Credit Risk Analysis of Auto Loan in Latin America

Latin American economy has achieved rapid economic growth since 2003 after undergoing currency crisis and economic turmoil from the early 1930s through until the early 1960s. As a result of this growth, consumer finance market expanded due to external demand in country X in Latin America. In addition, because part of the poor class has changed into the middle class, financial services have also spread to those who could not formulate loans in the past. On the other hand, there are many debtors who do not understand the contents of the loan contract, and the debt default due to excessive debt is increasing. Therefore, in order for Latin American financial institutions, manufacturers and retailers to operate stably, it is necessary to measure the credit risk of the debtor who formed the loan and to grasp the factors that affect the default. The purpose of this research is to construct a credit risk model based on 14,000 auto loan data in country X in Latin America and to estimate debtor’s default probability. The binomial logit model was adopted as a usage model in this research. Estimate default probabilities for debtors who defaulted within one year using the model and grasp default situations in Latin America. From the analysis results, it became clear that the presence or absence of marriage greatly influences the default. It is thought that the debtor who got married and had a family became easier to default because expenditure is larger than the debtor who does not have a family. In addition, when there are missing values in the income and down payment items, the debtor got the result that it is easy to default. Since information on auto loans is often written by the debtor himself, it was suggested that debtors who do not fill in information correctly have a stronger possibility of default.