Activity: Participating in or organising an event types › Participation in conference
Psychology Of Consumer Credit And Reasons For Default: Potential Value In Modeling Loss Given Default.
Risk assessment in consumer lending relies on automated credit scoring, i.e. models estimating customers’ creditworthiness. Yet reasons behind default and customer’s personality are left out of the equation with standard predictors being observable proxies, such as age, length of employment, etc. After a brief introduction of credit scoring, this talk will describe approaches used for modeling Loss Given Default (LGD), which is one of the three regulatory credit risk components and is usually measured as Recovery Rate (proportion of debt recovered from defaulted borrowers). The summary of the limited literature related to reasons for default, personality and credit behavior will follow, with the results of a project that models LGD using a unique Brazilian dataset that combines standard loan characteristics with the survey data, including borrowers’ risk-taking attitudes, their financial knowledge and the reasons for missing payments. The talk will outline the potential applications of personality measures in credit area, associated advantages and practical difficulties.