Reinforcement of the Bank Loan Model using the Feature Selection Method of Machine Learning
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Abstract
Does feature selection and machine learning (ML) guarantee the effectiveness of the bank credit system model? This article aims to analyze this problem. In fact, in finance, expert-based credit risk models still dominate. In this study, we establish a new benchmark using consumer data and present machine learning methods. A risk prediction that is as accurate as possible is an important requirements for credit scoring models. In addition, regulators expect that the models should to be auditable and transparent. As a result, the superior predictive power of contemporary machine learning algorithms cannot be fully utilized in credit scoring because very simple predictive models, such as several ML classifiers, are still widely used. As a result, significant potential is missed, increasing reserves or the number of credit defaults. A framework for comparing scores before and after feature selection machine learning models that are transparent, auditable, and explainable is presented in this article, as well as the various dimensions that need to be taken into consideration in order to make credit scoring models understandable. In accordance with this framework, we give an overview of the models which demonstrate how it can be used in credit scoring, and compare the results to scorecards' interpretability. The model presented demonstrates that machine learning techniques can maintain their ability to enhance predictive power while still maintaining a comparable level of interpretability.
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