In the past decade

In the past decade, we have witnessed the rapid expansion of consumer loans business which is a moneymaking but risky of banks. In order to control risk and maximize profits, banks have made great efforts to develop numerous analytic models to identify potential default loan applicants. These models would help the bank prevent loan loss, improve the performance, maximize the efficiency, and value the society. While consumer credit is a remunerative business, the banks do not want to refuse those who will not default. Therefore, banks want to understand their existing customers and sort out the common features of non-performing customers and guess right the potential default customers from loan applications. For this reason, estimating default risk has been a major challenge in credit-risk analysis.
Loan default basically explains that money that allocated by the bank cannot be repaid in accordance with the terms of the loan. It can be also called unrequited loan. The target is to minimize the risk of having loan loss. One of the most important measurement to assess the strength of a bank is to assess the performance of the organization’s loan portfolio loss by estimating the chances of default (i.e. the probability that a loan will go into default or not). This step is quite important for risk management and credit risk analysis.