Question
Reducing the rate of loan defaults is of a great importance for lending institutions. A bank wishes to benefit from the data that it must
Reducing the rate of loan defaults is of a great importance for lending institutions. A bank wishes to benefit from the data that it must identify major factors affecting the repayment capacity. A dataset including information on 1500 customers was available. The considered variables are reported in the table below. Age in years Level of education Years with current employer Years at current address Household income in thousands Debt to income ratio (x100) Credit card debt in thousands Other debt in thousands Default a. Assume you are a senior manager of the Credit department. What would be your business objectives? How using data analytics can support these objectives? Elaborate b. The analytics team in the bank adopted the logistic regression approach to develop a model identifying the profile of people who are more likely to default. The available dataset was partitioned into training (70%) and validation data. A logistic model was 3 estimated, and the results are reported in the Appendix 4. What predictors are significant? Justify c. Interpret the coefficients and odds ratios of the significant predictors d. Discuss the prediction performance of this model. Would you recommend implementing this model? Explain e. What would be your strategic recommendations to the bank based on your data analysis?
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