Credit risk analysis and prediction modelling of bank loans using R

Abstract

Nowadays there are many risks related to bank loans, especially for the banks so as to reduce their capital loss. The analysis of risks and assessment of default becomes crucial thereafter. Banks hold huge volumes of customer behaviour related data from which they are unable to arrive at a judgement if an applicant can be defaulter or not. Data Mining is a promising area of data analysis which aims to extract useful knowledge from tremendous amount of complex data sets. In this paper we aim to design a model and prototype the same using a data set available in the UCI repository. The model is a decision tree based classification model that uses the functions available in the R Package. Prior to building the model, the dataset is pre-processed, reduced and made ready to provide efficient predictions. The final model is used for prediction with the test dataset and the experimental results prove the efficiency of the built model.