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Non-capital calibration of bureau scorecards

Nico Kritzinger and Gary Wayne van Vuuren

The Quarterly Review of Economics and Finance, 2021, vol. 79, issue C, 260-271

Abstract: Application scorecards play a critical part in determining the creditworthiness of applicants for acquisition purposes. However, the level of bad rate in a downturn period and upturn period although monotonic are different across the scores due to procyclicality (which arises from the fluctuation of financial characteristics around a trend in an economic cycle). The procyclicality effect from an acquisition perspective on a bureau scorecard is investigated with emphasis on South African retail banking data, and performance between downturn and upturn periods is compared. This paper contributes by proposing a methodology which incorporates a Bayesian calibration approach to adjust to future expected bad rates: the comparison indicates that calibration is essential to account for procyclicality.

Keywords: Credit risk; Application scoring; Calibration; Credit risk management (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:79:y:2021:i:c:p:260-271

DOI: 10.1016/j.qref.2020.06.003

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