Probability of Default Estimation for Commercial Lenders in Developing Economies: Creditworthiness of Consumer Borrower
Date
2019-06
Journal Title
Journal ISSN
Volume Title
Publisher
Global Scientific Journal
Abstract
The Business of advancing credits is gradually becoming a major target
for many banks, as a result there is high competition among the nancial
institutions leading to default of most credits. In order to raise the qual
ity of advancing credits and reducing the risk involved thereafter, CSMs
have been developed to improve the process of assessing credit worthiness
during the credit evaluation process. Previous repayments, demographic
characteristics and statistical techniques were used in constructing the LR
model with P(D = 1) = 1
1+e z
to identify the important demographic char
acteristics related to credit risk. The results showed that DR is higher in
males than in females. Married customers defaulted more than the singles
and the higher the number of dependents, the higher the DR. The self
employed clients defaulted more than salary earners. Also, the higher the
amount of loan collected, the higher the PD. With the knowledge of LR,
it is possible to determine the credit worthiness of a borrower which may
decrease bad debts, and help to set risk based credit pricing for the clients
and make the credit advancing faster and more accurate.