Evergreening

Evergreening is a dubious lending practice that masks troubled loans. It works like this:

1. A borrower struggles to repay their original loan, putting it at risk of default.

2. Rather than address the core issues behind the financial distress, the lender offers the borrower new credit or alters the existing loan's terms to help repay the old loan.

3. This "rolls over" or delays categorizing the loan as non-performing. The lender's portfolio seems healthier than it truly is.

While providing temporary relief, evergreening fails to resolve the underlying repayment problems. As distressed borrowers amass more debt, defaults may eventually surge. Regulators often restrict evergreening because it obscures accumulating instability in the financial system as unrecognized risks proliferate.