Have you ever wondered why the credit amounts offered by Swiss banks vary so much? What explains these differences in credit offers from one bank to another, when they all operate under the same regulatory framework? Here are a few key reasons:
- Varied risk policies
Each bank sets its own goals in terms of the volume of credits, acceptable profits and losses.
These goals have a direct influence on how they allocate credit.
- Risk assessment models
Banks use different models to assess and limit risks, which leads to variations in the credit amounts offered.
- Interpreting the law
Although all banks are subject to the same consumer credit law (LCC), their interpretation and application of this law may differ.
- Automation and manual decisions
The majority of credit decisions are automated, but some cases require manual intervention, leading to variations in decisions.
- Restrictions on certain customer profiles
Some borrower profiles, such as AVS annuitants, AI annuitants, and G license holders, may have limited access to credit.
In this article, find out how these elements influence credit offers from Swiss banks and how a credit broker can help you navigate this complex landscape.
You will also understand how these elements can affect your application for funding and why it is essential to be familiar with these aspects to get your personal loan.
A risk policy specific to each bank
Each bank sets goals in terms of the volume of loans, profits and losses on loans granted. Yes, the losses are assumed and are part of the objectives set. Banks are free to determine their risk policies.
Each institution thus establishes its own risk policy, and to decide, to whom and under what conditions, they grant financing.
This policy guides decisions on the granting of loans, the amounts loaned and the conditions applied, thus maintaining a balance between profitability and financial security. It thus includes strategies for identifying, evaluating and controlling different types of risks, such as credit risk And the operational risk.
Credit risk
Credit risk occurs when borrowers are no longer able to repay their monthly payments in accordance with the credit agreement, thus causing financial losses for the bank. This can happen due to financial difficulties, job loss, poor management of personal finances, or over-indebtedness.
We are talking about partial or total failure to pay.
Banks then record direct losses that include the amount of the credit not repaid and the interest not received, to which are added costs related to recovery procedures (litigation for example).
To limit the financial impact of this risk, banks use mathematical models risk measurement (scoring), which aim to assess the probability of credit risk occurring. Among the most common are probability of default (PD) models and internal scorecard models.
Internal scorecard model
The internal scorecard model is used to assess customer credit risk by assigning a score to each borrower based on their data.
This data consists of a series of weighted variables, like
- Financial elements (income, debt, job stability, credit capacity)
- Of demeanours (payment history, credit usage, ZEK, CRIF, Intrum, Creditreform)
- Demographics (age, marital status).
The result is a numerical score.
This score is used for credit decision-making, including approving loans, setting loan terms (interest rates, terms), and setting the credit amount. The importance that each bank assigns to each variable is different and, even using the same model, the results may vary!
Operational risk
The operational risk of banks includes the risk of losses associated with frauds that they have to deal with, mistakes and defects in processes and systems that can lead to the cancellation of credit contracts or impact the reputation of the institution.
Banks use a variety of models, including, in particular, loss distribution model (LDA) that uses historical operational loss data to estimate the future distribution of losses. Losses are analyzed by category of events (fraud, processing errors, etc.).
The risk of fraud in particular is very difficult to control, and is in particular increased for new borrowers, or for borrowers with few ties to Switzerland (B license, G license). Thus, holders of a B license, for example, generally cannot obtain credit before residing in Switzerland for one year.
Thus, if Swiss banks do not offer the same credit amounts, it is largely because they do not have the same risk exposure policies on the one hand and on the other hand because they use different risk assessment and risk limitation models.
Credit institutions and banks in Switzerland are subject to the same regulatory framework. The latter is established by the Federal Consumer Credit Act (LCC) and aims above all to protect the borrower from the risk of over-indebtedness.
Although the law on consumer credit is the same for all banks in Switzerland, they do not apply it in exactly the same way.
Why the difference? The answer lies in the differentiated interpretation of the LCC by each bank and in particular in the calculation of the credit capacity. Banks have a more or less restrictive approach, in particular in assessing professional expenses or taking into account minimum packages of housing costs (CHF 800.- min at Migros Bank for example) to limit their level of risk.
Banks and credit institutions in Switzerland have largely automated their decision-making processes over the past twenty years and have thus succeeded in optimizing their risk management models. They are now managing to limit the default rate on their claims to less than 2%.
While this automation constitutes the majority of decisions made, approximately 5 to 10% of decisions remain manual and are processed by a team from the risk management department.
It is generally credit application files that concern significant amounts of commitment or that deviate from the limits set for certain segments of customers at increased risk (self-employed, B, G license) that will require a manual decision.
In the case of manual decisions, the decisions made are sometimes very random and the decisions made for the same file profile can sometimes vary in the same bank!
As we have seen, the LCC protects borrowers but also allows banks to choose who they lend to. Some borrower profiles, such as AVS pensioners, the AI pensioners, the owners of G license have very limited access to credit because the majority of institutions will refuse their applications.
For these last 3 profiles, only the Bank-now currently offers a financing solution and according to certain criteria of age (max. 70 years at the end of the credit), types of annuities (no additional benefits) or length of license (license G from 3 years).
Les independents are also concerned and will therefore not obtain funding from Bob Money.
The Credial team is at your disposal for any questions concerning the calculation of your private credit capacity and the evaluation of your file without obligation.
Do not hesitate to use our Credit calculator to estimate your financing capacity or to make an appointment for an advice meeting.
The risk policies and valuation models used by banks are confidential information, which makes it difficult for borrowers looking for a financing solution.
However, some information remains public, such as the maximum credit amount, which is a first indicator of each bank's risk tolerance. This varies from CHF 70,000 to CHF 250,000 on the consumer credit market in Switzerland.
The role of consumer credit broker is to know and understand the risk policies of banks and select financial institutions the most able to respond favorably to their request for credit. Thanks to his knowledge of banks' risk policies, the broker can also identify files that will surely be refused, thus avoiding the registration of an unnecessary refusal at the ZEK, which would be kept for two years.
