Functionality 

Restructuring can be performed by users with the Collector and Loan Manager roles. Only disbursed loans can be restructured, i.e. only loans in the Active, Past Due statuses. When the user initiates this procedure, the corresponding dialog box opens: 

The open dialog box displays three different functional areas:

1. Old Payment Schedule
2. Total Debt Management
3.  New Loan Parameters

The first functional area (Old Payment Schedule) displays information on a current loan subject to restructuring. By default, the system shows a current outstanding installment, all scheduled installments, overdue installments (if any) and a total debt (Total Amount Due). In this area, the user can also select the Show paid installments check box to review all loan payment transactions as of the date of restructuring.

The second functional area (Total Debt Management) displays 6 fields, two of which (Principal and Outstanding Balance) are displayed in the read-only mode and cannot be edited by the user. In other four fields, the user can edit an interest amount payable (Interest), interest on arrears (PastDue Interest), commission fee (Commission) and late payment charge (Late Fee). Thus, by changing values in these four fields, the user can change (increase/decrease) a total outstanding balance (Outstanding Balance) and a loan amount accordingly. By default, all fields display values corresponding to a current loan debt before restructuring. If the user restructures the loan that is not past due, the PastDue Interest and Late Fee fields are not displayed.

In the third functional area (New Loan Parameters), terms of a new (restructured) loan are defined. The non-editable Loan Amount field displays a new loan amount that has been calculated in the second functional area. Based on this loan amount, the user can select an appropriate credit product from the drop-down list of credit products displayed in the Credit Product field. The drop-down list automatically displays only those credit products that can be applied for restructuring of a selected loan. The user can select any credit product from that list. If none of credit products available in the system satisfies the terms of restructuring, the list will be empty and it will be impossible to restructure the loan.

The open dialog box also displays two buttons: OK and Cancel. By clicking the OK button, the dialog box closes, all changes made by the user are saved and the loan gets restructured according to specified terms. By clicking the Cancel button, the dialog box closes, changes are not saved and the restructuring procedure is not performed either.

After clicking the OK button, the confirmation dialog box opens. In the open confirmation dialog box, the user can confirm or cancel the restructuring procedure.

Restructuring Rules

Loan restructuring is the modification made to loan payment terms by the creditor with the aim to facilitate the debt service for the borrower who experiences financial difficulties. The most common type of restructuring consists in loan extension aimed at reducing a monthly loan payment to an amount that can be repaid by the borrower. The less common case is when the loan interest rate or other credit product characteristics are changed.

In case of loan extension, a monthly payment is reduced, while a total amount of interest payments increases due to a longer credit term. Hence, a total amount of payments for a restructured loan increases.

The main purpose of restructuring is to reduce monthly payments which can be achieved by changing a credit product, loan amount and term.

Having selected a new credit product, the user actually changes the following credit product parameters:

IR – interest rate,

AF – commission (hereinafter “the administration fee”),

GP – grace period,

LGD - late grace days,

OIR -  monthly late payment interest (the overdue interest rate),

F - late fee.

Initial Payment Schedule

Let us consider a general case of restructuring an overdue loan. Assume there is a loan in the amount A that has been issued for NP months with the interest rate IR, administration fee, grace period and other credit product parameters stipulated in the agreement. As a result, the following payment schedule is generated as of the loan disbursement date:

The resulting parameters have been calculated as follows:

1) loan amount:

2) total interest charged:

3) total administration fee:

4) total amount payable:

Late payment schedule

Next, assume the borrower pays in time within the first K months and the payment schedule after the K-th payment looks as follows:

Then the borrower fails to repay the next M installments in time, starting from K+1 to K+M inclusive. According to the agreement, the late payment interest (hereinafter “the past due interest”) and fees are charged on overdue installments. In consequence, the following payment schedule will be displayed:

Restructuring Procedure

Having K repaid and M overdue installments, the borrower requests the bank to restructure the debt on a day between due dates of the К+M-th and К+M+1- th installments. The bank consents to restructure the debt and performs restructuring in the following three steps:

Determining the outstanding balance

In the first step, it is necessary to determine borrower’s total labilities due to the bank (hereinafter in this article referred to as “the outstanding balance”) as of the restructuring date. The outstanding balance comprises five constituents (principal amount, interest, past due interest, administration fee and late fee) and is calculated by the following formula:

                                  (1)

where

OB - outstanding balance as of the restructuring date,

P_Debt - outstanding principal amount,

I_Debt – outstanding interest calculated as of the restructuring date,

PDI_Debt – past due interest calculated for overdue installments,

AF_Debt – administration fee for all outstanding installments,

F_Debt – late fee.

