Case 1 Horizon Bank

Richard Marney () and Timothy Stubbs ()

Chapter Chapter 4 in Emerging Markets Debt Restructuring, 2024, pp 189-243 from Springer

Abstract: Abstract In this chapter, the first of four case studies is presented. This case deals with a bank in a middle-income, agricultural-commodity export-dependent economy, operating in a recently liberalized financial sector. The majority shareholding group comes from the agribusiness sector, and their poor corporate governance and credit management facilitates the build-up of high-risk loans to related companies to the backdrop of ineffective regulatory supervision. Portfolio quality deteriorates when economy is forced into a recession prompted by restrictive monetary and the requisite increases in loan loss provisioning threatens the solvency of the Bank. The country lacks a tradition of multi-party, consensual restructurings, and in the financial sector in particular, most distress cases have been handled by forcing a merger with a stronger competitor. The tension in the restructuring effort that follows pits the existing shareholders attempting to fashion a going concern outcome with certain parties in the government aiming at transferring the “good bank” to a dominant, local bank. Eventually, the former group succeeds despite the various local institutional challenges.

Keywords: Financial liberalization; Financial system structure; Export dependency; Income and wealth inequality; Fit and proper guidelines; Loan to value ratio; Reserve ratio; Maximum deposit rate; Maximum lending rate; Local GAAP; IFRS; Related party lending; Credit policy and management; Regulatory capital; Solvency; NPLs (non-performing loans); Loan loss provisioning; Cost of risk; Rights issue; Consensual restructuring; Intervention; Receivership; Liquidation; “good bank Bad bank”; Loan buyback; Liquidity back-up facility; Deposit insurances; Contingent capital; Steering committee; Tier I and II capital; Subordinated debt; Restructuring agreement; Existing finance documents; Intercreditor arrangement; Representations and warranties; Security; Capital restoration and solvency measures; Standstill; Longstop date; Governing law and jurisdiction (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/978-3-031-66838-8_4

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