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Loan decision models for the Jordanian commercial banks

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  • Shorouq Fathi Eletter
  • Saad Ghaleb Yaseen

Abstract

Credit risk remains the most critical challenge facing bank's management as it adversely affects the profitability and stability of the bank. However, despite the rise in loan delinquency and the serious competition in the banking market, loan application evaluations at the Jordanian commercial banks are subjective in nature. Additionally, the ability to discriminate between 'good' and 'bad' risk applications is critical. Rejecting a good application might cause loss of future potential profit while approving a bad application might cause loss of principal money and interest. The current research aims to develop credit decision support using linear discriminant analysis (LDA), multi-layer perceptron (MLP) and CART decision trees for the protection against credit risk. A pooled data set of personal loans from Jordanian commercial banks was used to build the decision models. The discriminative power of the developed models was assessed using average correct classification rate (ACC) and the estimated misclassification cost (EMC). The results showed that the MLP model achieved the highest ACC as well as the lowest EMC.

Suggested Citation

  • Shorouq Fathi Eletter & Saad Ghaleb Yaseen, 2017. "Loan decision models for the Jordanian commercial banks," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 19(3), pages 323-338.
    • Handle: RePEc:ids:gbusec:v:19:y:2017:i:3:p:323-338
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    Cited by:

    1. Sergio Luis Náñez Alonso & Javier Jorge-Vazquez & Miguel Ángel Echarte Fernández & Konrad Kolegowicz & Wojciech Szymla, 2022. "Financial Exclusion in Rural and Urban Contexts in Poland: A Threat to Achieving SDG Eight?," Land, MDPI, vol. 11(4), pages 1-21, April.
    2. Nadia Ayed & Khemaies Bougatef, 2024. "Performance Assessment of Logistic Regression (LR), Artificial Neural Network (ANN), Fuzzy Inference System (FIS) and Adaptive Neuro-Fuzzy System (ANFIS) in Predicting Default Probability: The Case of," Computational Economics, Springer;Society for Computational Economics, vol. 64(3), pages 1803-1835, September.
    3. Audeh Ahmad Bani Ahmad, 2018. "The Internal Auditing Procedures Effectiveness in Using Accounting Information System to Assess Fraud in Jordanian Commercial Banks," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(3), pages 291-298, July.

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