Question

Write a fictional scenario (can be based on something you have witnessed in real life) describing an ethical challenge you might encounter in a loan transaction.

Answer 1

Conflict of interest while executing loan transaction is not uncommon for bankers.

This is because bankers (relationship managers) are responisble to grow their loan book and also to ensure that their portfolio is healthy. It is not possible to grow portfolio above the market rate without increasing exposure to relatively riskier borrowers.

Say for instance, borrower XYZ does not fit the risk profile of my bank, however, I could have a positive view on the company and its ability to repay the loan. I might risk loosing the business to a competing bank who is less risk averse, if I don't take interest in providing financing solution to the client.  I as a banker could face an ethical dilemma whether to pursue XYZ and lend money to the company.

Such situations as mentioned earlier could be quite prevalant in real life situations. A banker can find alternative ways within the policies of the bank to serve such customers. For instance, the banker may provide structured solutions to the company for a higher rate, requiring alternative means of financing; or else, finding syndication opportunities wherein multiple banks can take exposure to the borrower.