Want a loan? Here are things Kenyan banks look for before giving you one

When lending, banks seek to ensure that the advances they extend are repaid; and more so they prefer the repayment be done according to the formal agreement (loan contract). When initiating a loan, both parties – the customer and the bank – go through a decision making process.

On the bank’s side, the credit analyst will assess the probability of full repayment as stipulated in the contract. This process is called risk analysis and it includes assessing actual facts about the customer, bank position and policy, as well as ‘gut feeling’ or intuition aspects, which the analyst will consider based on experience.

For personal loans, the credit analyst will be guided by the banking and credit history (to determine repayment capacity), the customer’s stake (how much of the risk is being taken up by the customer vis a vis the lender)

For commercial/business loans, the credit analyst will be guided by business financials (balance sheet and income statement to determine repayment ability) and the business’s stake (how much of the risk is being taken up by the business vis a vis the lender).

Also of importance is the management structure, governance succession plans, commitment to the business, ethical business practice, the skills that the individual or organisation has to adequately execute the proposal and the fallback position for the business in case the original plan fails.

In addition to assessing the customer, the credit analyst will gauge how the loan/credit facility will impact on the bank’s profits and losses.

This is to determine if the interest earned on the facility matches or exceeds the risk the bank is taking by giving out the loan. They (bank) also will review if the loan is in line with the bank’s policies and the Central Bank of Kenya prudential guidelines.