Consumer Credit Customers’ Financial Distress Prediction by Using Two-Group Discriminant Analysis: A Case Study

Nasir Uddin

Abstract


This study estimates a two-group discriminant function to determine the expected financial health of the consumer credit customers’ of a bank of Bangladesh by using thirteen demographic, socio-economic, and loan characteristics of the sample borrowers. The estimated function is significant at one per cent level of significance and the model estimates financial health/group membership with average seventy-five per cent accuracy. Like developed countries, it is expected that use of the estimated discriminant function in the consumer credit decision making will decrease bad debts, will help to set risk based credit pricing for the clients and will make the credit granting faster and more accurate.

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DOI: http://dx.doi.org/10.5539/ijef.v5n6p55

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email: ijef@ccsenet.org

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