This thesis is concerned with statistical aspects of credit scoring, the process of determining how likely an applicant for credit is to default with repayments. In Chapters 1-4 a detailed introduction to credit scoring methodology is presented, including evaluation of previous published work on credit scoring and a review of discrimination and classification techniques. In Chapter 5 we describe different approaches to measuring the absolute and relative performance of credit scoring models. Two significance tests are proposed for comparing the bad rate amongst the accepts (or the error rate) from two classifiers. In Chapter 6 we consider different approaches to reject inference, the procedure of allocating class membership probabilities to the rejects. One reason for needing reject inference is to reduce the sample selection bias that results from using a sample consisting only of accepted applicants to build new scorecards. We show that the characteristic vectors for the rejects do not contain information about the parameters of the observed data likelihood, unless extra information or assumptions are included. Methods of reject inference which incorporate additional information are proposed. In Chapter 7 we make comparisons of a range of different parametric and nonparametric classification techniques for credit scoring: linear regression, logistic regression, projection pursuit regression, Poisson regression, decision trees and decision graphs. We conclude that classifier performance is fairly insensitive to the particular technique adopted. In Chapter 8 we describe the application of the k-NN method to credit scoring. We propose using an adjusted version of the Eucidean distance metric, which is designed to incorporate knowledge of class separation contained in the data. We evaluate properties of the k-NN classifier through empirical studies and make comparisons with existing techniques.

有實證研究表明，傳統的信貸風險結構模型顯著低估了違約概率以及信貸收益率差。傳統的結構模型有三個可能的問題：1. 因為正態假設，布朗模型在模擬公司資產價值的過程中未能捕捉到極端事件2. 市場微觀結構噪聲扭曲了股票價格所包含信息3. 在到期日前任何時間，標準BS 期權理論方法不足以描述任何破產的可能性。這些問題在過去的文獻中曾分別提及。而在本文中，在不同的信用風險結構模型的基礎上，我們提出了貝葉斯方法去估算公司價值的跳躍擴散過程和微觀結構噪聲。因為企業的資產淨值不能在市場上觀察，本文建議的貝葉斯方法可對隱藏變量和泊松衝擊作出一定的估算，並就後驗分佈進行財務分析。我們應用馬爾可夫鏈蒙特卡羅方法（MCMC）和吉布斯採樣計算每個參數的後驗分佈。以上的做法，允許我們檢查結構性信用風險模型的偏差主要是來自公司價值的分佈、期權理論方法或市場微觀結構噪聲。我們進行模擬研究以確定模型的表現。最後，我們以新興市場的數據實踐我們的模型。 / There is empirical evidence that structural models of credit risk significantly underestimate both the probability of default and credit yield spreads. There are three potential sources of the problems in traditional structural models. First, the Brownian model driving the firm asset value process may fail to capture extreme events because of the normality assumption. Second, the market micro-structure noise in trading may distort the information contained in equity prices within the estimation process. Third, the standard Black and Scholes option-theoretic approach may be inadequate to describe the consequences of bankruptcy at any time before maturity. These potential problems have been handled separately in the literature. In this paper, we propose a Bayesian approach to simultaneously estimate the jump-diffusion firm value process and micro-structure noise from equity prices based on different structural credit risk models. As the firm asset value is not observable but the equity price is, the proposed Bayesian approach is useful in the estimation with hidden variable and Poisson shocks, and produces posterior distributions for financial analysis. We demonstrate the application using the Markov chain Monte Carlo (MCMC) method to obtain the posterior distributions of parameters and latent variable. The proposed approach enables us to check whether the bias of the structural credit risk model is mainly caused by the firm value distribution, the option-theoretic method or the micro-structure noise of the market. A simulation study is conducted to ascertain the performance of our model. We also apply our model to the emerging market data. / Detailed summary in vernacular field only. / Chan, Sau Lung. