The Potential for Biases in Resolving Loan Problems

This paper describes how behavioral biases influence the resolution of financial covenant violations. Prior literature documents that violation waivers are common; however, there is a lack of discussion on the determinants that lead loan officers to waive covenant violations. We rely on the escalation of commitment bias (or the sunk cost phenomenon) to discuss how loan officers may become attached to a selected course of action and fail to incorporate new information, increasing the likelihood of covenant waivers. We explain the implications of this bias on bank financial reports by detailing how accounting links loan quality to bank financial statements. We further draw on the psychology literature to offer potential solutions to mitigate overcommitment in the context of loan officers. Future research can examine the extent to which loan officers knowingly or unknowingly steer away from rational decision-making. This study has practical implications as users of bank financial reports, including investors, auditors, examiners, and bank managers, learn about processes and challenges on how accounting mechanics link bank loan portfolios to financial statements.

Loan Officer and the Evolution of Bank-SMEs Relationship in Tunisia

This paper empirically investigates the role of the loan officer in the evolution of the bank-SMEs relationship and its motivation for studying credit demand, its level of alignment to the hierarchy and its participation in the decision-making process. Based on a survey of 160 loan officers from two large Tunisian commercial banks: the ‘Société Tunisienne de Banque’ (STB) – as a public bank, and the ‘Banque Internationale Arabe de Tunisie’ (BIAT) – as a private bank, data analysis shows that self-esteem, need for success, autonomy in performing duties, and participation in the decision-making process are motivating factors at work for loan officers at both banks. The number of visits to the premises of the SME and the average length of interviews with its manager are considered important for the acquisition of soft information. Regarding the decision-making power, while a certain delegation has been instituted at the regional level in the BIAT, it is more the responsibility of the central committees in the STB. The decision of evolution depends more on the hierarchical superiors in a private bank that is why the BIAT officers are closer to their superiors than those of the STB.

Influence of Islamic Auto Financing Instruments on Financial Performance of Commercial Banks in Isiolo County Kenya

Purpose: The purpose of the study was to explore the influence of Islamic auto financing instruments on financial performance of commercial banks in Isiolo County Kenya. Methodology: This study used descriptive research design. The respondents were customer service officers and loan officers in the ten commercial banks in Isiolo County. They were be selected using census method. Data collection was done using closed-ended questionnaires and secondary data collected through analysis of report from 2017 to 2020. To ensure validity and reliability, pre-testing of questionnaires was done at Kenya Commercial Bank in Meru town. Coded data in SPSS 24.0 computer program analyzed quantitative and qualitative data using the descriptive statistics such as mean, percentage and standard deviation. Multiple regression was used to test hypothesis of the study. Tables, graphs and detailed explanations were used to present the final results of the study. Results: Options had a statistically significant relationship with financial performance. The respondents agreed that the lending terms of Islamic automobile financing have attracted diverse clients (mean of 4.78). However, in comparison with other statements, the respondents did not tally that having sharia committee in disbursing car loans had enabled clients have confidence with the automobile loans (mean of 3.83). The R value was 0.862 and R-square of 0.743. This indicated that Islamic auto financing instruments’ level of contribution towards financial performance was 74.3%. The Durbin- Watson value was 1.969. This value lied between 0 and 2 hence indicating that there was a positive correlation between auto financing instruments and financial performance. The significance value was 0.000 which was below 0.05 hence Islamic Auto financing instruments had a significant influence of financial performance. In addition, the respondents did not tally that having sharia committee in disbursing car loans had enabled clients have confidence with the automobile loans. This proved that the confidence that clients had on auto financing, was not purely on the nature and process of administration of the financing but also due to reliability. Unique contribution to theory, policy and practice: The study recommends that auto financing should be provided reliably by ensuring all client concerned are amicably handled by the banking staff. The various car loan officer should be trained on good customer service to as to ensure they sell well their products without necessarily losing new clients. The bank management should also diversify auto financing to cater for all categories of vehicles for expansion of their client base.

Overconfidence and credit risk-taking in microfinance institutions: a cross-regional analysis

Purpose The purpose of this paper is to investigate the impact of loan officers’ overconfidence on risk-taking decision and solvency performance measured by z-scores in the context of Islamic and conventional microfinance institutions (MFIs). Design/methodology/approach A random effect generalized least square regression was applied to examine the effect of overconfidence on credit risk-taking. The data set covers 326 conventional MFIs and 57 Islamic MFIs in six different regions over the period of 2005–2015. Findings Overconfidence proxies have shown through high loan growth, low-interest margin and loan loss provision reveal negative consequences on risk-exposures for both MFIs averagely. The loan officer’s overconfidence is significantly and positively related to the risk-taking decision, and thus, a lower loan portfolio quality. Besides, loan officers’ risk-taking behaviour harms these institutions’ solvency performance. Originality/value This paper makes an initial attempt to evaluate the effect of overconfidence behavioural bias on risk-taking decisions and its implication on the MFIs solvency and sustainability.

Optimization Of Debtor Information Systems In Pressing Problem Financing In Some Syari'ah BPR In Aceh Province

Article 1 paragraph (1) of Law Number 10 the Year 1998 states that banking is a financial institution that collects funds from the public in the form of savings, time deposits, and demand deposits and which can be equated with them. Furthermore, it is channeled back to the public in the form of credit (financing in the Syari'ah Bank), with the aim of achieving people's welfare. Furthermore, based on Law Number. 21 of 2008 explains that a Syari'ah bank is a bank financial institution that runs its operations in a Shari'ah manner. One of the duties of banking institutions is to channel credit/financing to the public so that it can spur economic growth in the informal sector in the Region and National in the context of the Unitary State of the Republic of Indonesia. In the provision of credit/financing, it is not uncommon for fraudulent (internal) practices carried out by loan officers (AO / FO), finance staff, so that they can worsen Non-Performing Loans / Financing, which in turn can undermine the bank's own capital. The debtor information system is a strategic effort to minimize the occurrence of non-performing loans so that the quality of financing can still be controlled at all times. The collectability of financing can also be used as a benchmark in increasing the competitiveness and selling value of a bank. The purpose of this study is to determine the extent to which banking institutions, in this case, the Islamic People's Financing Bank have implemented these provisions, what obstacles were found, and efforts to resolve them. This type of research is an Empirical Juridical, namely examining the Regulations governing Anti Money Laundering (APU) and the Prevention of Terrorism Funding (PPT) as well as Debtor Information within the scope of the financing process in several Sharia Rural Banks (BPRS) in Aceh Province. Based on research in eleven Sharia People's Financing Banks in Aceh Province, it is known that 68.3% have operational procedures (sop) on AML and CFT and run them well, while 31.7% have AML and CFT regulations, but have not implemented them optimally. . The reason why this provision has not been implemented optimally is that more intensive socialization is needed to related parties, including bank debtors, considering that debtors are prime customers in growing a bank.