Strategic decisions for the management of banks' credit granting system

ISSN： 1460-6720

Source： International Journal of Services Technology and Management, Vol.2, Iss.3-4, 2003-07, pp. : 313-325

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Abstract

This article uses cost-volume-profit (CVP) analysis, when banks calculate a customer's minimum payment level in repaying bank loans, and adopts Markovian dynamic programming, which is a key to judging whether the loans would help the customer improve the status of his business. Basically, CVP analysis induces the break-even point (BEP) as a critical point, and determines the customer's Revenue Exceeding Adjusted BEP (BEAB). If the value of the REAB is positive and greater than before, the banks' credit should be granted. If the value is smaller than zero, then the credit should be denied. This paper proposes an integrated approach for banks that improves management in the granting of credit and upgrades the quality of loans. Also, the study aims to improve the effectiveness of the credit granting process for banks and to enhance the strategic decisions when granting credit.