Consumer credit scoring : an empirical study involving home loans within the Nepalese banking sector

Nepalese banks have witnessed a considerable shift in recent years towards its loans and advances by focussing on consumer credit. The traditional method of evaluating applicants that is based on the judgmental system is increasingly becoming inappropriate for the large volume of applicants. As a result of the shift in the lending market and the increased emphasis placed by the regulator on risk management, Nepalese banks have to rethinking on the way they assess their applicants for credit. Traditionally, the credit decision whether to accept/reject an applicant has been based on the subjective evaluation of the credit application forms and supporting documents. The literature advocates an objective approach on the lines of credit scoring which is fast, reliable, consistent and risk-based. On the strengths of this argument, this thesis presents the qualitative and quantitative considerations including issues relating to data capture, model development and implementation of a formal credit scoring model within the Nepalese Banking sector. The questionnaire was administered with the non-managerial level staff, the respondents in the expert interviews were managerial level staff and the database for model development were taken from a home loans customer database of a typical Nepalese bank. The findings of this work point to the fact that it is possible to develop such an objective model using six key characteristics and jointly produce a model that will predict the quality of loan with an acceptable degree of confidence