Session

Management, Business, and Economics

Description

Credit scoring is a scientific method of assessing the credit risk associated with new credit applications as well as for monitoring of the credit risk in the process of the loan payment. Therefore credit scoring models developed in the banks based on their internal information system, as well as the credit info system in the country, can help the banks to ensure more consistent underwriting and can provide management with a more insightful measure of credit risk. While credit scoring could be a valuable risk management tool in virtually any bank setting, it is probably not wide accepted in the banks with more fundamental underwriting problems such as inexperienced loan officers, inadequate credit procedures, underdeveloped internal and external credit info – system , persistent arrears problems, etc. However credit scoring is only useful , and can make reliable predictions , if the credit scoring models are properly made, data base updated and credit scoring limitations are properly understood, which is very difficult in the turbulent economic environment as it is the world economy in the recent years. Therefore, the paper objective is to analyze if the banking industry can prevent credit default payments through the implementation of the credit scoring models and what are the parameters and the weights that need to be incorporated, so that the models to be more effective in the period of financial crises.

Keywords:

credit scoring, banks, default payments, credit risk, creditworthiness

Session Chair

Oltjana Zoto

Session Co-Chair

Luciana Koprencka

Proceedings Editor

Edmond Hajrizi

ISBN

978-9951-437-25-7

First Page

101

Last Page

108

Location

Durres, Albania

Start Date

2-11-2013 12:15 PM

End Date

2-11-2013 12:30 PM

Included in

Business Commons

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Nov 2nd, 12:15 PM Nov 2nd, 12:30 PM

Can credit scoring models prevent default payments in the banking industry in the period of financial crisis?

Durres, Albania

Credit scoring is a scientific method of assessing the credit risk associated with new credit applications as well as for monitoring of the credit risk in the process of the loan payment. Therefore credit scoring models developed in the banks based on their internal information system, as well as the credit info system in the country, can help the banks to ensure more consistent underwriting and can provide management with a more insightful measure of credit risk. While credit scoring could be a valuable risk management tool in virtually any bank setting, it is probably not wide accepted in the banks with more fundamental underwriting problems such as inexperienced loan officers, inadequate credit procedures, underdeveloped internal and external credit info – system , persistent arrears problems, etc. However credit scoring is only useful , and can make reliable predictions , if the credit scoring models are properly made, data base updated and credit scoring limitations are properly understood, which is very difficult in the turbulent economic environment as it is the world economy in the recent years. Therefore, the paper objective is to analyze if the banking industry can prevent credit default payments through the implementation of the credit scoring models and what are the parameters and the weights that need to be incorporated, so that the models to be more effective in the period of financial crises.