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Abstract

The paper reviews the best-developed and most frequently applied methods of credit scoring employed by commercial banks when evaluating loan applications. The authors concentrate on retail loans – applied research in this segment is limited, though there has been a sharp increase in the volume of loans to retail clients in recent years. Logit analysis is identified as the most frequent credit-scoring method used by banks. However, other nonparametric methods are widespread in terms of pattern recognition. The methods reviewed have potential for application in post-transition countries.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 56 (2006)
Issue (Month): 3-4 (March)
Pages: 152-167

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Handle: RePEc:fau:fauart:v:56:y:2006:i:3-4:p:152-167

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Related research

Keywords: banking sector; credit scoring; discrimination analysis; pattern recognition; retail loans;

Find related papers by JEL classification:

• B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
• C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
• D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
• G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
• P43 - Economic Systems - - Other Economic Systems - - - Finance; Public Finance

References

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1. Eisenbeis, Robert A, 1977. "Pitfalls in the Application of Discriminant Analysis in Business, Finance, and Economics," Journal of Finance, American Finance Association, vol. 32(3), pages 875-900, June.
2. Ceyla Pazarbasioglu & Gudrun Johnsen & Paul Louis Ceriel Hilbers & Inci Ötker, 2005. "Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies," IMF Working Papers 05/151, International Monetary Fund.

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Cited by:

1. Martin Øezáè & František Øezáè, 2011. "How to Measure the Quality of Credit Scoring Models," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(5), pages 486-507, November.
2. Fidrmuc, Jarko & Hainz, Christa, 2010. "Default rates in the loan market for SMEs: Evidence from Slovakia," Economic Systems, Elsevier, vol. 34(2), pages 133-147, June.
   
   • Jarko Fidrmuc & Christa Hainz, 2009. "Default Rates in the Loan Market for SMEs:Evidence from Slovakia," Ifo Working Paper Series Ifo Working Paper No. 72, Ifo Institute for Economic Research at the University of Munich.
   • Jarko Fidrmuc & Christa Hainz & Anton Malesich, 2006. "Default Rates in the Loan Market for SMEs: Evidence from Slovakia," William Davidson Institute Working Papers Series wp854, William Davidson Institute at the University of Michigan.

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