The banks assess the credit risk of a potential borrower by using one or other set of rules. One popular rule, known as "5 Cs" of credit, tries to capture five essential characterstics of the borrower - Character, Capacity, Capital, Collateral and Conditions - to assess how good the borrower is and what are the possibilities of his defaults to repay the loan. This article, however, intends to assist the young bankers to navigate through the task of handling a prospective borrower and his loan application.
LOOK UPON A LOAN REQUEST AS AN OPPORTUNITY: When you have a loan proposal at your desk, look upon it as a golden opportunity to put to work the lessons you learnt and the experience gained through your academic courses and the training programmes. It should also be seen as an occasion to apply your intelligence and judgement and enrich your knowledge about the borrower and the business environment in which he operates. If you approach the challenging tasks of analysing and evaluating the loan application to reach a conclusion it will benefit the bank and the applicant.
DON'T START WITH PRECONCEIVED IDEAS: While discussing a proposal with the applicant, most of us remain so preoccupied with our own thoughts and biases that we don't listen to him patiently. Failure to listen and appreciate the other's viewpoints is the greatest barrier to effective communication between two people. One human folly nature has ingrained in our psyche is that we see, hear, and understand others only in terms of our own frame of mind. For a meeting of minds, we must try to hear precisely what the other person says and then to understand why he said it and what he really meant. Only after we have listened attentively and sympathetically should we attempt to judge or evaluate. In short, while discussing with the applicant, remember the phrase, 'don't cross the bridge before you reach it'.
DON'T PRETEND THAT YOU KNOW EVERYTHING: There is a saying that 'a wise man can learn more from a foolish question than a fool can learn from a wise answer'. A wise person never hesitates to ask questions about things he doesn't know or does not know well. If you have some confusion on any point do not feel shy to stop the applicant and ask him questions until you are absolutely sure of what he says and what you understand. Â
DON'T BE CONFUSED BY THE DETAILS: We can become so blindly obsessed with figures, diagrams, charts and other details that we lose sight of the broad strengths or weaknesses of the credit and the borrower. Diverting our attention to too many irrelevant details may impair our vision of the overall picture of the borrower and viability of the loan he is asking for. Stop for a moment to see that the picture is complete, that nothing has been left out, that no loose ends remain untied.
REMEMBER TO ASK YOUSELF 'HOW GOOD' THE LOAN IS: It is not enough for a loan to be safe; it must also be sound. A safe loan is a loan that is free from ultimate loss. A sound loan is a safe loan that can be repaid within its maturity terms without hardship or stress on the borrower. Borrowers must not only have adequate strength or adequate security but must also have adequate repayment ability. Bank loans are made to be paid, not to remain permanently tied up with the borrower. You should be concerned with the safety and security of the loan but do not forget to ask yourself the question: "How is the borrower going to pay it back?"
DON'T COMMIT YOURSELF TOO SOON: Be sure you have all the facts and that everything has been considered before you commit yourself on any point at any stage of the discussion. Once you make a statement or announce a decision prematurely, you'll later find yourself in the embarassing situation of justifying your position to the management with arguments that may not stand to rigorous scrutiny. Â
DON'T PASS ON THE BLAME TO THE HIGHER AUTHORITY: Most credit officials tend to play the role of an angel and well-wisher for the applicant. So when an application for a new loan, renewal, rescheduling or increase of an existing loan is rejected they often try to pass on the blame to the Credit Committee, the Board or "those people at the head office Credit Division." It is unfair as well as unethical. You represent the bank; you are part of the bank; you must assume or share moral responsibility for any decision made by the bank. You may not be happy with the final decision, in spite of your recommendation, but once it is made, it becomes your decision. You must defend it as your own decision.
NEVER BEAT AROUND THE BUSH TO TURN DOWN A REQUEST: Most of us beat around the bush and invent apologies to turn down a request. Timidity has no place in a loan officer's makeup. Be sure of your ground, evaluate carefully, then say straight out what your considered judgment dictates, without apology or hesitation for fear of incurring the applicant's displeasure. Make it a point to look the applicant straight in the eye when you say it; you don't have to be evasive or uncertain when you are convinced of the soundness of your grounds.
ACCEPT FULL RESPONSIBILITY: When you have confidence in your judgment, there is no reason to seek guidance from others or to share the responsibility with others when you are acting within your authority. Seek counsel and guidance only when you are unsure, never simply to shift or dilute your responsibility. When you are certain, act. But see to it that your action is not motivated to any degree by a desire to show your authority or that you have the power to act without consulting others.
WHEN YOU ARE GOING TO SAY `YES', SAY IT UNGRUDGINGLY: When you have concluded that you are going to grant a loan request and secured the approval of the authority, do not give the applicant an impression that you're doing him a rare favour or that he has talked you into doing something against your better judgment. Â
DON'T DEPEND TOO MUCH ON ANY SET OF RULES: Lending money soundly is primarily a matter of applying intelligence to the facts in each case, based on the broadest possible background of knowledge and experience. A set of rules like this one can be handy but decision must come through juditious use of your intelligence and sense of judgement.
The writer is a former central and commercial banker. saali40@yahoo.com
Guidelines for young bankers for processing loan proposals
Syed Ashraf Ali | Published: April 27, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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