Page 263 - A Banker Down the Rabbit Hole

75. The self-respect is above all

A rich defaulter in Johannesburg, S.A
One day, the boss asked me, "How the bankers recover their money from
defaulting borrowers? You must be having a lot of such experience in
your bank."

I told him, "If a particular borrower valued his reputation in his
professional or social circles, he would pay as much as possible and would
be open with the bank why he could not repay. Otherwise he would
default and bank would recover by selling the security offered at the time
of loan provided if it is in worthwhile condition to fetch some value."

If companies want to continue doing business and enhance their brand
value, they would always try not to default. If they would face problems
beyond their control, they would ask for more time to repay. If still cash
flows from business were not adequate and they had to close the
business, they would ask for compromise settlement to pay reduced
amount as per their financial worth.

But there were also a few borrowers who defaulted willfully to divert
funds to their other businesses or to create personal assets. We had also
seen demonstration effect on some bank borrowers who defaulted and
asked for one time compromise settlement because they found others
doing the same and getting away with it. The bank would compare the
amount that could be recovered from the borrower (after filing the suit
minus the direct and indirect estimated cost of recovering the loan
amount) with whatever the borrower is prepared to pay. If the latter
amount was higher, the bank would agree for the settlement.

260 | A Banker down the Rabbit Hole