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2013. / Includes bibliographical references (leaves 62-65). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstracts also in Chinese. / List of Tables --- p.vii / List of Figures --- p.viii / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Background and Intuition --- p.5 / Chapter 2.1 --- Merton Model with Trading Noise --- p.7 / Chapter 2.2 --- Black-Cox Model with Default Barrier --- p.10 / Chapter 2.3 --- Double Exponential Jump Diffusion Model (KJD Model) --- p.11 / Chapter 2.4 --- Equity Value via Laplace Transforms --- p.13 / Chapter 2.5 --- KJD Model with Trading Noises --- p.15 / Chapter 3 --- Bayesian Analysis --- p.17 / Chapter 3.1 --- Gibbs Sampling and Metropolis-Hastings Method --- p.17 / Chapter 3.2 --- Merton Model with Trading Noises (M1) --- p.19 / Chapter 3.2.1 --- Prior Distribution for M1 --- p.19 / Chapter 3.2.2 --- Posterior Distribution for M1 --- p.20 / Chapter 3.3 --- Merton Model with Default Barrier (M2) --- p.22 / Chapter 3.3.1 --- Prior Distribution for M2 --- p.23 / Chapter 3.3.2 --- Posterior Distribution for M2 --- p.23 / Chapter 3.4 --- KJD Model with Trading Noises (M3) --- p.25 / Chapter 3.4.1 --- Prior Distribution for M3 --- p.26 / Chapter 3.4.2 --- Posterior Distribution for M3 --- p.27 / Chapter 3.5 --- KJD Model with Default Barrier (M4) --- p.33 / Chapter 3.5.1 --- Prior Distribution for M4 --- p.34 / Chapter 3.5.2 --- Posterior Distribution for M4 --- p.35 / Chapter 4 --- Numerical Examples --- p.42 / Chapter 4.1 --- Simulation Analysis --- p.42 / Chapter 4.2 --- Empirical Study --- p.46 / Chapter 4.2.1 --- BEA and DBS, 2003-2004 --- p.46 / Chapter 4.2.2 --- HSBC, 2008-2009 --- p.49 / Chapter 5 --- Conclusion --- p.60 / Bibliography --- p.62

The imminent consequences of the deteriorating state of the socio-ecological systems pose significant challenges to the well-being of society and societal functioning. The financial sector, specifically banks, plays a crucial role in the transition toward sustainable development because they hold the financial resources and the power to allocate these resources. For banks to contribute to this transition, credit risk assessment (CRA) can serve as an impactful process for sustainability integration. However, as CRA is a well-incorporated process within banks, it is unclear if it is strategic enough to support a transition toward sustainability. This research, therefore, aims to analyse the key gaps, opportunities, and limitations for integrating sustainability considerations into the credit risk assessment process using a strategic sustainable development (SSD) lens. The Framework for Strategic Sustainable Development (FSSD) was used as a conceptual framework to give a better understanding of the sustainability challenge and to analyse how credit risk assessment can contribute to sustainable development. Data were collected through document review and semi-structured interviews with practitioners from Nordic banks who have relevant experience to explain how banks incorporate sustainability into their credit risk assessment practices within corporate lending and credit. A semi-systematic literature review was also done to determine the views and methods of integrating sustainability considerations into the credit risk assessment process according to academic literature. The findings were structured using the FSSD’s 5-Level Model (5LM) to identify the key gaps, limitations, and opportunities in literature and practice. The results suggest that the key gaps in integrating sustainability into the credit risk assessment process are sustainability data inadequacy, inaccessibility, incomparability, trustworthiness, and storage, and the qualitative manner of sustainability data. Further to these limitations is a competence gap where crucial skillsets needed include systems and sector-specific sustainability knowledge.

