Loan Officers Research Articles

EFFECTIVE LOAN MANAGEMENT AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA

The aim of this study was to find out the effective loan management and financial performance of commercial banks in Rwanda. The methodology employed descriptive and correlational designs. Purposive sampling technique was applied to select sampled respondents. Data was analyzed using descriptive statistics, spearman correlation, regression analysis and financial ratios analysis. After all the following findings were reached: The effectiveness of loan management was measured by loans planning, client appraisal and collection policy. Qualitatively analysis was used to explain the effectiveness of loan management and financial performance. According to the financial performance considering the overall mean of 3.97 which is interpreted as high mean. The quantitative results that were examined through the financial statements of Bank of Kigali Group Plc in form of profitability ratio, liquidity ratios and efficiency. To the third specific objective, it was found that there is high correlation between loan management and profitability of Bank of Kigali Group Plc. This is explained by the correlation (r) of 0.734 which is interpreted as high and the p-value of 0.00 which is less that the significance value of 0.01. Based on findings have provide the suggestions to BK Plc: It is suggested that periodically relevant training programs are organized for credit officers particularly in the area of risk management, management of loan default and financial analysis. This helps improve the knowledge and analytical skills of the loan officers so as to improve their client’s appraisal techniques. The credit committees at all levels must review clients’ bank statements in order to ensure that credit is collected in a timely manner. The Bank of Kigali Plc should check at the character of the borrower during loan review and to enhance their loan risk control.

Loan officer specialization and credit defaults

This paper shows that industry specialization of loan officers facilitates monitoring synergies and lowers credit default rates of small- and medium-sized enterprises. We exploit a wave of early loan officer retirements as a quasi-natural experiment, in which the resulting borrower reallocations changed the industry specialization levels of the remaining loan officers. In a difference-in-differences analysis excluding all reallocated borrowers, we find that a negative shock to loan officer specialization increases default rates due to an inferior production of default risk information and excessive loan growth. A positive shock to loan officer specialization generates opposite effects. Our results suggest that loan officers can exploit industry specialization and related monitoring synergies to improve lending decisions and thereby contribute to lowering credit default rates in the bank's borrower portfolio.

Constraints to the promotion of financial inclusion in India: an empirical study of implementing agencies under Pradhan Mantri MUDRA Yojana

PurposeThe study aims to discern the primary obstacles confronted by the implementing agencies in their efforts to foster financial inclusion through the “Pradhan Mantri MUDRA Yojana” (PMMY).Design/methodology/approachTo collect primary data, a semi-structured questionnaire was developed. Around 120 loan officers from the implementing agencies (Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs) and Micro- Finance Institutions (MFIs)) of Haryana were randomly selected to fulfill the objectives. To categorize the perceived problems into discrete factors, the “factor analysis” technique was employed. The scales were then regressed on factors linked to the demographic characteristics of the loan officers to validate the hypotheses.FindingsThe study highlighted the primary obstacles impeding the advancement of financial inclusion, which encompass a range of factors. These include challenges in management, infrastructure, politics, finance and technology. Furthermore, the study established the association of the explanatory variables, namely gender, age, educational qualification, location and experience of the officers, with the extracted constraints. Notably, the experience of loan officers emerged as the most influential variable contributing to the promotion of financial inclusion through the scheme.Originality/valueThe current body of literature lacks any empirical investigation focusing on the perspectives of the implementing agencies regarding the challenges they encounter in advancing FI. Given the significance of FI in India, where access to formal financial services remains a critical issue, this research adds value by addressing the gaps in understanding the problems encountered.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-06-2023-0462

Examination of Awareness among University Students in Compliance with Loan Application Requirements in the Northern Zone of Tanzania

This study examined awareness among university students in compliance with loan application requirements in the Northern zone of Tanzania. The study was guided by the human capital theory by Gary Backer (1964). The study employed a convergent design under a mixed-methods research approach. The target population of the study was 11 universities, 3000 Second year undergraduate university students, 5 HESLB Personnel, 11 loan Officers represented HESLB at each university used in the study, and 11 Ministers of finance from the students' government from selected universities in the Northern Zone of Tanzania. Probability and non-probability sampling techniques were employed to obtain a sample of 300 second-year undergraduate students, 4 universities/colleges, 4 Ministers of Finances from the Student Government, and 3 loan officers who represent the HESLB in each University used in the study. The study engaged questionnaires, a document analysis guide, and an interview guide to collect data for the study. Content and face validity were ensured by MWECAU research experts. The reliability of questionnaires for Likert-type items was estimated using Cronbach's Alpha Coefficient, whereby r= 0.757 from students, whereas qualitative data were established through peer debriefing and triangulation. Descriptive statistics with the aid of the (SPSS) version 22 was used to analyze quantitative data and qualitative data were analyzed thematically by transcribing the information, coding, and themes supported with direct quotations. The study found that the criteria employed by HESLB had been achieved to a low extent in informing students about loan application requirements. The study concludes that the majority of university students had limited awareness of loan application requirements, possessing knowledge only about a few specific aspects of loan application requirements. The study recommended that HESLB should conduct a comprehensive review of the loan eligibility criteria to address diverse concerns among university students.