Each of the above-listed constituents is calculated by the following formula:

                                                      (2)

                                  (3)

                                           (4)

                                             (5)

                                                      (6)

where

ID_K+M+1 -the interest payable for the К+M+1-th installment and charged on the restructuring date (is calculated by formula (1) in the article "Early payments",

while other parameters on the right hand of equations (2) - (6) are derived from the payment schedule updated on the restructuring date.

It is worth noting that formulas (1) - (6) remain valid for restructuring of loans that are not past due (M = 0).

Adjusting the outstanding balance

In the second step, the user can adjust the outstanding balance calculated by formula (1) by changing the outstanding interest (I_Debt), past due interest (PDI_Debt), administration fee (AF_Debt) and late fee (F_Debt). The outstanding principal amount (P_Debt) cannot be changed. After the user has changed (increased or decreased) the value of any parameter on the right hand of equation (1), the system automatically recalculates the outstanding balance. The user can sequentially change values of all four editable parameters. After these actions have been performed, the adjusted outstanding balance (OB_сorr) is displayed.

Specifying new credit product parameters

In the third step, the user can change parameters of a credit product before restructuring by selecting a new credit product. A number of installments payable for a new loan can be also changed by the user.

The list of credit products must include only those credit products in which a specified loan amount range (i.e. a minimum and maximum loan amount) satisfies a value of the outstanding balance (Min Amount <= OBс_orr <= Max Amount). The credit product displayed by default corresponds to the first credit product from the list of acceptable credit products and a new number of installments displayed by default equals a minimum credit term specified for a selected credit product. The displayed minimum credit term can be subsequently changed by the user. If a new credit term specified by the user does not correspond to the minimum (maximum) credit term allowed for the selected credit product, the system ignores this action and a corresponding notification is displayed.

After the user has selected an appropriate credit product and specified a credit term acceptable for the selected credit product, the system automatically calculates and displays a new payment schedule.

Payment schedule after restructuring

After the user has closed the dialog box and confirmed changes made, the system saves all loan parameters for restructuring and issues a new loan with specified parameters and in the amount corresponding to the adjusted outstanding balance (OBс_orr). The new loan is created in the Active status with a new Public ID. The new Public ID is generated according to the following rule: R1 is joined to an old Public ID by a hyphen, i.e. NewID = OldID-R1. In case the loan is restructured repeatedly, R1 is replaced with R2 and so forth. The new loan completely replaces the initial (overdue) loan that gets repaid in full by the new loan. The initial loan is closed with the Restructured status and a corresponding record about the event can be added to reports if necessary.

Then, on the basis of new loan parameters specified, the system generates a payment schedule for the new (actually restructured) loan. If the new loan is to be repaid in NP1 installments (a new number of installments), the following new payment schedule is generated by the system:

where the resulting parameters represented in the payment schedule are calculated as follows:

1) the new loan amount equals the adjusted value of the outstanding balance:

2) the total interest charged for the restructured debt:

3) the total administration fee for the restructured debt:

4) the total amount payable for the restructured debt:

Payments for the new loan are charged exactly in a month after the restructuring has been implemented.

Examples (classic method)

Note: the examples provided may contain deviations in the amount of 1-2 cents in the outstanding balance and resulting values. The examples illustrated below are aimed to demonstrate the logic of restructuring the payment schedule computed according to the classic method.

Example 1

The example demonstrates the restructuring of the loan taken out in the amount of 12 000 USD for 5 months with the monthly interest of 1.5% and monthly late payment interest of 3%. LGD =  7 days, the single fee for any overdue installment is 5 USD that is charged on the eighth day of the overdue payment, i.e. on the next day after late grace days expire. When the early payment is made, installments are not recalculated.

