Consumer loans’ first payment default detection: a predictive model

Abstract

A default loan (also called nonperforming loan) occurs when there is a failure to meet bank conditions and repayment cannot be made in accordance with the terms of the loan which has reached its maturity. In this study, we provide a predictive analysis of the consumer behavior concerning a loan's first payment default (FPD) using a real dataset of consumer loans with approximately 600,000 records from a bank. We use logistic regression, naive Bayes, support vector machine, and random forest on oversampled and undersampled data to build eight different models to predict FPD loans. A two-class random forest using undersampling yielded more than 86% on all performance measures: accuracy, precision, recall, and F1-score. The corresponding scores are even as high as 96% for oversampling. However, when tested on the real and balanced dataset, the performance of oversampling deteriorates as generating synthetic data for an extremely imbalanced dataset harms the training procedure of the algorithms. The study also provides an understanding of the reasons for nonperforming loans and helps to manage credit risks more consciously.

An Enhanced TSA-MLP Model for Identifying Credit Default Problems

“…The two most widely used classification models are the decision tree model (Zhou et al, 2021) and naive Bayesian model (NBM; Yager, 2006). The first payment default (FPD) loans prediction is solved by the NB (Koç & Sevgi̇li̇, 2020) K-Nearest Neighbor (KNN) not only applies to the consumer credit risk (Kruppa et al, 2013) but also it can apply in bank loan default prediction (Arora & Kaur 2020; Kou et al, 2014). Consequently, it can be concluded that KNN has a great prospect in predicting credit default.…”

Credit Management Practices and Loan Default in Deposit Money Banks (DMBs) in Osun State, Nigeria

“…A customer defaults when he or she is unable to meet loan terms, resulting in non-repayment of a loan that has reached maturity [1]. When a consumer misses his loan repayment requirements by one or two instalments, delinquency sets in and ultimately leads to a default.…”