Design and Implementation of an Appropriate Model for Allocating Bank Loans

Subject Areas : Futurology

M. E. Mohammad Pourzarandi ¹ , M. Minouei ² , H. Nikoomaram ³

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Received: 2014-12-26 Accepted : 2014-12-26 Published : 2008-03-20

Keywords: credit risk, Credit Assets, Credit Portfolio Management, diversification, Default,

Abstract :

One of the main activities of the commercial banks is to offer financial facilities. Usually, these financialfacilities are considered as a main asset and a primary source for bank revenues. These facilities can alsobring most risks for the banks. Two major activities of each bank are to attract and lend out funds. Thesuccession degree of a bank extremely depends on the optimum allocation of the funds. The aims of thisresearch consist on designing a mathematical model to optimize the allocation of funds for commercialbanks, designing a software for portfolio management of facilities, attracting profitable customers anddecreasing delayed or unpaid debts. In This research, Islamic contracts are used for modeling and the creditrisk is defined by the probability of a costumer's default. To avoid complication of the model and problemsolutions, which are caused by the plurality of the decision making variables and the constraints, a linearprogramming model have been used. The statistical population is state commercial banks and the sample isthe Bank of Mellat, using the year 2004 data. The main reason to choose the Bank of Mellat wereaccessibility and availability of the statistical data and bank information. The Designed model and thesoftware attained from this research can be used in all commercial banks and financial and credit institutions.