Discriminant analysis in granting Loans: a case study of KCB-Kisumu branch
Abstract/ Overview
ABSTRACT
This research study summarizes the loan evaluation method known
as credit scoring using Discriminant Analysis. Credit scoring is a
technique that helps banks decide whether to grant credit to applicants
who apply to them or not. Credit department is faced with
higher risk in making decisions. There is no general study that had
been conducted in leading them toward making correct decisions.
The main objective of this project was to determine the factors that
can affect the bank's decision to grant a loan. The study estimated
a discriminant function to determine the expected financial health
of the consumer credit of customers of KCB Kisumu Branch by using
eight demographic, socio-economic, and loan characteristics of
the sampled borrowers. The data was analyzed using SPSS. The
estimated function was found to be significant at one per cent level
of significance and the model estimated a group membership with
more than seventy-five per cent accuracy. This may decrease bad
debts, and help to set risk based credit pricing for the clients and
may also make the credit granting faster and more accurate.