Supervised and unsupervised data mining approaches in loan default prediction

Jovanne C. Alejandrino, Jovito Jr. P. Bolacoy, John Vianne Bauya Murcia

Abstract


Given the paramount importance of data mining in organizations and the possible contribution of a data-driven customer classification recommender systems for loan-extending financial institutions, the study applied supervised and supervised data mining approaches to derive the best classifier of loan default. A total of 900 instances with determined attributes and class labels were used for the training and cross-validation processes while prediction used 100 new instances without class labels. In the training phase, J48 with confidence factor of 50% attained the highest classification accuracy (76.85%), k-nearest neighbors (k-NN) 3 the highest (78.38%) in IBk variants, naïve Bayes has a classification accuracy of 76.65%, and logistic has 77.31% classification accuracy. k-NN 3 and logistic have the highest classification accuracy, F-measures, and kappa statistics. Implementation of these algorithms to the test set yielded 48 non-defaulters and 52 defaulters for k -NN 3 while 44 non-defaulters and 56 defaulters under logistic. Implications were discussed in the paper.

Keywords


data mining; decision tree; k-nearest neighbor; loan default prediction; logistic; naïve bayes; weka;

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DOI: http://doi.org/10.11591/ijece.v13i2.pp1837-1847

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International Journal of Electrical and Computer Engineering (IJECE)
p-ISSN 2088-8708, e-ISSN 2722-2578