Roc Analysis Based On The Gray Area Of ​​the Lending Decisions

Domestic commercial banks face to huge risk and competition with the pace of market-directed interest and deposit-loan opening to international commercial banks. There are four main points which domestic commercial banks need pay more attention on them. They are the total benefit from customer, the total cost for operation, default-risk and profit margin.The pace of market-directed interest has speeded. This situation has decided these domestic commercial banks had more power on decision-making for lending. The operation for loaning should follow by the principle that benefit need deserve the risk. Our domestic commercial banks might face the challenge the decreased business which caused by more lending business opening to international banks. The wrong decision-making for lending should cause to demand a high price to a low risk company and to demand a low price to a high risk company. The cost for lending decision is very high now.In this paper, we mainly discussed how to make a lending decision to make sure the largest benefit by using credit scoring models. In evaluating many kinds models, it is common to use ROC curve. In the case of default prediction, it describes the percentage of non-defaulting firms that must be inadvertently denied credit in order to avoid lending to a specific percentage of defaulting firms when using a specific default model. ROC analysis produces a form of cost-benefit analysis and considers the cost and benefit totally which caused by wrong lending decisions. Banks can define a cut-off above which credit will be granted and below which it will be denied by ROC analysis. This paper discussed the cost and benefit which caused by wrong lending decisions in marketing and will take advantage of probability and statistic to resolve these problems.At first, this paper introduced some credit scoring models and the ROC curve. Secondly this paper defined an optimal cut-off in the gray area and discussed the practical meaning of ROC analysis. At last, the paper focused on the financial situation for 20 companies in stock market and demonstrated the way's feasibility.