Better safe than sorry: defensive loan assessment behaviour in a changing bank environment

• Purpose - This paper examines to what extent and in what forms loan applications from small and medium-sized enterprises (SMEs) in a risk averse banking environment can be assessed defensively by lending officers (LOs). The paper also identifies triggering mechanisms behind defensive SME loan assessment behaviour and its’ possible effects on the bank and the LOs.Design/methodology/approach - The paper relies on a case study of a major Swedish commercial bank undergoing strategy and control system change during the recent financial crisis. The empirical evidence was collected through interviews with 76 LOs in three branch offices and a focus group interview session.Findings - In a risk averse banking environment, LOs can be prone to assess SME loan applications defensively to a noteworthy extent. Such defensiveness comes in different forms: denial of loan applications, granting of loans with collateral or high interest rates, or granting of loans only to clients with most of their financial affairs in the bank. External and internal mechanisms jointly trigger defensive loan assessment behaviour. The possible effects include fewer Type II errors and more Type I errors for the bank, while LOs avoid change and blame.Originality/value - Overall, this study contributes to the literature by revealing triggering mechanisms, forms and effects related to the multifaceted construct of defensive loan assessment behaviour among LOs in a commercial bank, who handle applications from SMEs.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Nyckelord

Banking

Defensive behaviour

Effects

Lending officers

Loan assessment

Triggering mechanisms

Sweden

Loans

Lending services

Accounting and Control

Redovisning och styrning

Publikations- och innehållstyp

ref (ämneskategori)

art (ämneskategori)