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Factors Affecting the Payment Performance of Loan: An Empirical Investigation on Credit Default Risk

Md. Omar Faruque, Md. Hasan Uddin, Din Islam, Abul Basher Khan

Abstract

This paper explores the relationship between consumer credit clients’ payment performance i.e. credit default risk and some demographic, macroeconomic, locational and financial variables. Data to examine this relationship is obtained from the customer records of a private bank in Bangladesh. Some statistical tools are used to evaluate the data. Financial variables rather than the demographic characteristics of clients have a significant influence on customers’ pay back performance. Thus, the longer the maturity time, the higher the interest rate, and the higher the credit default risks. This suggests bankers to apply appropriate adjustments to financial variables in order to minimize credit default risk