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Default Predictors in Credit Scoring - Evidence from France’s Retail Banking Institution

  • Ha-Thu Nguyen

The aim of this paper is to present the set-up of a behavioral credit-scoring model and to estimate such a model using the auto loan data set of one of the largest multinational financial institutions based in France. We rely on a logistic regression approach, which is commonly used in credit scoring, to construct a behavioral scorecard. A detailed description of the model building process is provided, as are discussions about specific modeling issues. The paper then uses a number of quantitative criteria to identify the model best suited to modeling. Finally, it is demonstrated that such model possesses the desirable characteristics of a scorecard.

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File URL: http://economix.fr/pdf/dt/2014/WP_EcoX_2014-26.pdf
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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2014-26.

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Length: 20 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:drm:wpaper:2014-26
Contact details of provider: Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
Web page: http://economix.fr
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  1. Lawrence, Edward C & Arshadi, Nasser, 1995. "A Multinomial Logit Analysis of Problem Loan Resolution Choices in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 202-16, February.
  2. Yvo M. I. Dirickx & Lee Wakeman, 1976. "An Extension of the Bierman-Hausman Model for Credit Granting," Management Science, INFORMS, vol. 22(11), pages 1229-1237, July.
  3. Evžen Kocenda & Martin Vojtek, 2011. "Default Predictors in Retail Credit Scoring: Evidence from Czech Banking Data," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 47(6), pages 80-98, November.
  4. Altman, Edward I. & Haldeman, Robert G. & Narayanan, P., 1977. "ZETATM analysis A new model to identify bankruptcy risk of corporations," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 29-54, June.
  5. Robert B. Avery & Kenneth P. Brevoort & Glenn Canner, 2012. "Does Credit Scoring Produce a Disparate Impact?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40, pages S65-S114, December.
  6. Edmister, Robert O., 1972. "An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(02), pages 1477-1493, March.
  7. Campbell, Tim S & Dietrich, J Kimball, 1983. " The Determinants of Default on Insured Conventional Residential Mortgage Loans," Journal of Finance, American Finance Association, vol. 38(5), pages 1569-81, December.
  8. Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2003. "Internal Ratings Systems, Implied Credit Risk and the Consistency of Banks’ Risk Classification Policies," Working Paper Series 155, Sveriges Riksbank (Central Bank of Sweden).
  9. Venkat Srinivasan & Yong H. Kim, 1987. "Note---The Bierman-Hausman Credit Granting Model: A Note," Management Science, INFORMS, vol. 33(10), pages 1361-1362, October.
  10. Becchetti, Leonardo & Sierra, Jaime, 2003. "Bankruptcy risk and productive efficiency in manufacturing firms," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2099-2120, November.
  11. Andreas Charitou & Evi Neophytou & Chris Charalambous, 2004. "Predicting corporate failure: empirical evidence for the UK," European Accounting Review, Taylor & Francis Journals, vol. 13(3), pages 465-497.
  12. Wiginton, John C., 1980. "A Note on the Comparison of Logit and Discriminant Models of Consumer Credit Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(03), pages 757-770, September.
  13. Anderson, Raymond, 2007. "The Credit Scoring Toolkit: Theory and Practice for Retail Credit Risk Management and Decision Automation," OUP Catalogue, Oxford University Press, number 9780199226405, March.
  14. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  15. Tobias Berg & Manju Puri & Jorg Rocholl, 2013. "Loan officer Incentives and the Limits of Hard Information," NBER Working Papers 19051, National Bureau of Economic Research, Inc.
  16. Harold Bierman, Jr. & Warren H. Hausman, 1970. "The Credit Granting Decision," Management Science, INFORMS, vol. 16(8), pages B519-B532, April.
  17. 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.
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