Question: In some instances, when a depository institution borrower cannot make the promised principal and interest payment on a loan, the bank will extend another loan

In some instances, when a depository institution borrower cannot make the promised principal and interest payment on a loan, the bank will extend another loan for the customer to make the payment.

a. Is the first loan classified as a nonperforming loan?

b. What is the rationale for this type of lending and what are the risks in this type of lending?

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