Initial payment schedule

The initial payment schedule calculated by formulas (1)- (4) in the article “Classic" looks as follows:

Repayment of the first installment

The borrower makes payment in the amount of 2580 USD that covers the first installment. The updated payment schedule looks as follows:

The second installment is overdue

Then the borrower fails to make payment within 1 month and 8 days, i.e. 8 overdue days are available. In this case, the past due interest is charged for overdue days. Besides, the late fee (F = 5 USD) is charged for the overdue installment. The past due interest is charged on the outstanding balance according to formula (6) described in the article “Interests and fees charged for overdue payments":

As of July 9, the updated payment schedule looks as follows:

On the same day, the Collector restructures the loan. According to restructuring rules, the system automatically issues a new loan with new terms and in the amount corresponding to the outstanding balance of the old overdue loan. According to the same restructuring rules, the old overdue loan gets repaid in full by the new loan.

The new loan is issued for 10 months. The new loan amount equals the outstanding balance as of July 9. Other loan terms remain unchanged.

According to formula (1), the outstanding balance comprises the following outstanding payments: principal amount, interest, past due interest, administration and late fees. In this case, this amount is calculated as follows:

where ID₃ = 7200 х 0.015 х 8 / 30 = 28.80 is calculated by formula (1) in the article “Early Payments" and other parameters are derived from the payment schedule.

The payment schedule for the new loan is calculated on the basis of the outstanding balance OB = 9856.66 USD that equals the new loan amount and the new number of installments NP1 = 10. Formulas (1)-(4)  described in the article “Classic" are used for calculations. Thus, if other terms have not changed for the new loan, the monthly payment for the principal amount equals:

According to formulas (2) - (4) in the article “Classic" and formula (1) in the article “Updating the balance" the system will generate the new payment schedule:

Example 2

The current example describes the restructuring of the payment schedule in case several installments are overdue.

In the example, the loan was taken out on April 1 in the amount of 10 000 USD for 4 months, with the interest rate of 18% per annum (1.5% per month) and the late payment interest of 36 % (3% per month). LGD = 7 days, a single fee for any overdue installment equals 5 USD and is charged on the first day of the overdue payment.

Initial payment schedule

The initial payment schedule calculated by formulas (1)- (4) in the article “Classic" looks as follows:

Overdue payments

Then, 130 days have expired since the loan was issued and the borrower does not make payment during this whole period. Consequently, the overdue period is 100 days. Therefore, according to the method of charging the interest on the outstanding balance (refer to paragraph 1.1 in the article “Interests and fees charged for overdue payments"), as of August 9, the past due interest in the following amount is charged on the first overdue installment:

PDI_1-31 =  OB₀ x DOIR + (OB₀ x (1+ DOIR) + F) x ((1+DOIR)^30 - 1) = 322.11 USD,

the following pas due interest is charged on the second installment

PDI_32-61 = (OB₀ + PID_1-31 + F) x DOIR + ((OB₀ + PDI_1-31 + F) x (1 + DOIR) + F) x ((1+DOIR)^29 - 1) = 321.38 USD,

the following pas due interest is charged on the third installment

PDI_62-92 = (OB₀ + PDI_1-31 + PDI_32-61 + 2 x F) x  DOIR + ((OB₀ + PDI_1-31 + PDI_32-61 + 2 x F) x (1 + DOIR) + F) x ((1+DOIR)^30 - 1) = 342.39 USD,

and the following pas due interest is charged on the fourth installment 

PDI_93-100 = (OB₀ + PDI_1-31 + PDI_32-61 + PDI_62-92 + 3 x F) x  DOIR + ((OB₀ + PDI_1-31 + PDI_32-61 + PDI_62-92 + 3 x F) x (1 + DOIR) + F) x ((1+DOIR)^7 - 1) = 90.11 USD,

where DOIR = OIR x 12 / 365 - is the daily late payment interest (daily overdue interest rate) calculated by formula (10) in the article “Interests and fees charged for overdue payments".

It has also been taken into account that the late fee in the amount of 5 USD is charged on each overdue installment on the 1^st (May 2), the 32^nd (June 2), the 62^nd (July 2), and the 93^rd (August 2) days of overdue payment. Thus, the updated payment schedule looks follows:

Restructuring

Then, on August 9, the Collector restructures the loan and the new loan in the amount equal to the outstanding balance is issued. The new loan is issued for 12 months. All other loan terms remain unchanged.

