Case 1 Horizon Bank

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.