An empirical comparison of conventional techniques, neural networks and the three stage hybrid Adaptive Neuro Fuzzy Inference System (ANFIS) model for credit scoring analysis: The case of Turkish credit card data
The number of Non-Performing Loans has increased in recent years, paralleling the current financial crisis, thus increasing the importance of credit scoring models. This study proposes a three stage hybrid Adaptive Neuro Fuzzy Inference System credit scoring model, which is based on statistical techniques and Neuro Fuzzy. The proposed model’s performance was compared with conventional and commonly utilized models. The credit scoring models are tested using a 10-fold cross-validation process with the credit card data of an international bank operating in Turkey. Results demonstrate that the proposed model consistently performs better than the Linear Discriminant Analysis, Logistic Regression Analysis, and Artificial Neural Network (ANN) approaches, in terms of average correct classification rate and estimated misclassification cost. As with ANN, the proposed model has learning ability; unlike ANN, the model does not stay in a black box. In the proposed model, the interpretation of independent variables may provide valuable information for bankers and consumers, especially in the explanation of why credit applications are rejected.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Angelini, Eliana & di Tollo, Giacomo & Roli, Andrea, 2008. "A neural network approach for credit risk evaluation," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(4), pages 733-755, November.
- Paleologo, Giuseppe & Elisseeff, André & Antonini, Gianluca, 2010. "Subagging for credit scoring models," European Journal of Operational Research, Elsevier, vol. 201(2), pages 490-499, March.
- Laitinen, Erkki K., 1999. "Predicting a corporate credit analyst's risk estimate by logistic and linear models," International Review of Financial Analysis, Elsevier, vol. 8(2), pages 97-121, June.
- West, Robert Craig, 1985. "A factor-analytic approach to bank condition," Journal of Banking & Finance, Elsevier, vol. 9(2), pages 253-266, June.
- Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
- David Durand, 1941. "Risk Elements in Consumer Instalment Financing," NBER Books, National Bureau of Economic Research, Inc, number dura41-1, June.
- Kim, Hong Sik & Sohn, So Young, 2010. "Support vector machines for default prediction of SMEs based on technology credit," European Journal of Operational Research, Elsevier, vol. 201(3), pages 838-846, March.
- Crook, Jonathan N. & Edelman, David B. & Thomas, Lyn C., 2007. "Recent developments in consumer credit risk assessment," European Journal of Operational Research, Elsevier, vol. 183(3), pages 1447-1465, December.
- Thomas, Lyn C., 2000. "A survey of credit and behavioural scoring: forecasting financial risk of lending to consumers," International Journal of Forecasting, Elsevier, vol. 16(2), pages 149-172.
- Foreman, R. Dean, 2003. "A logistic analysis of bankruptcy within the US local telecommunications industry," Journal of Economics and Business, Elsevier, vol. 55(2), pages 135-166.
- Tseng, Fang-Mei & Lin, Lin, 2005. "A quadratic interval logit model for forecasting bankruptcy," Omega, Elsevier, vol. 33(1), pages 85-91, February.
- Tong, Edward N.C. & Mues, Christophe & Thomas, Lyn C., 2012. "Mixture cure models in credit scoring: If and when borrowers default," European Journal of Operational Research, Elsevier, vol. 218(1), pages 132-139.
- Meyer, Paul A & Pifer, Howard W, 1970. "Prediction of Bank Failures," Journal of Finance, American Finance Association, vol. 25(4), pages 853-68, September.
- Finlay, Steven, 2011. "Multiple classifier architectures and their application to credit risk assessment," European Journal of Operational Research, Elsevier, vol. 210(2), pages 368-378, April.
- Zhang, Guoqiang & Y. Hu, Michael & Eddy Patuwo, B. & C. Indro, Daniel, 1999. "Artificial neural networks in bankruptcy prediction: General framework and cross-validation analysis," European Journal of Operational Research, Elsevier, vol. 116(1), pages 16-32, July.
- Laitinen, Erkki K. & Laitinen, Teija, 2000. "Bankruptcy prediction: Application of the Taylor's expansion in logistic regression," International Review of Financial Analysis, Elsevier, vol. 9(4), pages 327-349.
- Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, 09.
- Tam, KY, 1991. "Neural network models and the prediction of bank bankruptcy," Omega, Elsevier, vol. 19(5), pages 429-445.
- Birol Yildiz & Soner Akkoç, 2009. "Predicting Bank Bankruptcies with Neuro Fuzzy Method," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 3(1), pages 9-36.
- Yang, Z. R. & Platt, Marjorie B. & Platt, Harlan D., 1999. "Probabilistic Neural Networks in Bankruptcy Prediction," Journal of Business Research, Elsevier, vol. 44(2), pages 67-74, February.
- Zhang, Guoqiang & Eddy Patuwo, B. & Y. Hu, Michael, 1998. "Forecasting with artificial neural networks:: The state of the art," International Journal of Forecasting, Elsevier, vol. 14(1), pages 35-62, March.
- Piramuthu, Selwyn, 1999. "Financial credit-risk evaluation with neural and neurofuzzy systems," European Journal of Operational Research, Elsevier, vol. 112(2), pages 310-321, January.
- Lacher, R. C. & Coats, Pamela K. & Sharma, Shanker C. & Fant, L. Franklin, 1995. "A neural network for classifying the financial health of a firm," European Journal of Operational Research, Elsevier, vol. 85(1), pages 53-65, August.
- Birol Yildiz, 2001. "Prediction of Financial Failure With Artificial Neural Network Technology and an Empirical Application on Publicly Held Companies," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 5(17), pages 47-62.
- Malhotra, Rashmi & Malhotra, D. K., 2003. "Evaluating consumer loans using neural networks," Omega, Elsevier, vol. 31(2), pages 83-96, April.
- Davalos, Sergio & Gritta, Richard D. & Chow, Garland, 1999. "The application of a neural network approach to predicting bankruptcy risks facing the major US air carriers: 1979â€“1996," Journal of Air Transport Management, Elsevier, vol. 5(2), pages 81-86.
- Desai, Vijay S. & Crook, Jonathan N. & Overstreet, George A., 1996. "A comparison of neural networks and linear scoring models in the credit union environment," European Journal of Operational Research, Elsevier, vol. 95(1), pages 24-37, November.
- David Durand, 1941. "Risk Elements in Consumer Instalment Financing, Technical Edition," NBER Books, National Bureau of Economic Research, Inc, number dura41-2, June.
- Malhotra, Rashmi & Malhotra, D. K., 2002. "Differentiating between good credits and bad credits using neuro-fuzzy systems," European Journal of Operational Research, Elsevier, vol. 136(1), pages 190-211, January.
- Lee, Tian-Shyug & Chiu, Chih-Chou & Chou, Yu-Chao & Lu, Chi-Jie, 2006. "Mining the customer credit using classification and regression tree and multivariate adaptive regression splines," Computational Statistics & Data Analysis, Elsevier, vol. 50(4), pages 1113-1130, February.
- Sinkey, Joseph F, Jr, 1975. "A Multivariate Statistical Analysis of the Characteristics of Problem Banks," Journal of Finance, American Finance Association, vol. 30(1), pages 21-36, March.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:222:y:2012:i:1:p:168-178. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.