Possible Application of Data Mining Technology in Supporting Loan Disbursement 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 developmel1l efforts a/a country.
And the viability of the sector relies on the alibi(v 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 that a certain borrower would default or not. BUI, so jar, no
commercial bank in Ethiopia has used data mining technology for such purposes i.e. assessment
of credit risk. l1ws, the objective of this research work was to serif application of data mining
could also be beneficial in the Ethiopian banking context. For reasons of familiarly D ashen Bank
S. C was selected as a case study.
The methodology employed for the research handbag Sic ally three stages. These were collection of
data, preparation of data and model building and testing. Data was collected hi-om two kinds of
documents that were available at the head office of D ashen Bank. 7'l1Cn the data was prepared
which included stigmatization, deriving of minefields and handling of missing data. The data
mining technique employed for the model building and testing was neural network. Neural
network software was thus used in building and test inga number of models From the numerous trials, many models with encouraging results were obtained. These models
indicated that data mining application for credit decision-making is feasible at D ashen Bank. But
one major limitation was unavailability of data in an electronic form. However, a survey in the IT
deportment of D ashen Bonk suggested that this problem is being duly addressed.
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Disbursement Activity at Dashen Bank