Will they repay their debt? Identification of borrowers likely to be charged off

Abstract

Recent increase in peer-to-peer lending prompted for development of models to separate good and bad clients to mitigate risks both for lenders and for the platforms. The rapidly increasing body of literature provides several comparisons between various models. Among the most frequently employed ones are logistic regression, Support Vector Machines, neural networks and decision tree-based models. Among them, logistic regression has proved to be a strong candidate both because its good performance and due to its high explainability. The present paper aims to compare four pairs of models (for imbalanced and under-sampled data) meant to predict charged off clients by optimizing F1 score. We found that, if the data is balanced, Logistic Regression, both simple and with Stochastic Gradient Descent, outperforms LightGBM and K-Nearest Neighbors in optimizing F1 score. We chose this metric as it provides balance between the interests of the lenders and those of the platform. Loan term, debt-to-income ratio and number of accounts were found to be important positively related predictors of risk of charge off. At the other end of the spectrum, by far the strongest impact on charge off probability is that of the FICO score. The final number of features retained by the two models differs very much, because, although both models use Lasso for feature selection, Stochastic Gradient Descent Logistic Regression uses a stronger regularization. The analysis was performed using Python (numpy, pandas, sklearn and imblearn).

Tax governance: how the EU supports third countries

“…According to the European Parliament resolution of 8 July 2015 on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries, the tax-to-GDP ratio, which represents the measure of tax revenue of a nation related to the size of its economy, is still too low in developing countries (Members' Research Service, 2013;Caplescu et al, 2020). It varies between 10% and 20% in LICs and, in many such countries, does not reach the threshold of 15% for generating sufficient domestic resources which can be invested in economic growth.…”