25 Dec 2016

Loan Losses incurred by Banks

One has to wonder how banks manage to incur horrendous loan losses in the first place. While it is sometimes said that the only safe loans are extended to borrowers who do not need them it should be foremost on any banker's minds to make sure that loans can be repaid.
Apart for cases of fraudulent collusion between lender and borrower (unfortunately not as rare as naive observers assume) the source of loan losses is larger than can be explained with excuses such as 'unfortunate business conditions'.
A good example is the case of the staid Banque Cantonale de Geneve which in my opinion is straying too far from its area of competence. Financing a commodity trade involving Nigerian transactions is not something you expect a Swiss Cantonal Bank to get involved in. Forensic investigation into cases of loan write-offs would in most cases demonstrate that simple rules of common sense were absent in the decision making, - not only by the bank officers directly involved but all the way up the hierarchy of the institution.