Calculating the Credit Limit for Individual Borrower on the Basis of Logit-Model

• Main Authors: Kovpak Elvira О., Tumanova Yuliia H.
• Format: Article
• Language: English
• Published: Research Centre of Industrial Problems of Development of NAS of Ukraine 2018-12-01
• Series: Bìznes Inform
• Subjects: credit limit; logistic regression; credit scoring; solvency estimation; fictitious variables
• Online Access: http://www.business-inform.net/export_pdf/business-inform-2018-12_0-pages-162_169.pdf

The research is aimed at developing an algorithm for valuation by credit institution of the credit limit for a natural person-borrower, with regard to his socio-demographic characteristics, using the logistic regression tools. The improvement of the procedure for valuation of the solvency of an individual borrower is to integrate an empirical approach to the definition of solvency (based on the ratio of official income and expenditure of an individual) with the economic and mathematical methods, allowing to consider the available retrospective data of the financial institution about borrowers and to identify statistically significant regularities. The key role in the algorithm of estimation of credit limit is occupied by development of the logit-model for classification of borrowers for classes of «reliable» and «unreliable», the classification force of which will be to a large extent determinative as to the predictive quality of defining the amount of the credit limit. The publication presents an example of application of the logit-model for credit scoring, including quantitative and qualitative variables, with the help of which the socio-demographic characteristics of borrowers are described. The procedure of using the proposed algorithm is illustrated on the basis of such logit-model.