Risk management and business credit scoring

Abstract

Risk management is focused on preventing the losses and protecting the company's asset base. Banks are most exposed to credit risk, so their goal is to minimize the losses that occur as a result of default or insolvency. Business credit scoring models are designed to estimate the probability of corporate default. In this paper we presented the business credit scoring model based on a decision tree analysis. The emphasis in the research is on the selection of the variables that are relevant for the business credit scoring model applicable to the Croatian financial system. In order to reduce the number of variables included in the analysis, we suggest the use of the Information Value and inferential statistical methods.