Credit Risk

CREDIT SCORING:

The objective of credit scoring is to develop evaluation criteria for profile and repayment ability of credit candidates. By means of mathematical methods, such as logistic regression and the chi-square test, a score is attributed to the prospective borrower, which is related to the likelihood of failing to repay a loan . In this manner, credit granting becomes objective and homogeneous.

The main stages of this process are the following: information gathering from a database, the definition of credit quality, variable categorization, logistic regression modeling, back testing, study of stability, stress testing, threshold score determination and decision frontier.

PR&A develops credit scoring models for banks, retail companies and for investors interested in buying spread credit portfolios.

LIMITS FOR RETAIL CREDIT LOANS:

The retail credit limit is attributed on the basis of a score for each client, determining the fraction of income to be absorbed. The weight is related to the evaluation of credit behavior and the demands of the prospective borrower.

Starting from the portfolio expected loss and from the desired expected loss, the limit score is computed based on income weights, by considering the time interval needed to achieve the model results.

PR&A develops models used in the determination of credit limits for banks and companies.