Possible Application of Data Minning Technology in Supporting Loan Disbusrement Activity At Dashen Bank S.C.
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Date
2001-07
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Addis Ababa University
Abstract
The commercial banking sector plays vital role in the economic development eflorts oFa counliy
And the viability oFthe sector relies on the ability of the institutions to maintain a positive inflow
of resources. And one of the factors that affect the ability of the commercial banking sectors to
maintain positive flow of resources is the problem of default rates. Among the Ethiopian banking
sector there is a general problem of high default rate and the commercial banks have tried to
tackle this problem through different ways.
One technique that has become popular in addressing problem of credit risk in other countries is
data mining. Data mining technology has enabled banks in other countries to make good
prediction on the probability thal a certain borrower would de/clUlt or not. BUI, so far. no
commercial bank in Ethiopia has used data mining technologyfor such purposes i.e. assessment
of credit risk. Thus, the objective of this research work was to see if application of data mining
could also be beneficial in the Ethiopian banking context. For reasons o/Familiarity Dashen Bank
S. C. was selected as a case study.
The methodology employed for the research had baSically three stages. 71wse were collection of
data, preparation of data and model building and testing. Data was collected Fom two kinds of
documents that were available at the head office o/Dashen Bank. Then the data was prepared
which included summarization, deriving of new fields and handling of missing data. The dala
mining technique employed for the model building and testing was neural network. Neural
network sofiware was thus used in building and testing a number of models.
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From Ihe numerous frials, many models wilh encouraging resu/ls were obtained. These models
indicaled Ihal dolo mining applicafionjor credil decision-making isjeasible 01 Dashen Bank. BUI
one major Iimifafion was unavai/abilily oj dora in an eleclronicjorm. However, a survey in Ihe IT
deparrmen.1 of Dashen. Bank suggesled Ihal Ihis problem is being duly addressed.
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Supporting Loan Disbusrement Activity