Prediction of bank credit worthiness through credit risk analysis: an explainable machine learning study

Victor Chang (), Qianwen Ariel Xu, Shola Habib Akinloye, Vladlena Benson and Karl Hall
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Victor Chang: Aston University
Qianwen Ariel Xu: Aston University
Shola Habib Akinloye: Teesside University
Vladlena Benson: Aston University
Karl Hall: Teesside University

Annals of Operations Research, 2025, vol. 354, issue 1, No 9, 247-271

Abstract: Abstract The control of credit risk is an important topic in the development of supply chain finance. Financial service providers should distinguish between low- and high-quality customers to predict credit risk accurately. Proper management of credit risk exposure contributes to the long-term viability and profitability of banks, systemic stability, and efficient capital allocation in the economy. Moreover, it benefits the development of supply chain finance. Supply chain finance offers convenient loan transactions that benefit all participants, including the buyer, supplier, and bank. However, poor credit risk management in supply chain finance may cause losses for finance providers and hamper the development of supply chain finance. Machine learning algorithms have significantly improved the accuracy of credit risk prediction systems in supply chain finance. However, their lack of interpretability or transparency makes decision-makers skeptical. Therefore, this study aims to improve AI transparency by ranking the importance of features influencing the decisions made by the system. This study identifies two effective algorithms, Random Forest and Gradient Boosting models, for credit risk detection. The factors that influenced the decision of the models to make them transparent are explicitly illustrated. This study also contributes to the literature on explainable credit risk detection for supply chain finance and provides practical implications for financial institutions to inform decision making.

Keywords: Credit risk analysis; Machine learning; Explainable artificial intelligence; Supply chain finance (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10479-024-06134-x

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