Refinancing risk

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

Refinancing risk is the chance that a loan cannot be repaid or replaced at maturity — that a balloon cannot be paid from cash, the same bank will not roll it, and another will not take it on acceptable terms. A desk assesses it when the loan is made, not when it falls due: a large residual at the end of a term loan is a risk it prices and structures for, which is why a balloon usually comes with a plan for how it will be met. For the borrower the work starts months before the date, because another bank's process takes time that cannot be bought back at thirty days.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.