Human capital and credit risk management: training is more valuable than experience

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The aim of this article is to assess how human capital, and more specifically training and experience, helps in forecasting and monitoring credit risk. It uses a survey of a sample of loan officers in a major French mutualist bank and applies analysis of variance and correlation to determine the relationships among variables. The study of these two components of human capital in SME loan officers shows that their ability to anticipate risk depends above all on their training rather than on their experience. Some methods of anticipating risk are more important than others. Loan officers monitor their clients in similar ways, whatever the degree and nature of their experience. The findings have two important implications for credit risk management and human capital: first, both technical and regulatory training is crucial to enable loan officers to anticipate bank credit risk, second, experience, whether in banking or as a loan officer, only makes a difference in monitoring risk. These results will be useful when banks are planning recruitment, career management and resource and skills allocation. They also suggest that staff knowledge management will enable banks to use their human capital effectively to reach their own objectives with regard to risk control, and those fixed by the regulators. This work is, as far as it is known, the first to study the role of human capital in managing credit risk. The authors show that training is more important than experience in default risk anticipation, but that experience is useful in risk monitoring.

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    • Table 1. Measures for the variables used in this study
    • Table 2. Summary of analytical method and techniques
    • Table 3. Characteristics of the sample studied
    • Table 4. Results of the ANOVA between technical training and risk anticipation
    • Table 5. Results of the correlation between regulatory training and anticipation
    • Table 6. Results of the ANOVA between technical training and risk monitoring
    • Table 7. Results of the correlation between technical training and risk monitoring
    • Table 8. Results of the ANOVA between banking experience and risk anticipation
    • Table 9. Results of the ANOVA between experience in current position and risk anticipation
    • Table 10. Results of the ANOVA between experience in the bank and risk monitoring
    • Table 11. Results of the ANOVA between experience in the position and risk monitoring