The Application of Survival Analysis Theorem on Management of Credit Risk of Facility Receivers. A Case Survey of Bank Maskan

One of the basic subjects of risk management of banks and financial and credit institutes is concerned with the credit risk management. In this paper an attempt is made to utilize the various methods of survival analysis for model building of credit risks in terms of provisional distribution function of default time. For this purpose, we have applied two different methods of provisional distribution function of default time. The first method is based on the Proportional Hazard Model of Cox, and the second method comprises the Generalized Product Limit Estimator Model. As an empirical work, we have considered the Credit Portfolio of Contract of Reward (Joalah) of Bank Maskan and estimated the probability of its default in accordance with these two methods. Subsequently, we compared the two methods vis-a-vis applying the Receiver Operating Characteristic (ROC) technique. The results of both the models prima facie indicate that more stringent regulatory policy should be implemented in the beginning of repayment period of facilities, because loans with lifetime to default or censore less than 5 months are bearing the highest probability of default per se. We have also found that using the Credit Scoring System by banks not only could pave the way for better management of allocation of facilities to customers, but in turn, as an diagnostic explanatory variable, it can lead to more efficient and meticulous estimation of probability of default.