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The role of AI in credit risk assessment: Evidence from OECD and BRICS via system GMM and random forest

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  • Emin, Doğuş
  • Emin, Ayşegül Aytaç

Abstract

This study investigates the impact of artificial intelligence (AI) adoption on credit risk assessment in OECD and BRICS economies by employing both System Generalized Method of Moments (GMM) and Random Forest models. As a first step, a composite AI Adoption Index is constructed to capture the technological maturity of financial institutions with indicators including banking technology spending, the reported frequency of machine learning use in financial institutions based on survey responses, and the extent of digital transformation initiatives. GMM model shows a significant negative relationship between AI adoption and credit risk, while this effect is stronger in BRICS countries. The Random Forest model further validates these findings by capturing non-linear interactions and emphasizing AI's predictive significance through SHAP values.

Suggested Citation

  • Emin, Doğuş & Emin, Ayşegül Aytaç, 2025. "The role of AI in credit risk assessment: Evidence from OECD and BRICS via system GMM and random forest," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007585
    DOI: 10.1016/j.frl.2025.107499
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    More about this item

    Keywords

    Credit risk; AI adoption index; System generalized method of moments; Random forest;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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