Med en kvalitativ metod genom intervjuer har denna studie undersökt kreditgivares bedömningsprocess för kommersiella fastighetskrediter. Ett område av intresse att studera då det handlar om att bedöma risken att kreditgivaren inte återfår de pengar som lånats ut. Syftet har varit att undersöka processen i sin helhet, kassaflödet och värderingsflödet samt hur bådadera spelar in i bedömningen. Kassaflödet syftar på kredittagarens återbetalningsförmåga medan värderingsflödet syftar på värderingen av säkerheter.  Studiens empiri undersöker bedömningsprocessens olika delar med hänsyn till syftets fyra frågeställningar. Det framkommer att kredittagarens återbetalningsförmåga mäts genom ett detaljerat kassaflöde med relativt kort kalkylperiod. Värderingsflödet är ett mindre detaljerat kassaflöde med längre kalkylperiod för värdering av säkerheter. Studiens analys konstaterar att kassaflödet nästan uteslutande är det centrala i alla bedömningar och bland annat att nyckeltal kopplade till kassaflöde, som historiskt sett använts i bedömningen av rörelsedrivande bolag, kommit att användas även för kommersiella fastighetskrediter. Säkerheters marknadsvärden visar sig vara mindre betydelsefulla även under tider av ekonomisk kris då kovenanter kopplade till dessa ofta bryts men ändå accepteras, så länge återbetalningsförmågan kvarstår. Detta tycks vara naturligt då affärens välgång ligger i kassaflödens förmåga att försörja avtalsenlig ränta och amortering, inte i säkerheters värden. Ianspråktagande och likvidation av säkerheter leder i bästa fall enbart till återbetalning av utestående lånebalans. Ett fåtal fall då säkerheters värden får en större betydelse har dock under studien identifierats. / The study has, using a qualitative research method through interviews investigated creditors assessment procedure for commercial real estate mortgages. An area of interest to study since the purpose of credit risk assessment is about evaluating the risk of the creditor not getting back the money that’s been lent. The purpose has been to investigate the overall procedure and the assessment of cash flow for both repayment ability and valuation of collateral purposes and their roles in the credit risk assessment process. The study investigates the different parts of the procedure with regards to the four questions. It appears that the debtor’s repayment ability is measured through a detailed cash flow projected over a relatively short horizon. Valuation of property collateral is done using a less detailed cash flow projected over a longer horizon. The study concludes that the short-term cash flow almost exclusively is the central part in every assessment and among other findings that ratios referring to cash flow, that’s historically been used in the assessment of operating companies, are now being used for commercial real estate mortgages. The market value of collateral has proven to be less significant even during times of economic crisis when financial covenants referring to these are often broken, but still accepted, if the repayment ability withstands. This seems natural since the prosperity of the engagement lies within the ability of the cash flow to cover the loan servicing, not within the value of the collateral. A claim and liquidation of collateral in the best of cases only results in repayment of the outstanding loan balance. A few cases where the value of collateral receives a greater importance have however during the study been identified.

The vast majority of the Swedish real estate companies are to some extent financed by debt and are dependent on external capital when expanding their business. Swedish real estate companies have traditionally financed their business through bank loans, but as a result of – among other things – stricter regulations, an increasing share of the Swedish real estate companies seek funding in the capital market, and corporate bonds in particular have emerged as an alternative to bank loans. In all types of lending, whether it is a bank loan or an investor who buys a bond, the lender must assess the credit risk of the company and / or the bond. This is to ensure the company's repayment ability and that the borrower gets sufficient compensation for the risk undertaken. In this thesis, the credit risk assessment process has been evaluated from two different perspectives to explore if there are any differences in the assessment conducted by banks and bond investors. In this thesis, it appears that the differences between the different parties' assessment are relatively small and that both parties evaluate approximately the same parameters and key performance indicators. / De allra flesta fastighetsbolag i Sverige finansierar sig delvis genom externt kapital och är beroende av nya krediter när de vill utöka sin verksamhet. Svenska fastighetsbolag har traditionellt sett finansierat sig via banklån men på grund av bland annat striktare regleringar väljer alltfler fastighetsbolag att söka finansiering på kapitalmarknaden, där framförallt företagsobligationer har växt fram som ett alternativ till bankfinansiering.  I alla typer av kreditgivning, oavsett om det handlar om banklån eller en investerare som köper en obligation, måste kreditgivaren göra en kreditriskbedömning av bolaget och/eller obligationen. Detta för att säkerställa bolagets återbetalningsförmåga och att långivaren får tillräcklig kompensation för den risk denne tar. I det här examensarbetet har kreditriskbedömningsprocessen utvärderats från två olika perspektiv för att se om det går att hitta några skillnader i bedömningen utförd av banker respektive obligationsinvesterare. Resultatet tyder på att skillnaderna mellan de olika parternas bedömning inte är särskilt stora utan båda parter utvärderar ungefär samma parametrar och nyckeltal.

