Quest for a Credible Model in Lending Evaluation
This book examines potential income as an additional independent variable that will complement credit history to predict loan repayment with applicable interest. Lending exposures constitute the most material risk concentrations within banks, and this book contributes to the literature on lending risk management within banks and other lending institutions. Risk management theories have provided emphatic guidelines for risk control and management of banks’ loans, yet the results of other studies indicate that the credit evaluation models do not fully explore all available predictors of loan repayment. This deprives the models of total efficiency at predicting loan repayment with applicable interest, and leads to accretion in the nonperforming loans portfolio. It also leads to inequitable credit rationing practices. The resultant effect is a decrease in both investment and consumer spending that stimulates macroeconomic activities. This book suggests a policy prescription for lenders: consideration should be given to both credit history and potential income in loan decision making.
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academic research purposes Aczel & Sounderpandian analysis applicable interest applicant’s potential income available predictors ofloan Basel II Beta coefficients better predictor borrower coefficient coefficient of determination complementary variable consider Cooper & Schindler credit bureaus credit consumers credit evaluation model credit evaluation system credit history credit rationing system credit risk credit-scoring model creditworthiness criterion data collected example FICO future income History and Potential Ibid Income and Credit Income predicting Loan increased consumer spending independent variables informed consent document Institutional Review Board Jacobson & Roszbach lenders lending exposures constitute Likert scale loan applicant’s potential loan applicants loan decisions loan default Loan Repayment increases lottery player material risk concentrations multicollinearity Multiple regression ofthe Potential Income predicting predicting loan repayment predictors ofloan repayment proxy questionnaire items Quinn repay a loan repayment with applicable sample SPSS Stanhouse & Sherman statistical stimulate macroeconomic activities survey instrument TransUnion validity and reliability variable to credit Xi variables