What Nonaccrual loan’
In nonaccrual loan is a nonperforming loan that is not generating the stated interest rate because of nonpayment from the borrower. Nonaccrual loans most likely to default, which means that the lender will not receive its principal and interest if the lender has sufficient collateral to cover the loan. Because these loans can have interest credited only when the borrower makes a payment, the interest on nonaccrual loan is recorded as income.
Breaking down the ‘Nonaccrual loan’
In nonaccrual loan after 90 days of non-payment and the interest ceases to accumulate. The Bank klassificeret the loan as substandard and reports changes to credit reporting agencies, which reduces the credit score of the borrower. Lender changes its reserve for potential loan losses, allocates a reserve for the protection of the financial interests of the Bank and may take legal action against the borrower.
Restructuring Nonaccrual loan
After entering nonaccrual status, the borrower usually works with a lender in determining a plan to repay the debt. After consideration of the borrower’s income and the statement of expenditures, the lender may create a problem to restructure the debt (TDR). TDR can erase part of the principal on the loan or interest payments, reduce the interest rate, will allow interest-only payments or change the terms of repayment of the loan other ways. Fewer debt payments could be made until the monetary situation of the borrower improves. The lender can recoup at least his main, not to lose all of your investment.
The loan repayment accrual Status
One of the options for repayment of the loan status of the borrower implies a bonus payment of all outstanding principal, interest and fees and to resume monthly payments, as specified in the contract. Another option involves keeping current with the repayment of principal and interest payments for six months and provide the lender reasonable assurance that the principal balance, interest and fees must be paid within a certain period of time. The third option requires the borrower to provide the lender collateral to secure the loan, repayment within 30 to 90 days, and the resumption of monthly payments, as specified in the contract.
An example of a Nonaccrual loan
In the fourth quarter of 2017, loan of $ 91.5 million. from the Bank and company b were on nonaccrual status. When the Bank took the credit in Bank for $60 million and $ 49 million. at fair market value (FMV) in loans to the company to take on additional debt, the loan was converted into preferred and non-income. None of the investment appears to be paying current income. The Bank believes that company B will be deployed and the debt will be repaid.