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Rescheduling can simply mean that principal repayments are pushed into the future, but interest keeps on being paid - thus no losses for banks.

There can be a reduction in interest rates payable to banks - formally no losses, but less revenue for banks than before

Then there can be debt cancellation (write off) - then banks will have formally lost money. What happens in practice is that banks have provisioned amount right from the start, and if a transaction looks to be in trouble, they'll provision more (before even having losses or even negotiating a restructuring). Using these provisions up when restructuring does not create losses for the bank (as they have been "preemptively" booked in earlier periods) Banks typically pile up a lot of provisions in good times (subject to tax authorities, as these provisions reduce profits and thus taxes payable) and can ride out quite significant losses for a while before it really hurts.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 30th, 2006 at 11:15:56 AM EST
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