Heuristics in the corporate credit process : A behavioural analysis of risk managers and credit officers

Abstract

We investigate and compare the cognitive thinking of two key actors involved in the corporate lending process: business-side credit officers and risk analysts. We investigated four different heuristics – risk aversion, overconfidence, overoptimism and representativeness bias – through a questionnaire survey based on a previous experiment by psychologists. The eight banks included in the study are among the 12 largest banks in Hungary in terms of balance sheet total, and they are also active in the financing of the large corporate segment. The respondents are relationship managers and risk analysts working in the large corporate segment. The research is exploratory and comparative and uses qualitative research methods. Based on this research, we confirmed in a banking context that the decisions of relationship managers and risk analysts are characterised by cognitive biases. One of the limitations of the research is that the decision-making process was examined in fictitious situations rather than through a real credit assessment process. The research is novel because cognitive biases have not been studied in a bank lending context specifically for credit officers and risk analysts. The results are useful for optimising decision-making processes in banks.