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

After the international crisis that is financial bank worker settlement has come under increased scrutiny. Scientists partnered with a commercial bank in Asia to analyze the result of spending loan officers in accordance with the performance of the loans in the quality of these financing decisions. Loan officers working under this motivation scheme exerted greater screening work, approved less loans, and increased their normal revenue per loan. An alternative solution incentive scheme which rewarded loan amount instead of quality had reverse impacts.

After the worldwide economic crisis, bank worker compensation has come under increased scrutiny. While most of the eye has dedicated to incentives to find the best management, there clearly was recognition that is growing incentives predicated on financing amount may lead front-line loan officers which will make riskier financing decisions. Incentives according to loan performance, which reward officers for well-performing loans and penalize them for loan standard, are noticed as you way that is potential increase their assessment effort and enhance financing decisions. […]