Machine Learning Models Evaluation and Feature Importance Analysis on NPL Dataset

Abstract: Predicting the probability of non-performing loans for individuals has a vital and beneficial role for banks to decrease credit risk and make the right decisions before giving the loan. The trend to make these decisions are based on credit study and in accordance with generally accepted standards, loan payment history, and demographic data of the clients. In this work, we evaluate how different Machine learning models such as Random Forest, Decision tree, KNN, SVM, and XGBoost perform on the dataset provided by a private bank in Ethiopia. Further, motivated by this evaluation we explore different feature selection methods to state the important features for the bank. Our findings show that XGBoost achieves the highest F1 score on the KMeans SMOTE over-sampled data. We also found that the most important features are the age of the applicant, years of employment, and total income of the applicant rather than collateral-related features in evaluating credit risk.