IMPLEMENTATION OF THE PRINCIPLE OF “KNOWING THE CUSTOMER” IN GRANTING HOME OWNERSHIP LOANS AT BANK BTN CABANG SURABAYA

This research discusses the implementation of Know Your Customer Principles in granting home ownership loans at BTN Bank Surabaya Branch. This research uses a type of empirical juridical method that is data analysis and starting from primary data. Sources of data obtained through interviews with the Loan Officer / Consumer Lending Unit Staff at Bank BTN Cabang Surabaya, legislation, dictionaries, books that are still valid. Data collection methods using interviews and literature studies. The data analysis method uses a qualitative approach. The results and discussion of the research can be concluded that the implementation of the principle of knowing the customer in granting home ownership loans at Bank BTN Cabang Surabaya is basically in accordance with the basic provisions of Bank Indonesia Regulation 5/21 / PBI / 2003 on Amendments to Bank Indonesia Regulation 3 / PBI / 2001 concerning Implementation of the Know Your Customer Principle, but on the other hand there are still frequent defaults in granting home ownership loans caused by customers who was not trustworthy, based on data in 2018, 2019, 2020, 2021 and 2022 as many as 519 customers have defaulted. Thus, if defaults continue to occur in the health of the bank decreases and suffers losses, therefore things can be done with 2 (two) legal protections, namely preventive law and reprensive law. This settlement is carried out by non-litigation and litigation channels that seek to resolve problem loans so that the bank continues to run its business without being constrained and the bank can open its newest products.

Climate change concerns and mortgage lending

We examine whether beliefs about climate change affect loan officers’ mortgage lending decisions. We show that abnormally high local temperature leads to elevated attention to and belief in climate change in a region. Loan officers approve fewer mortgage applications and originate lower amounts of loans in abnormally warm weather. This effect is stronger among counties heavily exposed to the risk of sea-level rise, during periods of heightened public attention to climate change, and for loans originated by small lenders. Additional tests suggest that the negative relation between temperature and approval rate is not fully explained by changes in local economic conditions and demand for mortgage credit, or deteriorating quality of loan applicants. By contrast, Fintech lenders partially fill the gap in demand left by traditional lenders when local temperature is abnormally high.

Multilevel relationships and loyalty in the microfinance industry: evidence from Tanzania

Purpose The operations and viability of microfinance institutions (MFIs), crucial for socioeconomic development and poverty reduction, heavily rely on the multilevel relationships among borrowers, loan officers and MFIs. This study examines the relationship between interpersonal and firm-level relationship quality (RQ) and their simultaneous impact on customer loyalty (CL) in microfinance. Additionally, it investigates the mediating effect of firm-level RQ between CL and interpersonal RQ.Design/methodology/approach In this study, correlational research methods were employed. Completed questionnaires were received from 498 MFI borrowers in Dar es Salaam and Mwanza cities. Regression techniques and structural equation modeling were utilized to analyze the data. Before hypothesis testing, the validity and reliability of the measurements were confirmed.Findings Interpersonal-level and firm-level RQs are significantly related. Interpersonal-level RQ and its dimensions are significantly linked to CL, whereas firm-level RQ and its dimensions are insignificantly related to CL, except for commitment. Interpersonal-level relationships have a stronger impact on CL than firm-level relationships. Among all the dimensions of RQ, commitment has the greatest influence on CL at both levels. Firm-level RQ negatively and insignificantly mediates the relation between interpersonal-level RQ and CL.Research limitations/implicationsThe study findings only apply to Tanzania's microfinance industry, because the interactions between and the relative effects of firm and interpersonal ties may vary across various contexts and cultures. Future research may consider replicating this study in other contexts and cultures to confirm these findings.Practical implications This study advances the understanding of how multilevel relationships affect CL within the microfinance industry. This insight will assist MFIs and policymakers in identifying alternative and more efficient relational strategies to enhance CL, a critical element for the sustainability of MFIs. In turn, the sustainability of MFIs in low-income countries like Tanzania holds paramount importance for stimulating socioeconomic development and, hence, achieving the goal of poverty eradication.Originality/value While previous studies on multilevel relationships concentrated on a single relational dimension (trust) and were conducted within the realms of retail, airline and industrial manufacturing, the current study employs the three most popular relational dimensions: trust, commitment and satisfaction, within the microfinance context. Additionally, this study investigates the mediation effect of firm-level RQ between interpersonal-level RQ and CL, a previously unexplored area in research.

