conditions and the specific circumstances of the Obligor. The analysis must also include forecasted cash flows under several economic and business assumptions both baseline and stressed. The results must be presented to the credit committee as part of the decision-making process. The LFI must maintain and perform analysis on the Repayment history of the Credit Facility from inception of the original Facility.
 

8.13

LFIs performing Islamic Financial Services must carry out the structuring process in accordance with Shari’ah rules and principles and take into considerations the controls imposed in doing so.