Granting Loans To Legal Entities As The Bank’s Business Process

Abstract

Granting loans to legal entities poses a challenge to the management in commercial banks. Regardless of intensive development of financial market, granting loans (either to corporate or retail sector) is the most lucrative banking business, in terms of the revenue generated. Granting loans to business entities is multidimensional task. On one hand, banks are trying to build as sizeable credit portfolio as possible with the aim of achieving satisfactory profit performances and on the other, in the loan approval process, it is very important to correctly assess credit-worthiness and monitor the approved loans for the purpose of adequate risk management. Hence, within the realm of loan granting, there is a specific „conflict“ between traditional banking principles of liquidity, security and profitability of the placement. The analysis presented in the paper is focused on the loan approval process to business entities. The first part of the paper addresses the loan-approval technology itself from the point of submitting a loan application to the point of issuing the loan. The second part of the paper focuses on the loan assessment procedure, that is, methods and techniques of assessing credit-worthiness of potential debtors. The last part deals with the research results and conclusion.

Article history: Received (25 March 2011); Revised (10 Jun 2011); Accepted (30 Jun 2011)