A credit committee is a group of people who meet to make decisions and vote on loan approval. This committee is usually established by the bank's board of directors. The main task of this group is to agree or refuse on granting a loan while trying to reach the correct decision. They also can vote on:
- organization of management
- credit scoring model
- other parts of a chain of decision-makers on loan approval like central officers and branches (R. Ben, M. Krausz, S. Nitzan 2018, p. 2-3).
Member's decision depends on appropriate information such as experience in lending to the entrepreneur; the entrepreneur's leverage, other attributes of the entrepreneur and the loan application (R. Ben, M. Krausz, S. Nitzan 2018, p. 4).
Loan appraisal process
To ensure that the loan can be repaid from borrowers in the future, credit officers who are forming a credit committee must have a professional background in credit management (J. Maina, D.Kinyariro, H. Muturi 2016, p. 771). The first appraisal is made by the credit officer who has a meeting with the credit applicant. Then, the final decision is made by the credit committee according to guidelines established by the ethics committee set by the board of the bank (S. Corné, A. Szafarz, 2014 p. 6).
So that the credit committee can make a decision, credit officers collect field data, meet with applicants and provide personal recommendations to the committee who can make a final decision about loan approval/denial, and loan size (I. Agier, A. Szafarz, 2010 p. 1). The credit committee members are also are required to state- specific credit rationing criteria for loans (G. Sumari, D. Aikaruwa, 2013, p. 331).
In the end, the full documentation- including the credit officer's reference is inspected by the credit committee that has the final word in this case. In contrast to credit officer, credit committee does not have face-to-face contact with each applicant (I. Agier, A. Szafarz, 2010 p. 4).
As J. Maina, D. Kinyariro, H. Muturi said: Credit committee plays a key role in loan appraisal to members hence ensuring that there is a high possibility of loan repayments from the borrowers (J. Maina, D. Kinyariro, H. Muturi 2016, p. 771).
- Agier I., Szafarz A., (2010), Credit Officers and Loan Granting in Microfinance: Brazilian Evidence, SSRN Electronic Journal
- Ben R., Krausz M., Nitzan S., (2018), Government loan guarantees and the credit decision-making structure, Canadian Journal of Economics, Canadian Economics Association, vol. 51(2)
- Cornée S., Szafarz A. (2014), Vive la Différence: Social Banks and Reciprocity in the Credit Market, Journal of Business Ethics Volume 125, Issue 3
- Maina J., Kinyariro D., Muturi H., (2016), Influence of credit risk management practices on loan delinquency in savings and credit cooperative societies in Meru County, Kenya, International Journal of Economics, Commerce and Management Vol. IV, Issue 2
- Odera O. (2012), Corporate Governance Problems of Savings, Credit and Cooperative Societies, International Journal of Academic Research in Business and Social Sciences Vol. 2, No. 11
- Sumari G., Aikaruwa D., (2013), Credit rationing and loan repayment performance: the case study of victoria savings and credit cooperative society
Author: Weronika Piotrowska