Banking Strategy, Credit Appraisal, and Lending Decisions Essay

In this particular sample essay, we will be discussing the topic of “banking strategy, credit appraisal, and lending decision”. As we know banking industry has been around for a long time. Moreover, it is a quite complex one nonetheless. The majority of profit in the banking industry is derived from lending. In simple words, we can call it a “loan”. However, there are many processes involved before a loan is approved. As such the work of the bank starts from the banking strategy and before a loan is approved it has to go through credit appraisal.

In this sample essay, we will be discussing how these three concepts work hand in hand reach to a loan. Moreover, this is quite an important concept for accounting students. Therefore, we shall be discussing the various aspects and topics in order to provide a clear picture of the concept. Furthermore, we shall be discussing the following topics:

Firstly we shall discuss the concept of banking strategy in which we shall go through the following topics: examples of strategies used in banking. After this, we shall move on to the concept of credit appraisal in which the following topics shall be included: the main objective of credit appraisal and the credit appraisal process. The final and third concept of our discussion will be “lending decision” in which we shall discuss the following: lending decision process and the types of loan.

 Banking strategy

The term “banking strategy” refers to the various strategies employed by the banks to attract as many customers as possible. In addition to that, the financial organization uses several different marketing strategies in order to separate itself from other competitors.

Moreover, apart from the marketing part it also helps improve the profit channels of the banks and stabilize the financial situation. Apart from that, it can be said after the quality of services the banking strategies are the most important tool for gaining a better customer base. Nevertheless, in the next section, we shall discuss the various strategies.

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Types of banking strategy

As we discussed above banks use several types of strategies termed as “banking strategy”. Nevertheless, the several banking strategies used to increase customer base are as mentioned below:

• Targeting customers demographical
• Using various new technologies to reach more people
• Using Digital Applications (mobile application to be specific)
• Investing in Customer Value
• Improving the organization’s Customer Outreach
• Providing the customers with the option of personalization
• Employing Loyalty Programs to build a strong customer base

Credit appraisal

Credit appraisal is a process where banks analyze various factors when they receive a loan application or proposal, as suggested by the name. Moreover, this is done in order to determine the ability of the applicant to repay the loaned amount. The analysis is a quite thorough one as bank can’t risk lending money to unreliable individuals.

The main objective of credit appraisal

As we discussed above, credit appraisal refers to the process of determining the ability of the applicant to repay the loan. Consequently, the main objective of the credit appraisal process is to make sure that the money of the bank is safe. Moving on, we shall discuss the process of credit appraisal in the next section.

Credit appraisal process

The process of credit appraisal for a loan application or proposal goes as follow:

• Collecting information on the customer: the first step involves collecting the information concerning the applicant including the previous loan records, salary, credit score, and so on.
• Analyzing the collected information: in natural order after collecting the information, the bank analyzes that information with respect to that loan proposal.
• The decision on the loan application: last yet most important part of the credit appraisal process. Here a bank official decided where to approve the loan or decline the request based on the assessment in the previous step.

Lending decision

As we know the term lending refers to that situation where certain someone “lends” i.e. let someone else borrow their money. Moving on, in simple words, we can say that lending someone money is providing a loan.

In the context of our sample essay, lending decision refers to the process of coming to decision on whether or not to approve the loan. Moreover, similarly to credit appraisal, the lending decision process is quite thorough which we will be discussing below:

Lending decision process

As we read above, the process of lending decisions is quite thorough. So much so that this process includes six steps as compared to three in credit appraisal. Nevertheless, the process of lending decision is as mentioned below:

1. Searching for the potential customer seeking a loan
2. Determining the financial reputation of the customer and judging the purpose of the loan
3. Visiting sites and analyzing the credit record of potential customers
4. Analyzing the financial situation of the customers
5. Make an assessment of potential collateral in the loan and signing the agreement
6. Supervising the compliance of customers with the loan agreement and other needs if any

So this is the six-step process of the lending decision. Naturally, one may get confused between credit appraisal and lending decisions. To clarify, credit appraisal takes place when the bank receives an application for a loan while the lending decision is a situation where the bank explores the possible customers.

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