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Credit scoring in mortgage lending: evidence from China

Author

Listed:
  • Christopher Gan
  • Zhaohua Li
  • Weizhuo Wang
  • Betty Kao

Abstract

Purpose - This paper aims to investigate the determinants of default mortgage in China and the factors affecting the mortgage amount granted by Chinese banks. Design/methodology/approach - This paper employs the credit scoring model to investigate the determinants of default mortgage in China and the factors affecting the mortgage amount granted by Chinese banks. Findings - Using a proprietary dataset from branches of the Construction Bank of China containing information on all mortgages offered to borrowers from 2004 to 2009 1st quarter, the paper documents that borrower rating, mortgage rate and mortgage duration are significantly related to default rate and mortgage amount. These findings suggest that Chinese banks' mortgage lending are based on commercial basis. This helps to reduce the likelihood of a real estate bubble in China. Research limitations/implications - The findings in this paper argued that a good credit scoring model has the ability to detect bad loans; this could help the bank to reduce the loan losses from loan default. Consequently, it can improve the profitability and the financial stability of the bank. Originality/value - This research would benefit both lender and borrowers. Lenders can apply an objective evaluation technique with a standard process and criteria to appraise their customer's credit risks and creditworthiness. A good credit risk management tool can effectively control risk selection, manage credit losses, evaluate new loan programs, improve loan approval processing time, and ensure that existing credit criteria are sound and consistently applied.

Suggested Citation

  • Christopher Gan & Zhaohua Li & Weizhuo Wang & Betty Kao, 2012. "Credit scoring in mortgage lending: evidence from China," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 5(4), pages 334-350, September.
  • Handle: RePEc:eme:ijhmap:v:5:y:2012:i:4:p:334-350
    DOI: 10.1108/17538271211268457
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    Citations

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    Cited by:

    1. Dong Han, 2017. "The Market Value of Who We Are: The Flow of Personal Data and Its Regulation in China," Media and Communication, Cogitatio Press, vol. 5(2), pages 21-30.
    2. Yosi Borochov & Boris A. Portnov, 2021. "Estimating Environmentally Adjusted Risks of Mortgage Arrears for Different Socioeconomic Groups of Borrowers," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 595-620.

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