Policy exception
What is a policy exception in a credit approval?
ONE OF 180 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A policy exception is a credit approval granted outside the bank's written lending policy — a loan-to-value ratio above the limit, a covenant looser than the standard, a sector the policy excludes — with the departure named and justified in the credit paper. It is not a failure: policy is written for the typical case, and an exception is how a strong file that does not fit is approved honestly. What makes exceptions dangerous is volume and silence, which is why a bank tracks them across its book, and why an exception takes a decision up a level of authority whatever its size.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
// SUBSCRIBE
The Lab.
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · THREE PDFS
An interview case, an annotated credit paper, and a one-page loan application sheet.
No spam. Unsubscribe anytime. Educational content only.