Decision Support System for Credit Risk Management: An Empirical Study

2. Literature Review

Quality of bank’s loan portfolio is closely associated with the competitiveness and profitability of the bank. Quality of bank loan increases as the number of customers having high creditworthiness. Credit scoring is the most important decision support system which is utilized in evaluating the creditworthiness of the applicant. Therefore, it is possible to define the credit scoring as the process of modeling the creditworthiness of an applicant (Crook, Edelman and Thomas, 2007).

There are different definitions for credit scoring in the literature. In Anderson (2007), it is defined as the transformation of relevant credit factors into numeric measures by using statistical methods to be utilized as a guide in giving credit decision. In Malhotra & Malhotra (2003), it is described as an analytical model having constructed empirically based on past applications data used to predict credit-worthiness of applicant by utilization of probability of default.