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

Better safe than sorry: defensive loan assessment behaviour in a changing bank environment Purpose – The purpose of this paper is to examine 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 assessing 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Qualitative Research in Accounting & Management Emerald Publishing

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

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References (86)

Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1176-6093
DOI
10.1108/11766091211240360
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine 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 assessing 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.

Journal

Qualitative Research in Accounting & Management – Emerald Publishing

Published: Jun 15, 2012

Keywords: Banking; Defensive behaviour; Effects; Lending officers; Loan assessment; Triggering mechanisms; Sweden; Loans; Lending services

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