Factors Affecting the Social Outreach of Microfinance Institutions: Evidence from Ethiopian Microfinance Institutions

The main objective of the study was to assess the factors affecting the social outreach of microfinance institutions in Ethiopia. The outreach of microfinance was measured in terms of the number of clients served as breadth of outreach and the socio-economic level of the clients as depth of outreach. The study was conducted using secondary data collected from the Association of Ethiopian Microfinance Institutions for the period 2007-2020, which was published in its annual bulletin. A sample of 14 microfinance institutions was selected based on the consistency of their financial and performance reports to the association since 2007. The study was based on an explanatory research design. A balanced panel data was analysed using the random effect panel data regression model. The study found that borrowers per loan officers, cost per borrower, deposit to loan ratio, gross loan to asset ratio, operating expense to loan portfolio, return on asset, age, size, and product of microfinance are variables significantly affecting the social outreach of microfinance in Ethiopia. The study found that microfinance institutions are serving a fraction of the poor in Ethiopia. Microfinance institutions in Ethiopia need to maintain the momentum and trends of depth and breadth. MFIs need to accelerate their progress in order to reach more of the poor.

Impact of environmental regulatory initiatives and market practices on green finance in Georgia: a comprehensive study

The study explores the world of green finance within the context of the Georgian financial market, focusing on the influence of regulatory initiatives and market practices. Green finance, driven by sustainability goals and environmental responsibility, has gained prominence globally. In Georgia, this phenomenon has been exemplified by the introduction of sustainability bonds and the integration of ESG factors into financial institutions’ strategies. The research question centers on understanding how regulatory initiatives and market practices impact the growth and effectiveness of green finance in Georgia. The hypothesis posits a positive correlation between the adoption and implementation of regulatory initiatives (such as green taxonomies and ESG guidelines) and the growth and impact of green finance. Through a comprehensive survey of 200 loan officers in Georgian commercial banks, the study gathers insights into perceptions and attitudes regarding sustainability bonds, ESG integration, and green taxonomies. The majority of respondents express optimism about the positive influence of these factors on green finance.

Expanding Inclusive Markets through Corruption Control: A Multilevel Modeling Analysis for a Grand Challenge

To tackle the grand challenge of poverty alleviation, we investigate the role of microfinance institutions (MFIs) in fostering inclusive markets amid the influence of corruption. Corruption hampers MFI's efforts to reach out to women and the poor, leading to increased costs and resource wastage. Specifically, corruption negatively impacts financial inclusivity by affecting service costs, female borrower inclusion, and loan officer effectiveness. By adopting an institution-based view, we propose that corruption control can counteract this negative effect by enhancing information transmission and stakeholder cooperation within microfinance, thereby promoting inclusivity. Corruption control also moderates the effects of three firm-level factors, namely service cost, female borrowers, and loan officers on expanding inclusive markets. Leveraging a panel data set of 618 MFIs across 30 developing countries from 2005 to 2011, we employ multilevel modeling and find a positive association between corruption control and the breadth of MFIs' outreach.

Gender Bias in Promotions: Evidence from Financial Institutions

Abstract We test for gender bias in promotions at financial institutions using two central predictions of Becker’s (1957, 1993) model: firms with bias will (1) raise the promotion bar for marginally promoted female workers, and (2) incur costs from forgoing efficient employment practices. We find support for both of these predictions using a new nationwide panel of mortgage loan officers and their managers encompassing approximately 72,000 workers from over 1,000 shadow banks from 2014 to 2019. Overall, our findings provide evidence that gender bias is an important factor in gender gaps at financial institutions. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Worth Your Weight: Experimental Evidence on the Benefits of Obesity in Low-Income Countries

I study the economic value of obesity—a status symbol in poor countries associated with raised health risks. Randomizing decision-makers in Kampala, Uganda to view weight-manipulated portraits, I find that obesity is perceived as a reliable signal of wealth but not of beauty or health. Thus, leveraging a real-stakes experiment involving professional loan officers, I show that being obese facilitates access to credit. The large obesity premium, comparable to raising borrower self-reported earnings by over 60 percent, is driven by asymmetric information and drops significantly when providing more financial information. Notably, obesity benefits and wealth-signaling value are commonly overestimated, suggesting market distortions. (JEL D82, G21, G51, I12, O16, Z13)

