2692-2967ISSN (Online)
2770-0216ISSN (Print)
Volume 11 , Issue 1 , PP: 17-24, 2024 | Cite this article as | XML | Html | PDF | Full Length Article
Noura Metawa 1 * , Rania Itani 2
Doi: https://doi.org/10.54216/AJBOR.110102
This article presents our research effort to explore the convergence of sustainable banking practices and predictive modeling for bank loan defaults, with a primary emphasis on addressing the pressing need for resilient financial systems. To this end, an applied methodology is presented in this study to model bank loan defaults, emphasizing the incorporation of sustainability criteria into predictive analytics. Given the temporal nature of load data, our approach leverages Long Short-Term Memory (LSTM) networks as its backbone process for predictive modeling. The empirical results of the public case study underscored the enhanced predictive accuracy completed through this approach, emphasizing the pivotal function of integrating sustainability metrics in predicting mortgage defaults inside the banking area.
Loan Default , Sustainable Finance , Credit Risk Modeling , Banking Sustainability , Machine Learning , Financial Stability , Default Probability Estimation , Risk Management , Econometric Modeling , Banking Practices.
[1] Yip, Angus W H, and Nancy M P Bocken. 2018. “Sustainable Business Model Archetypes for the Banking Industry.” Journal of Cleaner Production 174: 150–69.
[2] Bhardwaj, Broto Rauth, and Aarushi Malhotra. 2013. “Green Banking Strategies: Sustainability through Corporate Entrepreneurship.” Greener Journal of Business and Management Studies 3 (4): 180–93.
[3] Bennett, Lynn, and Carlos E Cuevas. 1996. “Sustainable Banking with the Poor.” Journal of International Development. Wiley Online Library.
[4] Paulet, Elisabeth, Miia Parnaudeau, and Francesc Relano. 2015. “Banking with Ethics: Strategic Moves and Structural Changes of the Banking Industry in the Aftermath of the Subprime Mortgage Crisis.” Journal of Business Ethics 131 (1): 199–207.
[5] Ledgerwood, Joanna. 1999. “Sustainable Banking with the Poor Microfinance Handbook.”
[6] Banga, Josué. 2019. “The Green Bond Market: A Potential Source of Climate Finance for Developing Countries.” Journal of Sustainable Finance \& Investment 9 (1): 17–32.
[7] Weber, Olaf, and Sven Remer. 2011. Social Banks and the Future of Sustainable Finance. Vol. 64. Taylor \& Francis.
[8] Cui, Yujun, Sean Geobey, Olaf Weber, and Haiying Lin. 2018. “The Impact of Green Lending on Credit Risk in China.” Sustainability 10 (6): 2008.
[9] Bose, Sudipta, Habib Zaman Khan, Afzalur Rashid, and Shajul Islam. 2018. “What Drives Green Banking Disclosure? An Institutional and Corporate Governance Perspective.” Asia Pacific Journal of Management 35: 501–27.
[10] Schoenmaker, Dirk, and Willem Schramade. 2018. Principles of Sustainable Finance. Oxford University Press.
[11] Milano, Riccardo. 2011. “Social Banking: A Brief History.” In Social Banks and the Future of Sustainable Finance, 15–47. Routledge.
[12] D’Orazio, Paola, and Lilit Popoyan. 2019. “Fostering Green Investments and Tackling Climate-Related Financial Risks: Which Role for Macroprudential Policies?” Ecological Economics 160: 25–37.
[13] Thomas, Jesu Raju, and Jyothi Kumar. 2016. “Social Performance and Sustainability of Indian Microfinance Institutions: An Interrogation.” Journal of Sustainable Finance \& Investment 6 (1): 38–50.
[14] Falcone, Pasquale Marcello, and Edgardo Sica. 2019. “Assessing the Opportunities and Challenges of Green Finance in Italy: An Analysis of the Biomass Production Sector.” Sustainability 11 (2): 517.
[15] Conley, John M, and Cynthia A Williams. 2011. “Global Banks as Global Sustainability Regulators?: The Equator Principles.” Law \& Policy 33 (4): 542–75.
[16] Angori, Gabriele, David Aristei, and Manuela Gallo. 2019. “Determinants of Banks’ Net Interest Margin: Evidence from the Euro Area during the Crisis and Post-Crisis Period.” Sustainability 11 (14): 3785.
[17] Munkhdalai, Lkhagvadorj, Tsendsuren Munkhdalai, Oyun-Erdene Namsrai, Jong Yun Lee, and Keun Ho Ryu. 2019. “An Empirical Comparison of Machine-Learning Methods on Bank Client Credit Assessments.” Sustainability 11 (3): 699.