The outstanding balance equals:

The payment schedule for the new loan is calculated on the basis of the outstanding balance OB = 11470.99 USD that equals the new loan amount and the new number of installments NP1 = 12. According to formula (1) described in the article “Classic" , the monthly payment for the principal amount is calculated as follows: 

Based on formulas (2) – (4) in the article “Classic" and formula (1) in the article “Updating the balance" the system generates the new payment schedule:

Examples (annuity method)

Note: the examples provided may contain deviations in the amount of 1-2 cents in the outstanding balance and resulting values. The examples illustrated below are aimed to demonstrate the logic of restructuring the payment schedule computed according to the annuity method.

Example 1

The example demonstrates the restructuring of a loan taken out in the amount of 12 000 USD for 5 months, with the monthly interest of 1.5% and monthly late payment interest of 3%. Late grace days (LGD) equal 7 days, the single fee for any overdue installment is 5 USD that is charged on the eighth day of the overdue payment, i.e. on the next day after late grace days expire. When the early payment is made, installments are not recalculated.

Initial payment schedule

The initial payment schedule calculated by formulas (1)- (4) in the article “Annuity” looks as follows:

Repayment of the first installment

The borrower makes payment in the amount of 2509.07 USD that covers the first installment. The updated payment schedule looks as follows:

The second installment is overdue

Then the borrower fails to make payment within 1 month and 8 days, i.e. 8 overdue days are available. In this case, the past due interest is charged for overdue days. Besides, the late fee (F = 5 USD) is charged for the overdue installment. The past due interest is charged according to formula (6) described in the article “Charges for overdue payment"

As of July 9, the updated payment schedule looks as follows:

On the same day, the Collector restructures the loan. According to restructuring rules, the system automatically issues a new loan with new terms and in the amount corresponding to the outstanding balance of the old overdue loan. According to the same restructuring rules, the old overdue loan gets repaid in full by the new loan.

The new loan is issued for 10 months. The new loan amount equals the outstanding balance as of July 9. Other loan terms remain unchanged.

According to formula (1), the outstanding balance comprises the following outstanding payments: principal amount, interest, past due interest, administration and late fees. In this case, this amount is calculated as follows:

where ID₃ = (2399.47 + 2435.46 + 2471.99) х 0.015 х 8 / 31 = 28.29 is calculated by formula (1) in the article “Early payments" and other parameters are derived from the payment schedule.

The payment schedule for the new loan is calculated on the basis of the outstanding balance OB = 9928.74 USD that equals the new loan amount and the new number of installments NP1 = 10. Formula (1) described in the article “Annuity” is used for calculations. Thus, if other terms have not changed for the new loan, the total monthly payment equals:

According to formulas (2) - (4) in the article "Annuity" and formula (1) in the article "Updating the balance", the system will generate the new payment schedule:

Example 2

The current example describes the restructuring of the payment schedule in case several installments are overdue.

In the example, the loan was taken out on April 1 in the amount of 10 000 USD for 4 months, with the interest rate of 18% per annum (1.5% per month) and the late payment interest of 36 % (3% per month). LGD = 7 days, a single fee for any overdue installment equals 5 USD and is charged on the first day of the overdue payment.

Initial payment schedule

The initial payment schedule calculated by formulas (1)- (4) in the article "Annuity" looks as follows:

Overdue payments

Then, 130 days have expired since the loan was issued and the borrower does not make payment during this whole period. Consequently, the overdue period is 100 days. Therefore, according to the method of charging the interest on the outstanding balance (refer to paragraph 1.1 in the article  "Interests and fees charged for overdue payments"), as of August 9, the following past due interest is charged on the overdue installments:

1^st installment: 322.19 USD

2^nd installment: 321.47 USD

3^rd installment: 342.48 USD

4^th installment: 90.13 USD

It has also been taken into account that the late fee in the amount of 5 USD is charged on each overdue installment on the 1^st (May 2), the 32^nd (June 2), the 62^nd (July 2), and the 93^rd (August 2) days of overdue payment. Thus, the updated payment schedule looks follows:

Restructuring

Then, on August 9, the Collector restructures the loan and the new loan in the amount equal to the outstanding balance is issued. The new loan is issued for 12 months. All other loan terms remain unchanged.

The outstanding balance equals:

The new payment schedule is calculated on the basis of the outstanding balance OB = 11474.06 USD that equals the new loan amount. The new number of installments is NP1 = 12. According to formula (1) described in the article "Annuity" and taking into account that other loan terms have not changed, the total monthly payment is calculated as follows:

Based on formulas in the article "Annuity" and formula (1) in the article "Updating the balance", the system generates the new payment schedule: