Evaluating borrowers' default risk with a spatial probit model reflecting the distance in their relational network

PLoS One. 2021 Dec 31;16(12):e0261737. doi: 10.1371/journal.pone.0261737. eCollection 2021.

Abstract

Potential relationship among loan applicants can provide valuable information for evaluating default risk. However, most of the existing credit scoring models either ignore this relationship or consider a simple connection information. This study assesses the applicants' relation in terms of their distance estimated based on their characteristics. This information is then utilized in a proposed spatial probit model to reflect the different degree of borrowers' relation on the default prediction of loan applicant. We apply this method to peer-to-peer Lending Club Loan data. Empirical results show that the consideration of information on the spatial autocorrelation among loan applicants can provide high predictive power for defaults.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Economics
  • Financial Management*
  • Financing, Personal / economics*
  • Financing, Personal / standards*
  • Humans
  • Income*
  • Models, Statistical
  • Regression Analysis
  • Risk
  • Socioeconomic Factors

Grants and funding

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) (2020R1A2C2005026). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.