A Review of Factors Affecting Credit Risk of Bank's Legal Clients (A case of Melli Bank of Iran)

Establishment of an efficient banking system is one of the necessary and effective tools for the economic development of the country. In the Iranian banking system mobilizing resources and allocating them within the framework of banking facilities are still among the major tasks and duties of commercial banks. The present study، applying the logistic regression model، reviews a random sample of 455 legal entitles (323 creditworthy clients and 132 non-creditworthy clients) who had received credit facilities from Bank Melli Iran in 2008. In the beginning، a number of 39 descriptive variables، including qualitative and financial variables were identified through 5C methodology. Finally، 11 variables which had a significant effect on credit risk and the separation between creditworthy and non-creditworthy clients were selected. The final model was fit on them. In the fit model، the significance of coefficients was studied using Wald statistic and that of total regression using LR statistic (with 95 percent assurance). Results indicate that based on statistical indices، these functions are significant and enjoy a high value in terms of coefficients and separation between creditworthy and non-creditworthy clients.