Thesis (MDF)--Stellenbosch University, 2011. / The research report provides a credit risk assessment and evaluation of Accion Microfinance Bank Limited (AMFB) for the period 2006 to 2010, using Morgan Stanley’s methodology for analysing the credits and performance ratings of microfinance institutions (MFIs). Since MFIs are set up to provide credit and other financial services to the poor, financially underserviced segment of the society, and since the credit support granted to such micro businesses usually lacks collateral, it is imperative that the management of such credit services be sound in order to mitigate the high risks involved. Thus, credit risk management determines the success and survival of microfinance banks (MFBs): weak credit management leads to capital erosion and eventual failure, whereas sound credit risk management guarantees profitability and sustainability and, hence, the realisation of the objectives of their setup – enhancing the welfare of micro-entrepreneurs. The data for the research report were sourced from AMFB’s financial statements for the years 2006 to 2010 and from interviews that were conducted with principal officials of this MFB. The research found that good regulatory corporate governance and management practices, sound quantitative credit risk assessment and management, and quality and maturity of management lead to low credit risk accompanied by high profitability and sustainability for MFBs. As AMFB matured, the quality of portfolio, profitability, sustainability and operating efficiency were seen to increase. The quality of shareholders, board and management was found to be crucial for the sound management of the MFB. The research report, therefore, recommends regular and continuous credit risk identification, assessment and management, as well as sound corporate governance, if MFBs are to survive and grow and achieve their developmental objectives.

I dagens samhälle sporras konsumenter till att konsumera mer och mer. En anledning till att konsumenter idag konsumerar mer än tidigare är att pengar idag är mer lättillgängliga än de tidigare varit. Det har lett till att fler tar konsumtionslån, vilket är en riskfylld affär för de banker som bistår konsumenter med lån. Bankerna utsätts för en kreditrisk i samband med att de beviljat ett lån utan säkerhet. Författarna till den här studien har ett stort intresse inom ekonomi och konsumtion och således upptäcktes även intresset för riskerna som bankerna står inför i de här sammanhangen. Studiens författare uppmärksammade att det fanns en ytterst begränsad mängd tidigare forskning inom ämnet och önskade därmed att fylla den identifierade kunskapsluckan. Studien syftade att besvara vilka faktorer svenska banker beaktar vid en kreditbedömning och hur en sådan utförs för konsumtionslån. Utöver det syftade studien även att besvara hur bankerna bedömt de risker de utsätts för i samband med konsumtionslån, hur riskerna påverkade bankernas riskstrategier samt hur bankerna beaktade konsumenternas beteende i riskbedömningarna. Studien utfördes med en kvalitativ metod. Teori samlades in och bearbetades från 18 vetenskapligt granskade artiklar. Sju semistrukturerade intervjuer med sju olika svenska banker utfördes. Intervjupersonerna valdes ut baserat på den kunskap och erfarenhet de besatt inom kredit och riskbedömning. Således hade de intervjuade roller i form av kreditchefer, kontorschefer, kreditspecialister och senior credit riskmanager. De intervjuade bankerna valdes ut i vetskap om att de representerar olika delar av marknaden, vilket skapade en större variation och bredd i det insamlade datamaterialet. Således intervjuades storbanker, medelstora banker och nischbanker. Av studien har det framkommit att de främsta faktorerna bankerna tog hänsyn till vid en kreditbedömning, var kundens inkomst och återbetalningsförmåga. I studien visade det sig även att bankerna identifierade kundens vilja och förmåga att återbetala ett lån, som de största riskerna som bankerna möts av. Bankerna tog även hänsyn till kunders beteende, dock i olika utsträckning, vid riskbedömningarna. Bankerna tillämpade olika typer av riskklassificeringsmodeller som riskbedömningen och räntenivån baserades på. Det skilde sig mellan bankerna i huruvida de såg konsumtionslån som lönsamma. Dock ansåg de flesta bankerna att konsumtionslån inte var den mest lönsamma låneprodukten. / In today's society consumers are regularly encouraged to consume more and more. One reason that people today consume more than people used to are that money nowadays are more easily accessible than they were before. This has led to more people applying for unsecured smaller loans, which is a risky business for banks that grants these kinds of loans. The banks put themselves in risk of consumers not being able to pay them back when they grant unsecured loans. This papers authors have an interest in both economy and consumption and therefor also discovered an interest in the risks that banks put themselves in when granting unsecured loans. The authors discovered that there was a limited amount of earlier research available on the subject. An aim for this paper therefore