- the loans officer
“It is an axiom nowadays that no bank fails for lack of capital; unprofitable lending is always the underlying cause.” — James Grant, author of Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken
Loans – The necessary evil
Banks are licensed to accept deposits and grant loans, collecting money from surplus units and sending it to deficit units. If banks don’t grant loans, they cannot make a margin and pay the promised interest on depositors’ funds. However, anybody working in a bank knows that the success of every bank lies heavily on how loans are administered. The function of the Loans or Credits Department of every bank is, therefore, heavily monitored by its management as well as from the central bank because it can make or unmake the bank.
The Credits or Loans Department is one of the most sensitive, difficult, interesting and craziest section to work in. It is a place of mixed emotions because you meet or process applications from all types of account holders, each with its own account track record. Loan officers have to try and understand the customers’ business operations to appreciate their needs and determine whether they should be granted the loans as some can be followed by pressure. The recent sanitisation of the banking sector had a lot to do with high rate of non-performing loans and not just about weak corporate governance.
The loan process
The process of obtaining a bank loan typically involves several steps:
- Application: The first step is to submit an application to the bank. This usually requires providing personal and financial information, such as income, employment history and credit score.
- Review: Once the application is submitted, the bank will review the information provided. They will assess the applicant’s creditworthiness and determine whether they meet the bank’s lending criteria.
- Approval: If the application is approved, the bank will offer a loan amount, interest rate and repayment terms. The terms of the loan will vary depending on factors such as the borrower’s credit history, income and the purpose of the loan.
- Documentation: After the loan is approved, the borrower will need to provide additional documentation, such as proof of income, identification and collateral (if required). This documentation is necessary to finalise the loan agreement.
- Disbursement: Once all the necessary documentation is provided, the bank will disburse the loan amount to the borrower. The funds can be used for the intended purpose, such as buying a house or starting a business.
- Repayment: The borrower is then responsible for repaying the loan according to the agreed-upon terms. This typically involves making regular payments, which may include both principal and interest.
The personalities behind loan applications
No two customer applications are the same. Some of the personalities behind the loan applications are professional while others are challenging. In all cases, loan officers need to be tactful and truthful to customers to prevent them receiving a “No” and closing their accounts. Let us look at some examples of various loan applicants.
- The visionary: These customers have focused entrepreneurial visions, relevant experiences and dedication, good credit history and realisable delivery channels. They make loan processing a delightful exercise, and loan officers feel happy when their applications are approved. Monitoring their operations is easy and the feeling about the success of the enterprise is mutual – the bank as well as the customer.
- The dreamers: They conceive a business idea and, without conducting the relevant research nor starting on a small scale with funds from family and friends, jump onto the band wagon of lobbying the branch manager for a loan. Many of them don’t take ‘no’ for an answer and take declined applications personally and emotionally. They expect everybody to be excited about their ideas. Others are not even prepared to listen to any business counselling and are already set in their ways.
- The ‘connected’ accounts: This is a group that encompass various account holders who, by their relationship with some executive or board members, sometimes take advantage to put pressure on managers and credit officers to grant loans to them.
- The wilful defaulters: There are a few customers who, with one’s experience and watchful eyes, show from day one that they will not be repaying any facility granted them. They sometimes behave as if bank loans are Christmas gifts.
- The ‘player’: They can be both males and females, with a hidden agenda: to befriend you and take undue advantage of the relationship by benefitting from loans they have no plans of repaying in future. They tempt bankers to mix business with pleasure.
The politically exposed persons (PEPs)
I believe this is one of the most difficult group of borrowers that some state banks have to contend with. They can make or unmake a bank! You may be wondering why I am saying so. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold.
I used to believe that PEPs were more creditworthy because when the loan is called in or their names come up in the banks’ non-performing portfolio, they would be embarrassed. In my three decades of banking, I have seen some PEPs addressed press conferences and condemned banks’ high lending rates, while in the same vein, directed the Chief Executive of a bank to grant some ‘crazy’ facilities to cronies and family members, who also happened to be PEPs by their association with them.
Tips to loan managers in a dilemma
The pressures, both internal and external, are meant to strengthen loan officers to withstand the shocks of the nature of the banking business. Here a few tips to managers in a dilemma:
- Unhealthy advances from customers and seniors: It is commonly human but must be handled with diplomacy and tact, and you will always be friends. Do not take it personally.
- If you have to review a loan application, think twice. Are you working for the customer, or for the bank, or even for your boss? Sometimes a few words of prayer can do the magic. In five years’ time, will you be blamed for obeying your boss instead of the bank’s policy?
- If you start witnessing your customer’s diversion of funds meant for his business, into other events, will you pull the trigger or look the other way quietly because you are related to him or her?
- Are the PEPs demanding too many favours from your bank to help this and that person with a loan, at whatever cost? Use your spiritual intelligence on them. Work harder… genuine customers will come as you make service delivery your priority.
The power and benefits of saying ‘no’ in a professional way
Let’s look at this example: An elderly gentleman in his sixties, who was a close friend to a bank CEO, pressurised a branch manager to process a loan application. The branch manager faced a dilemma: the senior citizen had offered his residence as security for a loan that had all the signs of non- performance. The manager mustered courage to be honest about the transaction and refused to be intimidated by the CEO. Six months after the manager left to work at another bank, the customer visited him at his new office to thank him for his decision not to process the loan. He realised it was not a feasible project. He could have lost his family home if he had defaulted.
Next week, we shall look at another section in banking where the staff go through a myriad of experiences. The banking career is always rich with both positive and negative occurrences, but which must always be handled with professionalism. It is always a delight to witness examples of ethical banking practices and see how banks are working hard to ensure loans are administered with ethics as the key foundation.
…..to be continued
About the author
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the author of three books: ‘The 21st Century Bank Teller: A Strategic Partner’ and ‘My Front Desk Experience: A Young Banker’s Story’ and ‘The Modern Branch Manager’s Companion’. She uses her experience and practical case studies training young bankers in operational risk management, sales, customer service, banking operations and fraud.
CONTACT
Website www.alkanbiz.com
Email: alberta@alkanbiz.com or [email protected]
Tel: +233-0244333051/+233-0244611343