[18] Markose, Sheri M, Simone Giansante, Mateusz Gatkowski, and Ali Rais Shaghaghi. 2010. “Too Interconnected to Fail: Financial Contagion and Systemic Risk in Network Model of Cds and Other Credit Enhancement Obligations of Us Banks.”
[19] Gorton, Gary B, and Ping He. 2008. “Bank Credit Cycles.” The Review of Economic Studies 75 (4): 1181–1214.
[20] Addo, Peter Martey, Dominique Guegan, and Bertrand Hassani. 2018. “Credit Risk Analysis Using Machine and Deep Learning Models.” Risks 6 (2): 38.
[21] Popescu, Cristina Raluca Gh, and Gheorghe N Popescu. 2019. “An Exploratory Study Based on a Questionnaire Concerning Green and Sustainable Finance, Corporate Social Responsibility, and Performance: Evidence from the Romanian Business Environment.” Journal of Risk and Financial Management 12 (4): 162.
[22] Ahmed, Adel. 2010. “Global Financial Crisis: An Islamic Finance Perspective.” International Journal of Islamic and Middle Eastern Finance and Management 3 (4): 306–20.
[23] Pisano, Umberto, André Martinuzzi, and Bernulf Bruckner. 2012. “Financial Sector and Sustainable Development.”
[24] Betz, Frank, Silviu Opric\ua, Tuomas A Peltonen, and Peter Sarlin. 2014. “Predicting Distress in European Banks.” Journal of Banking \& Finance 45: 225–41.
[25] Calomiris, Charles W, and Gary Gorton. 1991. “The Origins of Banking Panics: Models, Facts, and Bank Regulation.” In Financial Markets and Financial Crises, 109–74. University of Chicago Press.
[26] Ng, Artie W. 2018. “From Sustainability Accounting to a Green Financing System: Institutional Legitimacy and Market Heterogeneity in a Global Financial Centre.” Journal of Cleaner Production 195: 585–92.
[27] Nizam, Esma, Adam Ng, Ginanjar Dewandaru, Ruslan Nagayev, and Malik Abdulrahman Nkoba. 2019. “The Impact of Social and Environmental Sustainability on Financial Performance: A Global Analysis of the Banking Sector.” Journal of Multinational Financial Management 49: 35–53.
[28] Sanusi, Sanusi L. 2011. “Global Financial Meltdown and the Reforms in the Nigerian Banking Sector.” CBN Journal of Applied Statistics (JAS) 2 (1): 7.
[29] Poledna, Sebastian, and Stefan Thurner. 2016. “Elimination of Systemic Risk in Financial Networks by Means of a Systemic Risk Transaction Tax.” Quantitative Finance 16 (10): 1599–1613.
[30] Gennaioli, Nicola, Andrei Shleifer, and Robert W Vishny. 2013. “A Model of Shadow Banking.” The Journal of Finance 68 (4): 1331–63.
[31] Bolton, Patrick, and Xavier Freixas. 2006. “Corporate Finance and the Monetary Transmission Mechanism.” The Review of Financial Studies 19 (3): 829–70.
[32] Weber, Olaf, Roland W Scholz, and Georg Michalik. 2010. “Incorporating Sustainability Criteria into Credit Risk Management.” Business Strategy and the Environment 19 (1): 39–50.
[33] Bihari, Suresh Chandra, and Sudeepta Pradhan. 2011. “CSR and Performance: The Story of Banks in India.” Journal of Transnational Management 16 (1): 20–35.
[34] Ozili, Peterson K, and Erick Outa. 2017. “Bank Loan Loss Provisions Research: A Review.” Borsa Istanbul Review 17 (3): 144–63.
[35] Yap, Bee Wah, Seng Huat Ong, and Nor Huselina Mohamed Husain. 2011. “Using Data Mining to Improve Assessment of Credit Worthiness via Credit Scoring Models.” Expert Systems with Applications 38 (10): 13274–83.
[36] Arafah, Willy, and Lucky Nugroho. 2016. “Maqhashid Sharia in Clean Water Financing Business Model at Islamic Bank.” International Journal of Business and Management Invention 5 (2): 22–32.
[37] Behr, Patrick, Lars Norden, and Felix Noth. 2013. “Financial Constraints of Private Firms and Bank Lending Behavior.” Journal of Banking \& Finance 37 (9): 3472–85.