was to identify which factors the banks consider when assessing a credit loan application and how the bank make the assessments. Furthermore, this paper aims to identify the risks that the banks put themselves in when granting this kind of loan, how the risks affect the banks risk strategies and how the banks take in consideration consumers behaviour when the banks make their risk assessments. This paper was conducted by a qualitative method. Theory was assembled from 18 peer reviewed articles. Seven semi structured interviews where held with representatives from seven different Swedish banks. The persons being interviewed where chosen based on the knowledge and experience they possessed in credit and risk assessment. Therefore, the people that were asked to take part in the interviews worked as credit managers, office managers and credit risk managers. The banks that contributed with an interview where chosen with knowledge that they would represent different parts of the market, wishing to create a bigger variation and a depth in the data material. The interviewed persons represented bigger banks, medium sized banks and nichebanks. In the empiricism the study shows that the main factors that banks consider when they assess these kinds of loans are the customers income and assessed ability to repay the loans. The banks identified both the customers' ability and their will to repay the loan, as the biggest risk they faced. They also considered how customers behave. The study shows that banks applied different kinds of risk scoring models that they based the risk assessment and interest rate on. From the study it shows that banks differ in their view on whether these types of loans are profitable, although most of the banks did not consider them to be profitable

Graphical User Interface, which is known as GUI, is a way for a person to communicate and interact with a system through icons or other visual indicators. A well designed and intuitive user interface is critical to the success of a system since it encourages a natural interaction between a user and a system, thus conveying information more clearly and efficiently to the user.The aim of this study is to design and develop a user interface that is used in a financial technology company in their credit risk assessment process. The current user interface contains a visualization of an individual credit assessment flow together with a lot of data that is generated in the process. Some of the data is not properly visualized, which leads to confusion among end users.In order to optimize the user experience, a user-centered design approach was used combined with a heuristic evaluation. A new user interface was designed and implemented and according to the heuristic evaluation result, the usability was greatly improved. The new interface is able to help the company to visualize their credit risk assessment process in a better way and facilitate credit officers to make credit decisions. The result could also provide insights to other companies or organizations in presenting their data more clearly and effectively. / Grafiskt användargränssnitt, som även kallas GUI, är ett sätt för en person att kommunicera och interagera med ett system genom ikoner eller andra visuella indikatorer. Ett väl utformat och intuitivt användargränssnitt är avgörande för framgången för ett system, eftersom det uppmuntrar till en naturlig interaktion mellan en användare och ett system och därmed förmedlar information tydligare och effektivare till användaren.Syftet med denna studie är att designa och utveckla ett användargränssnitt som används i ett finansiellt teknikföretag i deras kreditriskbedömningsprocess. Det nuvarande användargränssnittet innehåller en visualisering av ett individuellt kreditbedömningsflöde tillsammans med mycket data som genereras i processen. En del av data är inte korrekt visualiserade, vilket leder till förvirring bland slutanvändare.För att optimera användarupplevelsen användes en användarcentrerad designmetod i kombination med en heuristisk utvärdering. Ett nytt användargränssnitt designades och implementerades och enligt det heuristiska utvärderingsresultatet förbättrades användbarheten kraftigt. Det nya gränssnittet kan hjälpa företaget att visualisera sin kreditriskbedömningsprocess på ett bättre sätt och underlätta kreditansvariga att fatta kreditbeslut. Resultatet kan också ge andra företag eller organisationer insikter om att presentera sina uppgifter tydligare och mer effektivt.

This diploma thesis is focused on companies risk evaluation before endorsement of Loan deriving from business relationships. The aim of this thesis is not only to describe individual steps of risk assessment, but also perfom analysis of particular companies based on available data, i.e. Balance sheet, Profit and Loss statement and external rating and after that propose solution for each company. My analysis will be based on theoretical knowledge, further on experience related to my job role as credit analyst. The aim will be to perform objective analysis of real companies and determine financial health of each of them together with their risk evaluation.