Classification of debtor credit status and determination amount of credit risk by using linier discriminant function

Abstract

A decision of credit that given by bank or another creditur must have a risk and it called credit risk. Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. The substantial of credit risk can lead to losses for the banks and the debtor. To minimize this problem need a further study to identify a potential new customer before the decision given. Identification of debtor can using various approaches analysis, one of them is by using discriminant analysis. Discriminant analysis in this study are used to classify whether belonging to the debtor's good credit or bad credit. The result of this study are two discriminant functions that can identify new debtor. Before step built the discriminant function, selection of explanatory variables should be done. Purpose of selection independent variable is to choose the variable that can discriminate the group maximally. Selection variables in this study using different test, for categoric variable selection of variable using proportion chi-square test, and stepwise discriminant for numeric variable. The result of this study are two discriminant functions that can identify new debtor. The selected variables that can discriminating two groups of debtor maximally are status of existing checking account, credit history, credit amount, installment rate in percentage of disposable income, sex, age in year, other installment plans, and number of people being liable to provide maintenance. This classification produce a classification accuracy rate is good enough, that is equal to 74,70%. Debtor classification using discriminant analysis has risk level that is small enough, and it ranged beetwen 14,992% and 17,608%. Based on that credit risk rate, using discriminant analysis on the classification of credit status can be used effectively.