Collateral Damage of Reckless Lending

Abstract

It is argued that lending where the overwhelming criterion is the collateral rather than the repayment capability of the project and the borrower is highly likely to be unproductive and will inevitably lead to a transfer of wealth. If this is done on a systematic and massive scale as was the case in Cyprus in the years leading to the 2013 crisis it is also likely to cause a long and deep balance sheet recession. Banks should therefore be in check and held accountable for such professional malpractices.

Keywords: Economic Development, Repayment Capability, Project Evaluation, Corporate Lending, Credit Risk

JEL Classification: D61, G17, G21, G32, G33, H43