Performance Evaluation of Machine Learning and Deep Learning Models for Credit Risk Prediction

Credit risk prediction is essential for financial institutions to effectively assess the likelihood of borrower defaults and manage associated risks. This study presents a comparative analysis of deep learning architectures and traditional machine learning models on imbalanced credit risk datasets. To address class imbalance, we employ three resampling techniques: Synthetic Minority Over-sampling Technique (SMOTE), Edited Nearest Neighbors (ENN), and the hybrid SMOTE-ENN. We evaluate the performance of various models, including multilayer perceptron (MLP), convolutional neural network (CNN), long short-term memory (LSTM), gated recurrent unit (GRU), logistic regression, decision tree, support vector machine (SVM), random forest, adaptive boosting, and extreme gradient boosting. The analysis reveals that SMOTE-ENN combined with MLP achieves the highest F1-score of 0.928 (accuracy 95.4%) on the German dataset, while SMOTE-ENN with random forest attains the best F1-score of 0.789 (accuracy 82.1%) on the Taiwanese dataset. SHapley Additive exPlanations (SHAP) are employed to enhance model interpretability, identifying key drivers of credit default. These findings provide actionable guidance for developing transparent, high-performing, and robust credit risk assessment systems.

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Publication Details

Journal
Journal of risk and financial management
Published
2026-03-11
DOI
https://doi.org/10.3390/jrfm19030210
Primary Topic
Financial Distress and Bankruptcy Prediction
Type
article
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article

Performance Evaluation of Machine Learning and Deep Learning Models for Credit Risk Prediction

Irvine Mapfumo, Thokozani C. Shongwe
Journal of risk and financial management
Financial Distress and Bankruptcy Prediction
article

Performance Evaluation of Machine Learning and Deep Learning Models for Credit Risk Prediction

Irvine Mapfumo, Thokozani C. Shongwe
article en

Abstract

Credit risk prediction is essential for financial institutions to effectively assess the likelihood of borrower defaults and manage associated risks. This study presents a comparative analysis of deep learning architectures and traditional machine learning models on imbalanced credit risk datasets. To address class imbalance, we employ three resampling techniques: Synthetic Minority Over-sampling Technique (SMOTE), Edited Nearest Neighbors (ENN), and the hybrid SMOTE-ENN. We evaluate the performance of various models, including multilayer perceptron (MLP), convolutional neural network (CNN), long short-term memory (LSTM), gated recurrent unit (GRU), logistic regression, decision tree, support vector machine (SVM), random forest, adaptive boosting, and extreme gradient boosting. The analysis reveals that SMOTE-ENN combined with MLP achieves the highest F1-score of 0.928 (accuracy 95.4%) on the German dataset, while SMOTE-ENN with random forest attains the best F1-score of 0.789 (accuracy 82.1%) on the Taiwanese dataset. SHapley Additive exPlanations (SHAP) are employed to enhance model interpretability, identifying key drivers of credit default. These findings provide actionable guidance for developing transparent, high-performing, and robust credit risk assessment systems.

Journal of risk and financial managementVol. 19(3)
University of Johannesburg (ZA)
Openalex Percentile: Top 26%
Financial Distress and Bankruptcy Prediction
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