DefaultRisk.com the web's biggest credit risk modeling resource. | 
|
|
|
| Bank Lending Policy, Credit Scoring and Loan Survival by Kasper Roszbach of the Stockholm School of Economics September 17, 1998 Abstract: To evaluate loan applicants, banks use a large variety of systems. The objective of such credit scoring models typically is to minimize default rates or the number of incorrectly classified loans. Thereby they fail to take into account that loans are multiperiod contracts. From a utility maximizing perspective it is not only important to know if but also when a loan will default. In this paper a Tobit model with a variable censoring threshold and sample selection effects is estimated for (1) the decision to provide a loan or not and (2) the survival of granted loans. The model is shown to be an affective tool to separate applicants with short survival times from those with long survivals. The bank's loan provisions is shown to be inefficient. Loans are granted in a way that conflicts with both default risk minimization and survival time maximization. There is thus no trade-off between higher default risk and higher return in the policy of banks. JEL Classification: C34, C35, D61, G21. Keywords: banks, lending policy, credit scoring, survival, loans. Books Referenced in this Paper: (what is this?)
Download paper (1,031K PDF) 28 pages
[Home] [Credit Scoring Papers]  |  
|
Please contact me with problems or suggestions. |
