Attention-based dynamic multilayer graph neural networks for loan default prediction

Whereas traditional credit scoring tends to employ only individual borrower- or loan-level predictors, it has been acknowledged for some time that connections between borrowers may result in default risk propagating over a network. In this paper, we present a model for credit risk assessment leveraging a dynamic multilayer network built from a Graph Neural Network and a Recurrent Neural Network, each layer reflecting a different source of network connection. We test our methodology in a behavioural credit scoring context using a dataset provided by U.S. mortgage financier Freddie Mac, in which different types of connections arise from the geographical location of the borrower and their choice of mortgage provider. The proposed model considers both types of connections and the evolution of these connections over time. We enhance the model by using a custom attention mechanism that weights the different time snapshots according to their importance. After testing multiple configurations, a model with GAT, LSTM, and the attention mechanism provides the best results. Empirical results demonstrate that, when it comes to predicting probability of default for the borrowers, our proposed model brings both better results and novel insights for the analysis of the importance of connections and timestamps, compared to traditional methods. • We model credit risk with deep learning leveraging dynamic multilayer networks. • We test our methodology in a behavioural credit scoring context. • Our custom attention mechanism weights networks according to their importance. • Our GAT-LSTM-ATT model outperforms other methods.

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Publication Details

Journal
European Journal of Operational Research
Published
2024-09-14
DOI
https://doi.org/10.1016/j.ejor.2024.09.025
Citations
29
Primary Topic
Financial Distress and Bankruptcy Prediction
Type
article
Field-Weighted Citation Impact
27.44

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article

Attention-based dynamic multilayer graph neural networks for loan default prediction

Cristián Bravo, Kamesh Korangi, Christophe Mues, María Óskarsdóttir et al.
29 citations
European Journal of Operational Research
Financial Distress and Bankruptcy Prediction
27.44
article

Attention-based dynamic multilayer graph neural networks for loan default prediction

Cristián Bravo, Kamesh Korangi, Christophe Mues, María Óskarsdóttir, Sahab Zandi
article en
29 citations

Abstract

Whereas traditional credit scoring tends to employ only individual borrower- or loan-level predictors, it has been acknowledged for some time that connections between borrowers may result in default risk propagating over a network. In this paper, we present a model for credit risk assessment leveraging a dynamic multilayer network built from a Graph Neural Network and a Recurrent Neural Network, each layer reflecting a different source of network connection. We test our methodology in a behavioural credit scoring context using a dataset provided by U.S. mortgage financier Freddie Mac, in which different types of connections arise from the geographical location of the borrower and their choice of mortgage provider. The proposed model considers both types of connections and the evolution of these connections over time. We enhance the model by using a custom attention mechanism that weights the different time snapshots according to their importance. After testing multiple configurations, a model with GAT, LSTM, and the attention mechanism provides the best results. Empirical results demonstrate that, when it comes to predicting probability of default for the borrowers, our proposed model brings both better results and novel insights for the analysis of the importance of connections and timestamps, compared to traditional methods. • We model credit risk with deep learning leveraging dynamic multilayer networks. • We test our methodology in a behavioural credit scoring context. • Our custom attention mechanism weights networks according to their importance. • Our GAT-LSTM-ATT model outperforms other methods.

European Journal of Operational ResearchVol. 321(2)
Reykjavík University (IS), Western University (CA), University of Southampton (GB)
Canada Research Chairs, Alliance de recherche numérique du Canada, Natural Sciences and Engineering Research Council of Canada, Economic and Social Research Council
Decent work and economic growth
Openalex Percentile: Top 0%
Financial Distress and Bankruptcy Prediction
27.44
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