Loan A asks for 1000$ in total interest and has enforced payment which will prevent a poor debtor from paying their medical bills. Regardless, the creditor has priority in payment and receives their interest either way. Expected value to the bank: 1000$.

The US might have a system where something like that happens but Europe generally doesn't. You don't need two types on lending in this case. You just need laws about enforcing loans that are written in the public interest as they are written in a country like Germany and not laws that are written by banking lobbyists.