Using the Analytic Hierarchy Process for Bank Management-Analysis of Loan Client Selection Decisions

Abstract

This study is aimed at observing the loan risks on corporate clients and attempting to base the selection of loan clients on AHP, logit and discriminant analysis, using the 201 loans released by international commercial banks as the objects of study. Empirical results indicate that in the selection of loan clients, the bank stresses: first, conformity with the loan policy and then credit ratings of the clients; from the perspective of guiding principles, securities are the most valued, business association is the next, and the financial structure and management efficiency are the least from the perspective of the fourth tier which reflects the evaluation indicators, contents and percentages of securities are most important and whether clients have ever defaulted is secondary. On the whole, an accuracy of approximately 80% to 90%, or in some cases even up to 95%, could be achieved when using the analytic hierarchy process to evaluate loan clients; the openness toward the establishment of new banks indeed led to higher loan risks from individual banks, which deserves attention of the financial authorities.