The retail credit development cycle should involve the risk controller in each step to make sure that the risk perspective has been taken care of in detail in each step. The steps are as follows:

Studies and Research

The starting point is to gather information on both macro and micro levels. A credit manager needs to know not only the economic situation but must have some knowledge of environmental and cultural factors, including products offered by competitors. The collection of high-quality information will contribute greatly to the successful performance of the products.

Start by identifying your target market and customers, that including detail about culture, interest, environment, education, and wealth.

1 Analyse Customer Needs, Competition, Risk Factors and the Bank’s Resources

The first step for the credit analyst is to rearrange and analyse the data collected and come to conclusions. This may involve preparing a SWOT Analysis showing all existing possible Strengths, Weakness, Opportunities, Threats / Risks.

2 Decide the main product’s features

This step requires brainstorming with the team to come up with initial product features that can fit with the following:

  • The customer’s needs & expectations.
  • Market environment.
  • Bank’s resources and capabilities.
  • The market competition.
  • The financial visibility & profitability.
  • The level of risk taken and relation with the bank’s overall risk appetite.

Example: Assume we found that we need to provide a product to doctors that are in need of finance for their personal clinics. We have discovered that the market and our competitors oblige us to deliver this product with a duration not less than five years. The average required amounts are of a minimum of $250.000; the approval process should take no more than 24 hours; and interest would be in a range between six to seven percent.

We now start putting together the required product features based on the customer needs, the competition, the available resources, the profitability, and most importantly, the amount risk involved.

3 The Tailoring and Design phase

Having decided the right product features and requirements, we start the most sophisticated part of the process. This is the tailoring step where we write the full document showing all detailed features and criteria and specifies the limits of ceilings for amounts and duration. It will also contain the requirements for credit scoring and the acceptable levels of credit scoring. The structure of the product document should include the following:

  • The segmented market and customer type.
  • The offering.
  • The Pricing.
  • Terms & Conditions.
  • Legal issues.
  • Design operational forms & documentations.
  • Design the workflow process.
  • Stating the approval process and level of risk acceptable based on the internal scoring and external scoring (FICO).

4 Design the Implementation Stage

  • Design the detailed procedure & workflow.
  • Assume all launch requirements.
  • Arrange Technologies handling.
  • Structure delivery channels
  • Marketing Material required.
  • Marketing campaign.
  • Proposed launch time.

5 The Training and Pilot phase

  • Train staff and personnel involved.
  • Simulate the process.
  • Then pilot before launch.

6 Evaluation

Continue to evaluate responses from all elements and fine tune the process as it continues.

The evaluation should, among other things, look at profitability, acceptability and competition.

Risk assessment & credit scoring techniques:

  1. The 6 Cs of Evaluation:

Risk assessment responsibility requires that the Credit Administration official should examine the borrower’s credibility to reach the answer to the question: “Is the Borrower Creditworthy?”

That question must be examined ahead of any credit decision so as to confirm the customer’s repayment capabilities and ability to service the credit/loan.

There are six aspects to look at while we are evaluating a credit decision, which is known as the 6 Cs of the evaluation, or the six hats.

  1. Character:

The loan underwriter officer or manager should understand the purpose of the loan and verify that the borrower’s features and his main elements relating to his character are matching the bank’s credit policy as well as purpose of the credit match the bank’s credit policy. However, if the underwriter credit officer finds unmatched criteria or purpose of borrower with the policy or has a doubt about the borrower’s intentions to repay the credit, they may decline the case to avoid a problematic credit. In case of incomplete requirements, they may return the case to the front office to claim the required document from the customer and the request a re-forwarding of the case.

The main factors of verification are:

  1. The Customer’s features.
  2. Credit purpose.
  3. The Customer’s scoring.
  4. Customer’s FICO score
  5. Guarantee if any to match criteria.
  • Capacity:

The loan officer/manager must be sure of the borrower’s legal capacity to request the loan or credit and that the customer has signed the necessary legal/charge documents.


  • Under-aged borrowers based on the policy.
  • The applicant has not signed the documents in presence of the bank officials.
  • Any discrepancy of the customer’s identifications.
  • In case of SMEs, the officer must verify that the signatory has the legal power to sign the credit applications on behalf of the company.
  • Cash:

The loan officer/manager is required to assess if the borrower has the means to generate enough funds to repay the credit as per product’s repayment policy. They would also inspect the cash flow of the borrower to identify a stable source of funds that can deliver the repayment on time. They will also examine the customer’s debt burden.

For SMEs they may look at:

Cash Flow = Sales – Cost of goods sold –direct & indirect expenses – Taxes + non- cash expenses (such as depreciation).

The officer will examine the management quality controls of the SME, its expenditure pattern, capital leverage structure, and the turnover of pay versus receivables.

  • Collateral:

There are cases where retail bankers will look at collateral. Such collateral would be required for some types of credit such as mortgage and auto loans. The credit officer checks the collateral to examine the match with the product criteria, the existence of the asset, its present value, and the legal documentation of the asset.

  • Conditions:

The credit/loan officer must verify the recent condition of the borrower, which is the present status of his or her employment, the type of employer, the number of years of experience, and their level of seniority.

The employer’s HR letters confirming the status of the borrower’s employment should be handled with care, making sure of an authorised signatory, and fulfillment with bank’s policy.

In case of SMEs, it is better to look at the condition of the company in the market and compare it with peer companies in the same industry.

  • Controls/Compliance:

The last factor in assessing a borrower’s creditworthiness is the verification of the controls. This is most important step to make sure of compliance with policies and regulations of the bank itself and those of external regulatory authorities such as the central bank and the government.

Non-compliance or violation of such controls would not only endanger the credit status but also expose the bank to risks and penalties due to non-compliance with rules & regularities.