Scoring Models and Credit Risk: The Case of Cooperative Banks in Poland

Krzysztof Kil,Radosław Ciukaj,Justyna Chrzanowska

doi:10.3390/risks9070132

Abstract

The aim of the research presented in the article was to analyse the legitimacy of the use of scoring models in banking activities, together with the assessment of the effectiveness of this tool in reducing the high value of the NPL ratio in Polish cooperative banks on the example of banks belonging to the BPS S.A. association in the period between 2004 and 2020. We used a variety of research methods for this purpose including a depth review of the literature, analysis of statistical data regarding the sector of Polish cooperative banks, analysis of financial data of cooperative banks, construction of an econometric panel model, and the designing a questionnaire (which was later sent to the management board of selected cooperative banks). Our research confirmed the significant impact of the use of scoring models in lending activities on the value of the NPL ratio in cooperative banks. The analysed cooperative banks, which used the scoring models proposed by BIK in their lending activity, showed significantly lower values of the NPL ratio in each analysed year than banks that used other scoring models. Our study also confirmed the different direction of the impact of the models offered by BIK and individual scoring models on the value of the NPL ratio. We have also shown that the scoring models proposed by BIK have a statistically significant negative impact on the level of the NPL ratio, and the banks’ own scoring models have a statistically significant positive impact on the level of the NPL ratio.

Highlights

One of the most important methods aimed at limiting the credit risk and assessment of the future solvency of the borrower is the analysis of their credit check and their creditworthiness at every stage of the loan agreement (Spuchláková et al 2015)
Empirical analysis, presented by Berger et al (2011) suggests that the use by community banks of consumer credit scoring is associated with an increase in small business lending without any significant change in the quality of the banks’ loan portfolio
This article presents the results of research confirming the efficacy of using the scoring models as a tool for limiting the credit risk in cooperative banks in Poland

Summary

Introduction

Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Reliable credit check assessment is a significant matter both for the bank and the borrower. It protects both parties in the loan agreement from negative consequences resulting from a failure to repay the contracted liability. A properly conducted analysis of the credit check has, in addition, been deemed as a key condition for the stability of the financial system (Herring 1999). In their practice, banks use different methods to serve the analysis of the credit check. Until now, a uniform template has not been created in this regard (Genriha and Voronova 2012)

Objectives

Results

Conclusion