Banker's Algorithm in AI-powered Loan Application Processing

Ensure that the bank's AI-powered loan system can safely allocate loans to applicants without overcommitting funds or ending up in a state where it can't meet future obligations.

1. Customer Loan Request

• A customer requests a loan of e.g. EUR 50,000

2. AI Checks Eligibility

Based on creditworthiness, the system determines:

• Max credit limit: EUR 100,000
• Already given: EUR 30,000
• Need = EUR 70,000
• Available bank funds: EUR 500,000

3. Simulate Loan Allocation

• AI pretends to give the EUR 50,000.
• It updates the matrices:
  • New allocation: EUR 30,000 + EUR 50,000 = EUR 80,000
  • Remaining need: EUR 20,000
  • Bank's available funds: EUR 500,000 - EUR 50,000 = EUR 450,000

4. Check Safe State

• AI evaluates all other customers' needs.
• It runs a safety check: Can I satisfy all other customers' max future demands if needed ?
• If yes => safe => loan granted
• If no => unsafe => loan delayed or denied

Benefits of using this Algorithm in Lending

1. Avoids Over-leveraging: prevents the bank from issuing too many loans too quickly, maintaining liquidity
2. Fair Resource Allocation: ensures capital is distributed in a way that respects potential future needs of all clients
3. Dynamic Risk Management: AI dynamically evaluates future scenarios before making decisions
4. Deadlock Avoidance in Bulk Lending: particularly useful when many loans are being processed in parallel, avoiding a situation where no loan can proceed because all funds are reserved but not usable

Using the following link you can access this sandbox SIPOC model in the ProcessHorizon web app and adapt it to your needs (easy customizing) and export or print the automagically created visual AllinOne SIPOC map as a PDF document or share it with your peers: https://app.processhorizon.com/enterprises/N9iUVjYzStkPJkdyDu89XmY5/frontend