Business, Management and Accounting
7 years ago

Math beats intuition: Bank loan defaults predicted more accurately by model

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Philippine Management Review
Predicting Bank Loan Defaults: Statistical Versus Bank Loan Officers’ Evaluation
Lina J. Valcarcel

Paper Summary

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Imbalanced Data

The study compared how well a mathematical model and bank loan officers could predict if companies would fail to repay loans. The model used financial ratios to classify firms as "failing" or "non-failing". The model performed better overall than the loan officers, especially in predicting failing firms. Both Filipino and U.S. loan officers had similar results, but Filipino officers were slightly more accurate at predicting failing firms. Filipino officers' experience in the early 1980s made them more sensitive to this issue.