Credit Score Models

Minimizing bad debts

Our credit score models

Our credit score models facilitate affordable lending to under-served qualified borrowers. Our model leverages the Black-Scholes model to generate accurate estimations of the borrowers probability of default. We are mapping the credit default distribution in Nigeria and researching the relationships between the variables that drive credit default in Nigeria

Probability of Default

Exposure at Default

Loss Given Default

risk neutral probability

Nigeria Non-Performing Loans

NPL ratio14%

Impairment ratio5%

A Non-Performing Loan (NPL) is the sum of money borrowed in a loan contract in which the borrower has not made required repayments agreed to for at least 90 days.

A loan is impaired where there is impartial evidence of one or more events in accordance with IFRS that the loan may not be paid. IAS 39 requires interest income from all loans including the impaired to be accrued. In practice, when the repayment of a loan is in doubt, the continuation of interest accrual would be recording interest income that is not likely to be recovered.

Why our credit score models

Accuracy

Efficiency

Control

Speed

Credit Risk

Definitions

A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments.

Probability of Default

The probability that the obligor will default (will not meet the agreed payments) over the next year.

Exposure at Default

The amount outstanding in the case of default. This amount may exceed the current amount outstanding if the obligor is granted a credit line and they increase the amount borrowed prior to the default.

Loss Given Default

The proportion that will be lost if default occurs. Collaterals may reduce the LGD.

Logit models

LOGIT-Models allow to check easily whether the empirical dependence between the potential input variables and default risk is economically meaningful.

Structural form models

Structural form models are derived from theory and often include un-observable parameters that help describe behavior at a deep level.

Reduced form models

The reduced form of a system of equations is the result of solving the system for the endogenous variables. This gives the latter as functions of the exogenous variables, if any.

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