Multi-criteria evaluation of loan applications in shipping

The development of the shipping industry has been traditionally based on bank loans. An important step in the credit granting process is the application for the loan and the consequent evaluation of this application by the bank. Numerous bankers, consultants, as well as academics have been addressing this matter, presenting requirements to be satisfied and attributing values indicating the soundness and the financial strength of the applicant (company and/or individual), in relation to the characteristics of the loan application in the loan approval process. The work, however, done on the construction of standardized models able to combine all these criteria and provide relative weighting to assist the decision-making process of the Bank's Credit Committee is limited. The ability of the multi-criteria methods to utilize both qualitative and quantitative criteria in the evaluation process renders them a comprehensive tool for the formulation and expression of the shipping credit granting decision. This paper proposes a multi-criteria methodology for the evaluation of credit applications and for the selection of those applications that better match the policy of the bank as well as the industry knowledge and the shipfinance experience of the decision maker. The study illustrates the application of the method using a suitable set of ship loan applications and the model developed is evaluated according to its usefulness in a decision process.