What might be a consequence of improper troubled debt restructuring?

Improper troubled debt restructuring can lead to an increased risk of default by borrowers. When debt is restructured inadequately, it may not sufficiently address the borrower’s financial difficulties or provide the necessary relief for them to meet their obligations. As a result, borrowers might still face overwhelming financial pressures, making it difficult for them to make timely payments. This situation can lead to a higher likelihood of default, negatively impacting both the borrower and the lending institution's financial health.

In contrast, enhanced relationships with borrowers, improved liquidity for the bank, and lower operational costs do not typically result from improper restructuring. A well-executed restructuring might offer benefits like improved relations and liquidity; however, if the restructuring process is flawed, it will likely have the opposite effect, heightening the risk associated with the loans involved.