STAR Method:
Situation: In my previous role as a Risk Management Analyst at ABC Bank, I was responsible for managing credit risk for a portfolio of small and medium-sized businesses. One of the clients, a successful retail store, was facing financial difficulties due to the COVID-19 pandemic, as their sales had plummeted over the last few months. As a result, they had requested a loan restructuring plan to reduce their monthly payments.Task: My task was to assess the implications of restructuring the loan and provide a recommendation to the senior management team.Action: To begin with, I analyzed the client's financial statements, including cash flow, balance sheet, and income statement, to understand their current financial position. I also reviewed their sales and revenue projections to assess the long-term impact of the pandemic on their business. Based on my analysis, I developed a range of loan restructuring options that would help the client to manage their cash flows effectively. I proposed a combination of a period of interest-only payments, deferral of principal payments, and an extension of the loan tenure to provide the client with sufficient breathing space. However, I realized that this proposal would have a significant impact on the bank's balance sheet, as it would result in a loss of interest income in the short-term.Result: To address this concern, I proactively engaged with the bank's Treasury team to assess the impact of the restructuring plan on the bank's liquidity and funding position. I also worked with the Credit Risk team to ensure that the credit decision was aligned with the bank's overall risk appetite.Finally, I presented my analysis and recommendations to the senior management team. They approved the restructuring plan, and we worked closely with the client to ensure a smooth transition to the new payment terms. Within a few months, the client's financial position had improved, and they were back on track with their business operations.Relevant Citation:
- Risk Management in Banking Industry (Link: https://www.investopedia.com/terms/r/risk-management.asp)
- COVID-19 Impact on Small Businesses (Link: https://www.sba.gov/funding-programs/disaster-assistance/coronavirus-covid-19)
- Loan Restructuring (Link: https://www.moneycontrol.com/news/business/personal-finance/loan-restructuring-heres-everything-you-need-to-know-5881971.html)