Lending decision making in banks: A critical incident study of loan officers

• Loan officers primarily used deliberative analysis and secondarily intuitive analysis when making lending decisions.
• Loan officers reported more difficulties with soft information than with hard information.
• Both situational and organizational factors influence loan officers’ decision making.

SummaryUsing the critical incident technique, we investigated how 88 loan officers at four Swedish banks perceived their decision making in evaluations of commercial loan applications. First, we found that our sample of loan officers primarily used deliberation and less intuition when making decisions. Second, that the loan officers had greater difficulty in making decisions that involved soft information (e.g., client relationships) than decisions that involved hard information (e.g., financial information). Third, most decision making situations involved existing rather than new clients and low rather than high risk levels. Finally, we found a potential effect of organizational factors such as lending practices on lending decisions. Our findings have general implications for research on decision making processes. For the banking industry, this research identifies and elucidates the difficulties loan officers face in decision making of commercial loans.