If you are like most banks you have your credit approval and risk process based around loan size. The assumption is that the larger the loan the more risk the bank is taking on so a greater level of risk review is needed. But, suppose the data didn’t bear that assumption out? If that assumption is wrong, then that means that your bank is probably underpricing the smaller loans, overpricing the larger loans, applying the wrong cost structure to the larger loans and misaligning risk against your capital.
Tag: Loan Size
Profitability is the degree to which an activity yields profit or financial gain. While this concept is simple to understand, in reviewing a bank’s financial statements where profitability can be easily measured for past performance, bankers often don’t measure the profitability of a loan at inception and certainly not with the same level of certainty.