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

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  • Ha-Thu Nguyen

Abstract

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.

Suggested Citation

  • Ha-Thu Nguyen, 2014. "Default Predictors in Credit Scoring - Evidence from France’s Retail Banking Institution," EconomiX Working Papers 2014-26, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2014-26
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    File URL: http://economix.fr/pdf/dt/2014/WP_EcoX_2014-26.pdf
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    References listed on IDEAS

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    1. repec:bla:joares:v:23:y:1985:i:1:p:146-160 is not listed on IDEAS
    2. 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.
    3. 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, pages 65-114.
    4. Evžen Kocenda & Martin Vojtek, 2011. "Default Predictors in Retail Credit Scoring: Evidence from Czech Banking Data," Emerging Markets Finance and Trade, Taylor & Francis Journals, pages 80-98.
    5. 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.
    6. Venkat Srinivasan & Yong H. Kim, 1987. "Note---The Bierman-Hausman Credit Granting Model: A Note," Management Science, INFORMS, pages 1361-1362.
    7. 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.
    8. repec:bla:joares:v:10:y:1972:i:1:p:167-179 is not listed on IDEAS
    9. Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2006. "Internal ratings systems, implied credit risk and the consistency of banks' risk classification policies," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1899-1926, July.
    10. Andreas Charitou & Evi Neophytou & Chris Charalambous, 2004. "Predicting corporate failure: empirical evidence for the UK," European Accounting Review, Taylor & Francis Journals, pages 465-497.
    11. Yvo M. I. Dirickx & Lee Wakeman, 1976. "An Extension of the Bierman-Hausman Model for Credit Granting," Management Science, INFORMS, pages 1229-1237.
    12. 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 202-216, February.
    13. 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.
    14. 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.
    15. 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.
    16. 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, September.
    17. 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, Oxford University Press, vol. 125(1), pages 307-362.
    18. Harold Bierman, Jr. & Warren H. Hausman, 1970. "The Credit Granting Decision," Management Science, INFORMS, pages 519-532.
    19. 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, pages 65-114.
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    More about this item

    Keywords

    Auto Loans; Credit Risk; Credit Scoring; Logistic Regression.;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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