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Optimizing Bank Stability Through MSME Loan Securitization: A Predictive and Prescriptive Analytics Approach

Author

Listed:
  • Khulood Mohammed BaLashwar
  • uosuf Khalid Al-Hamar
  • Seyed-Ali Sadegh-Zadeh

    (Staffordshire University, UK)

Abstract

This study aims to enhance bank stability in the context of MSME loan securitization through the application of advanced decision analytics. Utilizing predictive modelling techniques, including Random Forest, Gradient Boosting, and Neural Networks, the research identifies key financial ratios and macroeconomic indicators that influence bank stability, as measured by the Z-Score. Additionally, Particle Swarm Optimization (PSO) was employed to optimize capital and liquidity ratios, revealing optimal values of 0.20 and 0.60, respectively, for maximizing stability. The study contributes to decision analytics by integrating predictive modelling, optimization, and prescriptive methods, providing a robust framework for financial institutions to improve risk management and decision-making. The findings demonstrate the superiority of machine learning models over traditional methods and highlight the critical role of financial ratios in sustaining bank stability. Future research should extend these models to broader datasets and dynamic financial environments to further enhance their predictive power and applicability.

Suggested Citation

  • Khulood Mohammed BaLashwar & uosuf Khalid Al-Hamar & Seyed-Ali Sadegh-Zadeh, 2024. "Optimizing Bank Stability Through MSME Loan Securitization: A Predictive and Prescriptive Analytics Approach," The African Finance Journal, Africagrowth Institute, vol. 26(2), pages 58-79.
  • Handle: RePEc:afj:journl:v:26:y:2024:i:2:p:58-79
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-finj_v26_n2_a4
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    More about this item

    Keywords

    Predictive Modelling; Optimization; MSME Loan Securitization; Bank Stability; Decision Analytics; Prescriptive Analytics;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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