IV. Data analysis and interpretation
Overall strategies to remedy were similar in 78% of cases studied
and dissimilar for the rest.
There is no doubt that the similarities are signs of the same
understanding and assessment of the situation by both the Bank and us.
The following must be underlined concerning the dissimilarities
observed.
1. Dissimilarities in classification
In all cases of dissimilarities except one, our classification
was more severe than that of the
Bank. Several reasons can justify that fact:
- Client relationship: The Bank had a
historical client relationship with the borrower that has not been taken in
consideration in the data collection and decision-making.
It is likely that if a client who has always been a good one is
in difficulties, the Bank will treat him as if it had no previous relation with
him.
- Inside information: Some
information on borrowers not mentioned in the reports because of their
sensitivity but useful to the decision-making may induce the Bank to make a
classification inconsistent with that of the framework.
- Lenient financial assessment:
Differences in classification particularly when the
Bank's classification is less severe than ours could be due to
lenient assessment of the financial situation of borrowers and can lead to
losses.
41 MBA in Banking and Finance
2. Dissimilarities in remedial
strategies
For the same reasons as for the classification, the Bank's
remedial strategies may differ from
those expected. Moreover, we noted that the Bank was
hardly taking decisions to exit the business. Despite the worse
situation of some borrowers classified IV by the Bank, it took
difficult decision like liquidating collaterals and taking legal action. Most
of the facilities of
IV-classified borrowers were restructured several times before
the Bank took legal actions.
This delayed decisions the Bank could have taken earlier. The
effect is losses through extra resources consumption and legal charges (file
n°4-001).
42 MBA in Banking and Finance
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