A bagpipe procession, a chimpanzee, and a mariachi band were on hand at a Toronto trade group conference this week to fete an unlikely hero: the curmudgeonly loan officer.

"Being a risk manager and a credit officer is a double-edged sword," said Gary Ladolcetta, a vice president at Banque Nationale de Paris who was among the revelers. "There's tremendous pressure to say yes to a loan. It's harder to say no. It's the curmudgeons that can say no that will have the healthy portfolios in the future."

The Robert Morris Associates conference attracted more than 400 bankers - from around the United States, Canada, and even such farflung places as Ireland, Barbados, and Jamaica. Many of them expressed concern about the North American economy and noted the importance of being strict about loan quality.

Any economic deterioration could have a negative effect on credit quality, the bankers warned.

"I'm worried, as I'm sure most of you are, that things may be going too well," said keynote speaker David A. Daberko, the chairman and chief executive officer of Cleveland-based National City Corp.

"My fear is that many of the loans that will sour in the next downturn will be written in the next six months," Mr. Daberko said.

"Banks seem to be moving more toward a relief or loosening of underwriting standards, and they may be pressing the envelope a little bit too much," said Robert R. de Buys, a senior vice president at SouthTrust Bank of Alabama. "Maybe it's time to pay more attention to what we're doing in our underwriting efforts."

Throughout the conference, bankers said that covenants had started to loosen, but several credit officers said that was not necessarily a sign of imminent danger.

"Portfolios are really strong," Mr. Ladolcetta said. "The deals we've seen are strong, but the concern is that competition has heated up, and lenders may be stretching to meet their budgets."

In an interview after his speech, Mr. Daberko said that National City is projecting slower corporate loan growth in the next six to nine months, which reflects the current risk-reward dynamics in the lending market.

The bank is not pulling out of its primary lending business, but is focusing on newer initiatives, such as asset-based lending.

"Asset-based lending allows the bank to retain business that it would have booted in previous cycles," said Mr. Daberko.

National City started its asset-based lending group in January 1995 and in a year had an asset-backed portfolio of $100 million. It is looking to increase the portfolio to $500 million by the end of next year.

Credit officers saw technology as a double-edged sword. Several bankers expressed concerns about credit-scoring systems that hadn't yet been put through the test of a recession.

"Bankers are recognizing that while they have improved their sophisticated modeling techniques, these techniques haven't realistically been tested yet," said Mr. Ladolcetta. "It doesn't invalidate the model's usefulness, but cautious bankers are subjectively watching their models."

Mr. Daberko said credit analysis has changed in the last decade.

"When I go to a loan committee meeting now and see the type of analysis that our credit people do, it blows me away. It's so much more sophisticated than what we did in the early 1980s," he said.

"The net result, however, is that we still need to find ways to accommodate customers and balance out risk and reward. We are better at recognizing when risk and reward get out of synch."

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