9.

CREDIT
SCORING &
RETAIL CREDIT
RISK
MANAGEMENT

MSc. Saul Noriega V.

 RETAIL BANKING

(Consumer banking or
personal banking) Is the
provision of services by a
bank to the general public
and small businesses.
RETAIL LENDING
ENCOMPASSES…

Home mortgages
Fixed-rate mortgages and adjustable-
rate mortgages (ARMs) are secured
by the residential properties financed
by the loan. The loan-to-value ratio
(LTV) represents the proportion of the
property value financed by the loan
and is a key risk variable.

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Home equity loans.
Sometimes called home equity line
of credit (HELOC) loans, these can be
considered a hybrid between a
consumer loan and a mortgage loan.
They are secured by residential
properties.

Installment loans.
These include revolving loans, such
as personal lines of credit that may
be used repeatedly up to a specified
limit. They also include credit cards,
automobile and similar loans, and all
other loans not included in
automobile loans and revolving
credit.
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Credit card revolving loans.
These are unsecured loans.

Small business loans (SBL).

These are secured by the assets of
the business or by the personal
guarantees of the owners.

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RETAIL CREDIT RISK
VS. COMMERCIAL
CREDIT RISK
 CREDIT SCORING

Credit standing
(phone service provider)

likelihood of claim filling

(insurance company)

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RETAIL CREDIT RISK

PROS CONS

• Retail credit exposure arrive in bite- • Lack of historical data.

sized pieces.
• Big volume (customers) can create a
• Retail customers are independent big impact.
from one another.
• High predictability of retail credit
losses.
CREDIT
SCORING
Credit Scoring is important to
guarantee repayment from customers.
There are a few credit scoring models
to score consumer credit applications:
- Credit Bureau Scores (FICO): Cheap
and customizable.
- Pooled Models: Developed from
data collected from several banks.
It’s a bit more costly to customize
to an industry, but not customizable
to a company specifically.
- Custom Models: Developed with in-
house data. Very Customizable.
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 CREDIT FILES
INFORMATION
• Identifying information
• Public Records (Legal Items)
• Collection Information
• Trade Line/Account Information
• Inquiries
ACTIVITY