The effect of Performance Incentives on Risk-Assessment and Lending Decisions of Commercial Bank Loan Officers in Asia

The effect of Performance Incentives on Risk-Assessment and Lending Decisions of Commercial Bank Loan Officers in Asia

Following a worldwide economic crisis, bank worker payment has come under increased scrutiny. Scientists partnered with a bank that is commercial Asia to examine the consequence of having to pay loan officers based on the performance of these loans in the quality of the financing decisions. Loan officers working under this motivation scheme exerted greater screening work, authorized less loans, and increased their typical revenue per loan. An alternative solution incentive scheme which rewarded loan amount as opposed to quality had effects that are opposite.

After the worldwide financial meltdown, bank worker settlement has come under increased scrutiny. While a lot of the interest has dedicated to incentives for top level management, there was recognition that is growing incentives centered on financing amount may lead front-line loan officers to produce riskier financing choices. Incentives centered on loan performance, which reward officers for well-performing loans and penalize them for loan standard, are noticed as you possible method to increase their testing effort and enhance financing decisions. Another strategy that is possible be to create loan officers partially responsible for defaulted loans.Read More