The Effect of Loan Restructuring on Profitability of Clients’ Projects: The Case of Selected Projects.

Abstract

Banks restructure client loans as a risk management strategy to ensure recovery and protect profits. While many studies examine loan restructuring, its impact on clients’ project profitability remains underexplored. This study analyses 109 projects financed by a major Tanzanian investment bank to assess this relationship. Using hierarchical linear regression, findings show that restructuring enhances the positive effect of the repayment period on project profitability while reducing the impact of repayment amount. Interestingly, interest rates appear to play no role in restructuring decisions. These results highlight the importance of risk management in banking and suggest that loan restructuring should prioritize recovery and clients’ profitability.

JEL Classification: G21, G32, G33, E43, C30