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Non-capital calibration of bureau scorecards

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  • Kritzinger, Nico
  • van Vuuren, Gary Wayne

Abstract

Application scorecards play a critical part in determining the creditworthiness of applicants for acquisition purposes. However, the level of bad rate in a downturn period and upturn period although monotonic are different across the scores due to procyclicality (which arises from the fluctuation of financial characteristics around a trend in an economic cycle). The procyclicality effect from an acquisition perspective on a bureau scorecard is investigated with emphasis on South African retail banking data, and performance between downturn and upturn periods is compared. This paper contributes by proposing a methodology which incorporates a Bayesian calibration approach to adjust to future expected bad rates: the comparison indicates that calibration is essential to account for procyclicality.

Suggested Citation

  • Kritzinger, Nico & van Vuuren, Gary Wayne, 2021. "Non-capital calibration of bureau scorecards," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 260-271.
    • Handle: RePEc:eee:quaeco:v:79:y:2021:i:c:p:260-271
    DOI: 10.1016/j.qref.2020.06.003
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    References listed on IDEAS

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