BEHAVIORAL ASPECTS OF FORMING A BANK'S CREDIT PORTFOLIO IN CONDITIONS OF ECONOMIC INSTABILITY

Abstract

The article examines the behavioral aspects of bank loan portfolio formation under economic instability. In environments characterized by macroeconomic volatility, military risks, and heightened uncertainty, traditional quantitative approaches to credit risk assessment prove insufficient. The study substantiates the need to expand the classical paradigm of loan portfolio management by integrating behavioral economics.
It is argued that loan portfolio formation is influenced not only by formal financial indicators–such as probability of default (PD), loss given default (LGD), exposure at default (EAD), and non-performing loans (NPL)–but also by behavioral factors affecting management and borrowers. Managerial cognitive biases, including overconfidence, anchoring, and herding, significantly distort credit decisions during crises. Simultaneously, borrowers’ adaptive strategies, inflation expectations, and financial literacy substantially affect repayment discipline and portfolio quality.
The paper demonstrates that procyclical lending behavior is partially driven by psychological reactions to macroeconomic shocks. Excessive optimism during economic expansion leads to risk underestimation, whereas downturns trigger overly conservative policies. To address these systemic vulnerabilities, a conceptual model of loan portfolio management is proposed, integrating macroeconomic analysis, financial risk indicators, behavioral metrics, and strategic adaptation mechanisms. This integration enables realistic credit risk forecasting, reduces procyclicality, and strengthens the long-term resilience of banking institutions amidst structural transformation.