This goes back to the general lack of reliable information about the client. Banks make loans with the expectation of being repaid, not with the expectation of foreclosing on collateral. We were therefore struck that 5 banks emphasised that collateral is a key factor in the lending decision, and that one bank even said that it would make a loan if the collateral were good and other factors were not. Certainly, it is wise to take collateral. But collateral comes later, after it has been decided that the client can be expected to repay.
Banks are in a tough position as far as consumer lending is concerned.
The most common technique for assessing loans in more developed banking markets is credit scoring. This method uses demographic data and repayment histories to create a statistical model of the likelihood that a client will repay the loan. At present, such data does not exist for Croatia, in part because of the disruptions of recent years. With two exceptions, banks rely on less sophisticated methods. They primarily look at the borrowers income, and make greater or lesser efforts to ensure that the stated income is actually being received rather than being just words on paper.