Accompanying companiesin the crisis from a banking perspective
Expert: Bankfachwirt (IHK) Moritz Jaeckle
F&P BlogWhen companies find themselves in a crisis, banks and other financing partners play a decisive role in…
…because the success of the company restructuring often depends on the continuation of the financing.
In order to detect deterioration in their customers’ creditworthiness at an early stage, banks have process-based and IT-supported early warning systems that transmit information based on, for example, account information or press releases to the areas within the bank that are responsible for risk assessment. Burst direct debits, maximum utilization of credit lines and the breach of covenants in loan agreements are then signs of the worsening crisis as it progresses.
At this point, the banks have several options, ranging from a standstill to a restructuring loan to termination (in the event of insolvency, for example). Restructuring support from the bank will only be successful if the company enters into cooperation at an early stage and develops and presents a viable restructuring concept. This concept must be meaningful and have a strong forecast, as banks are always exposed to the risk of being accused of delaying insolvency.
From a banking perspective, several factors favor the successful reorganization and restructuring support of endangered companies today and in the future:
The banking supervisory authority has addressed the issue of non-performing loans in several regulatory measures and has issued detailed guidelines to banks on how to deal with exposures at increased risk of default. A key point here is the requirement that lenders, together with borrowers, should attempt to restructure receivables as early as possible in the emerging corporate crisis. The aim of this early restructuring is to support the company in its restructuring efforts and to minimize losses for the bank.
With the Act on the Further Development of Restructuring and Insolvency Law (“SanInsFoG”, scheduled to come into force at the beginning of 2021), the legislator wants to create a completely new restructuring option in Germany. The plan is to introduce a stabilization and restructuring framework that does not require insolvency, but only the threat of insolvency. The aim is, among other things, to make proven instruments from self-administration usable (without insolvency) and to simplify restructuring with creditors. Restructuring can be made possible if a majority of creditors support it. A modular procedural framework ensures that instruments can be used individually.
Restructurings are successful when transparent communication between the company and the bank (and of course all other stakeholders) at an early stage of the crisis creates the basis for further cooperation and successful joint management of the crisis!
