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Rampant gender bias with lending to borrowers of the opposite sex

Mi Zhang

Gender bias is widespread in high street lending, as male bank officers tend to grant female clients smaller loans at higher rates and vice versa, according to a research by Cass Business School.

The 10-year study, co-auth­ored by Thorsten Beck, professor at Cass Business School, has found that first-time borrowers are charged higher interest rates and receive smaller loans from bank staff of the opposite sex.

Borrowers applying for a small business or personal loan could find that it is not just their credit rating under scrutiny, but their gender too.

The research found that “gender bias” leads to first-time borrowers paying between 35-40 basis points in higher interest rates, and obtaining 4 per cent shorter maturities.

In response to these findings, Mr Beck believed gender bias could have harmful consequen­ces for consumers and banks.

He said: “We found that gender bias creeps into the decisions of loan officers when they deal with small loan requests from customers on whom they have little information.

“For consumers, this has negative repercussions in the form of higher interest rates, smaller loans and lower demand. For credit providers, it means lower profits in the long-run, owing to fewer returning customers.”

The report said that if gender shapes business operations, it is important that banks and IFAs understand key determinants of officer behaviour, such as human capital and officers’ discretion to act on their beliefs.

Mr Beck added: “Knowing when gender discrimination was most likely to occur would help banks guard against it.

“We found that loan officers have less discretion to indulge in gender preferences when banks face greater competition from outside lenders, leading managers to closely monitor loan decisions, or in large bran­ches where it is easier to replace staff.”

Adviser view: Anna Sofat, director of the London-based firm Addidi Wealth, said: “It is interesting to see such a distinct gender bias, and it should encourage corporates such as banks and IFAs to look at their businesses and see if gender awareness training should be part of ongoing training and development.”