Factors that determine credit worthiness of visa Card holders: a case study of Kenya post office Savings bank

Abstract

Credit risk management is important for any financial institution, as the focus is to ensure efficient collection of customer payments and to reduce the risk of non-payment. This study analyses the factors that determine credit worthiness of Visa Card holders of the Kenya Post Office Savings Bank through review of performance of a sample of cardholders. Secondary data comprising 30 non-defaulters and 30 defaulters was collected from existing customers application forms. The classification was based on those who have ensured prompt repayment of amounts due and those who have ever defaulted. Analysis was done of the scoring of the card holders and their subsequent performance in relation to the variables: age, marital status, average monthly income, time at current employment, housing type, type of bank account, number of unpaid cheques, employer's guarantee, other card issuer's remarks, time at residence and availability on phone. The performance of the card holders in relation to each of the variables was assessed and their overall performance in relation to their scoring was also analysed. Younger customers aged between 22 and 45 were found to be good payers. Married customers were found to be more credit worthy than those who were single. A general trend was established whereby the longer a customer had stayed in their current employment the more credit • worthy they were. However, there was an exception with the longest serving (those who had been with their employer for over 140 months) ;';·ereby 50% were defaulters and 50% were non-defaulters. Currently Postbank uses a scorecard where the variables are scored based on the applicant's personal information. The factors are not weighted although more marks are lost where a cardholder has ~ued unpaid cheques or has adverse comments from other card issuers. It is important for Postbank to give the variables weights with emphasis on marital status, time at current employment, number of unpaid cheques, other card issuers remarks and type of bank account as identified by the study