Credit Decisions Making Through the Use of Information Company’s Financial Performance and Environmental Performance

Before credit is given, the bank must first conduct a credit analysis to ensure that the customer can really be trusted. It is important for loan officers to understand other information or the latest information related to lending. Through the use of data on the company's financial performance and environmental performance, this study seeks to obtain empirical evidence about the provision of loan decisions. This study uses a quasi-experimental design with a 2X2 factorial layout, which is an experimental method. 81 students enrolled in the Bachelor of Accounting Program comprised the sample for this study, which was chosen using a purposive sampling technique and the non-probability method. The Two-Way Analysis of Variance (ANOVA) test was employed in the data analysis process. The study's findings show that credit decisions are significantly impacted by both financial and environmental performance.

Regulatory non-compliances in microfinance operations: a survey of Indian microfinance institutions

PurposeRegulation is critical for sustainable microfinance sector growth. Under this premise, the study aims to examine the different regulatory noncompliance (RNC) practices prevalent in the operations of microfinance institutions (MFIs) at the ground level.Design/methodology/approachBoth the quantitative and qualitative (observations, interviews and focus group discussions) techniques are used to extract the findings.FindingsThe study highlights the different RNC practices exercised by the loan officers at the field level in their microfinance loan disbursements.Originality/valueThis study is based on the primary data collected from microfinance clients. The arguments put forth for the RNC practices are extracted from direct personal interviews with the loan officers and the clients. The role of various dilemmas/circumstances of the loan officers and the beneficiaries that implicate the MFIs in RNC is highlighted.

Exploration of Cash Flow Management Strategy and Financial Performance of Saccos in Imenti North Sub-County, Kenya

The study sought to explore the influence of cash flow management strategy on financial performance of Saccos in Imenti North Sub-County, Kenya. Descriptive research design was adopted to collect data from 21 deposit and non-deposit Saccos located in Imenti North Sub-County. The target respondents included 42 accounts department officers, 114 tellers, 93 back-office staff, and 120 loan officers hence a total of 369 respondents. Descriptive and inferential statistics were used to analyze the data. Cash flow management strategy had a correlation coefficient r=0.772** at α < 0.000 and a 99% significance level. The study established that the investment department was still undeveloped in many Saccos therefore limiting on the authorization of incorporation of funds in investment options like capital markets. This limited the Saccos to act as mere institutions of accepting deposits and savings, while at the same time issuing loans. This method of operation at many times did not guarantee consistent income due to competition from other financial institutions doing similar work. The study thus recommends that the Board of Management [BOM] should create policies and provide adequate funds to establish an investment department, if there is none, or strengthen it if in existence. The contribution to the study is that a quality policy structure would introduce the Saccos to endless opportunities in investment at capital markets which has a well-structured and managed fund portfolio. In return, this would improve the income since the operations of the Saccos would have been diversified spreading into various classes of investments available.

The importance of individual-pair lending relationships

AbstractWe examine the significance and uniqueness of individual-pair relationships cultivated through repeated loan interactions. Using a hand-collected dataset compiled of borrowing manager and loan officer information, we find that individual-pair relationship loans are associated with a cost-of-debt reduction of between seven to 13 basis points. We also document that the relationship has an economic impact even when other affiliations, for example, institutional pairs, social ties, cultural proximity, and gender, are considered. Individual-pair relationships matter because they furnish lenders with useful soft information, especially when the firm has a poor hard information environment or when the bank and loan officer rely less on hard information. In addition, we find that individual-pair relationship loans have fewer rating downgrades, suggesting that accumulated soft information leads to better loan quality. Collectively, our results highlight the unique value of sustained professional engagement between two individuals in the lending process.

Assessing the Impact of Liquidity Ratio Requirements on the Financial Performance of Commercial Banks in Kenya

