Improvement of credit evaluation process in commercial banking

Loans constitute the largest sources of revenue in banking industry thus effecting the Turkish economical environment extensively. Credits in the banking sector can be categorized as corporate, medium and large scale, and individual loans. Commercial loans constitute a high importance within the total loans granted as the economical size and risks are extreme. Importance of these loans can also be highlighted by the political role they play. Volatility and risk factors affecting the interest rates have direct effect on real sector as well. As a result, evaluation of such credits is a major task for the banks that involves objective and subjective criteria. A typical evaluation process of loans, provided to the real sector, is carried out by educated and experienced human resources with high subjectivity depending on the personnel and daily macroeconomic conditions. This study aims to reduce the economic losses and variability that banks are facing in credit evaluation processes. We propose a decision making and support mechanism by using the Data Envelopment Analysis (DEA) methodology with an effective operations management perspective. At this point, our goal is to systematize the process which is controlled by credit analyst thus minimizing the subjectivity in credit decisions. This mechanism will also help us in the identification of the weaknesses of underperforming credit applicants.