The Structure of Credit Rating Model

Abstract

 In recent years, credit rating model plays an important role in the banking management, both in loan pricing and credit risk model as well as provisioning for loan losses. However, the proper credit rating model requires a great amount of databases, but the databases of commercial banks has been not big enough for statistical model. Therefore, designing the structure of credit rating model to overcome this advantage is very necessary. 

This paper would not go further in the analysis and construction of credit rating model for particular commercial bank. The reason is each bank will have a database as well as targeting different customers, so that the credit rating model for that will choice different variables to build that model. Instead, the paper firstly outlines the mathermatical models, then indicating the limitations of each credit rating model at the commercial banks now. Lastly, some solutions for credit rating model would be mentioned at the end.