USING THE TECHNOLOGY OF SIMULATION TO TEACH GOOD BANKING PRACTICES

Peter Mayall and Tom Cronje
School of Economics and Finance
Curtin University of Technology
Australia

The credit crisis that has evolved into a global financial crisis has its roots in the poor or non application of proper credit principles in the assessment of loan applications. The issue of sub-prime loans to applicants that had no ability to repay was the root cause of the domino effect that led to a loss of confidence in the banking sector that in turn brought about a total economic downturn. The importance of proper banking practices has been highlighted in a way never thought possible a couple of years ago. The focus of this paper is on the training of future credit grantors who will be on the coal face of taking lending decisions. This in turn will dictate the soundness of the banking sector and that in turn the strength of the economy. The current practice is to teach how to assess loans and applying other credit related activities using text books and cases. This paper examines and describes the merits of the alternative method presently being developed. This method entails using situated learning to enhance the learner’s ability to grant loans when the correct criteria have been met and to reject loans when they are not and to consider the risk of stand-alone credit transactions within the context of a total credit portfolio. It employs a mix of real-life situations based on case histories gleaned from prior loan outcomes in order to equip future credit grantors with the know-how to make the right decisions. The purpose of the situated learning is to align the theory of sound banking practice more closely to the cut and thrust of real world credit applications where mistakes are costly and rarely forgotten.

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