The Banking Sector Needs Competition
Translated from Russian with the help of AI. Original: Russian version
Three banks turned down a simple loan secured by a deposit, citing bureaucracy and internal regulations (IRDs). The episode shows that the banking sector needs new players or tougher competition.
Our banking sector clearly needs new players or tougher competition. A close friend of mine decided to take out a loan secured by a foreign-currency deposit, since his project is a startup. For any bank, he is a dream client. In a properly organized business process, such loans should be issued within one day. The returns are high, the risk is zero, and the risk weighting is zero as well.
My friend approached three banks. Here is what happened at each of them:
Bank 1. "We are ready to consider your request if you provide a corporate guarantor that will fully cover the loan payments." My friend explained that, since he has no guarantor, he is offering a deposit that fully covers the risk should the project fail. When asked why such a guarantor was needed, the answer was obvious: internal regulations. The bank went away to think it over and then refused.
Bank 2. "We are ready to give you a loan secured by a deposit, but you must provide a personal guarantee, otherwise it is impossible." The client explained that he is not the only participant in the project and has loans at other banks, where he would need to obtain permission, which is a long and complicated process. The bank's answer was that, unfortunately, it could not grant the loan: those are its internal regulations.
Bank 3. He gathered all the documents, but then compliance stepped in and asked him to show the origin of the funds. The client was at first baffled. "I was a VIP client of yours for 10 years, I had large loans and repaid all of them. Don't you know me?" The bank, naturally, replied that since he had left for another bank, everything had to be confirmed afresh. The client provided the company's minutes showing the distribution of dividends in his favor for 2018, made in 2019. The bank began demanding the company's financial statements for 2018 and proof that tax on the dividends had been paid. The client said that no tax was paid on dividends in 2019, so he could not provide such a certificate. The bank went away to think it over.
It seems the era of the risk managers has begun in our banks 😅😅😅
For banks, this is easy money, but bureaucracy and internal regulations deny shareholders additional profit.