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Abstract. The aim of this paper is to segment retail clients by using adaptive Mahalanobis clustering in a way that each segment can be suitable for separate credit scoring development such that a better risk assessment of retail clients could be accomplished. A real data set on retail clients from a Croatian bank was used in the paper. Grouping of the data point set is carried out by using the adaptive Mahalanobis partitioning algorithm (see, e.g., [20]). It is an incremental algorithm, which recognizes ellipsoidal clusters with the main axes in the directions of eigenvectors of the corresponding covariance matrix of the data set. On the basis of the given data set, by using the well-known DIRECT algorithm for global optimization it is possible to search successively for an optimal partition with k = 2, 3, . . . clusters. After that, a partition with the most appropriate number of clusters is determined by using various validity indexes. Based on the description of each cluster, banks could decide to develop a separate credit scoring model for each cluster as well as to create a business strategy customized to each cluster.

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