In practice, some commercial banks in Kenya are presently facing liquidity challenges for instance the National Bank, Consolidated Bank, and Development Bank of Kenya. For instance, as of December 2017, the Development Bank of Kenya posted a negative liquidity position at 21.6% against the required legal threshold of 20%. For the National Bank of Kenya, the close of 2017 saw the total deposit liability standing at negative 5.5%, while core capital to total assets averaged negative 7.9%. As of 2018, NBK registered a drop in profit by 84% to stand at Kshs. 21.97 billion. The findings were that liquidity ratio requirements (β=0.345, p<0.05); cash reserve ratio requirement β=-0.008, p<0.05); loan deposit ratio requirement (β=-0.020, p<0.05) & capital adequacy ratio requirement (β=0.032, p<0.05) are significant predictors of financial performance of commercial banks in Kenya. The study concludes that liquidity requirements are a significant predictor of the financial performance of commercial banks in Kenya. The study recommends that finance managers of commercial banks in Kenya should strive to balance current assets and current liabilities to ensure they meet their obligations as they arise. The marketing managers of commercial banks in Kenya should invest more efforts in acquiring more customers for increased mobilisation of deposits. The loan officers and credit managers working in the commercial banks in Kenya should speed up the process of credit appraisal of customer loan application process to increase the uptake of loans which are key sources of interest income to these institutions. The shareholders of the commercial banks in Kenya should ensure that their institutions are adequately capitalised so that they are able to withstand inherent shocks occasioned by liquidity constraints likely to negatively impact financial performance. The findings are expected to shed more light on the critical role played by liquidity requirements as far as financial stability and resilience of the banking sector in Kenya are concerned

Can market information outperform hard and soft information in predicting corporate defaults?

AbstractRecent evidence has shown that hybrid models for credit ratings are important when assessing the risk of firms. Within this stream of literature, we aim to provide novel evidence on how hard (quantitative), soft (qualitative), and market information predict corporate defaults for unlisted firms by implementing the Cox proportional hazard model. We address this research question by exploiting a unique proprietary dataset comprising of detailed information on internal credit ratings of European unlisted mid‐sized firms and compute their Merton's distance‐to‐default (DD) measure of credit risk with market data collected on comparable publicly listed companies. Our results show that the bank's use of hard, soft, and market information when assessing the credit ratings of borrowers has a significant influence on the prediction of their defaults. Further, we investigate the significant influence of soft information in predicting corporate defaults by drawing on two separate processes through which loan officers can inject soft information in credit scoring, that is, ‘codified’ and ‘uncodified’ discretion. Finally, when we distinguish between the loan officer's discretion to upgrade or downgrade an applicant's credit score, we find that it is the upgrade that is likely to predict a lower probability of a firm defaulting. This study contributes to the policy debate on safeguarding the banking sector's continuity by positing that integrating market information into banks' hybrid methods of credit rating helps to improve the accuracy in predicting unlisted firms' credit risk that is useful to policy makers for the design of future forward‐looking financial risk management frameworks.

Vulnerabilities of Microfinance Institutions and Low-Income Borrowers in Occidental Mindoro, Philippines: A Proposed Multisectoral Assistance Plan

Microfinance institutions in the Philippines are crucial in supporting low-income households with small businesses. However, credit defaults pose a challenge to both microfinance institutions and borrowers, hindering sustainable financial progress. To address this, a study used the Credit Risk Management Mechanism Model to investigate credit vulnerabilities and proposed a multisectoral assistance plan. The study utilized the descriptive-comparative research design and was conducted in Occidental Mindoro, Philippines, and collected data from 32 microfinance institutions and 242 low-income borrowers using complete enumeration and stratified random sampling. Socio-demographic profiles and data for the assistance plan were gathered using frequency and percentage distribution. Credit vulnerabilities were measured using weighted arithmetic mean and standard deviation, and the disparity was analyzed using independent samples t-test and one-way analysis of variance. The findings showed a notable difference in credit vulnerabilities between microfinance institutions and borrowers. To bridge this gap, microfinance institutions should invest in comprehensive training programs for staff and loan officers, improving credit assessment processes, risk identification, and tailored financial products. Collaboration with experts, and consultants, and continuous monitoring is vital. Low-income borrowers should utilize financial literacy and education programs provided by microfinance institutions and other organizations. These programs must be accessible, culturally sensitive, and customized. Effective development and delivery require collaboration between microfinance institutions, community organizations, non-governmental organizations, and government agencies. Microfinance institutions should actively promote these programs for widespread awareness among low-income individuals. Keywords: level of credit vulnerabilities, microfinance institutions, low-income borrowers, credit risk, proposed multisectoral assistance plan

Labor Mobility and Loan Origination

AbstractWe find that mortgage loans originated after the adoption of the inevitable disclosure doctrine (IDD; a mechanism discouraging loan officers’ labor mobility) have a lower default probability, a higher loan modification rate, and a lower foreclosure rate. These effects are unaccompanied by any reduction in loan supply and contribute to more stable housing prices. Using the adoption of the Uniform Trade Secrets Act as an alternative identification generates consistent results. Overall, our findings suggest that restricting loan officers’ labor mobility leads to better ex ante screening and ex post monitoring, improving the origination efficiency for U.S. residential mortgage loans.