An Examination of the Role of Credit Scoring in Loan Approval: Evidence from Zenith Bank Nigeria
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Background of the Study
Credit scoring is a quantitative method used by financial institutions to assess the creditworthiness of loan applicants. In Nigeria, credit scoring has become integral to loan approval processes, enabling banks to evaluate risk and make informed lending decisions (Afolabi & Nwankwo, 2024).
Zenith Bank, one of Nigeria’s leading financial institutions, utilizes credit scoring systems to streamline its loan approval process. While these systems improve efficiency and reduce default risks, challenges such as data inaccuracies and limited access to credit histories affect their reliability (Oluwatosin, 2023).
Statement of the Problem
Although credit scoring has revolutionized loan approvals in Nigeria, challenges such as incomplete credit data, lack of standardization, and potential bias in scoring algorithms persist. For Zenith Bank, these issues can result in suboptimal lending decisions, affecting both profitability and customer satisfaction (Chinonso, 2023).
This study examines the role of credit scoring in Zenith Bank’s loan approval process, identifying challenges and recommending improvements to enhance effectiveness.
Objectives of the Study
- To assess the role of credit scoring in Zenith Bank’s loan approval process.
- To identify challenges associated with credit scoring systems in Nigeria.
- To propose strategies for improving credit scoring practices in Nigerian banks.
Research Questions
- What role does credit scoring play in Zenith Bank’s loan approval process?
- What challenges are associated with credit scoring systems in Nigeria?
- What strategies can improve credit scoring practices in Nigerian banks?
Research Hypotheses
- Credit scoring plays a significant role in Zenith Bank’s loan approval process.
- Challenges such as data inaccuracies affect the reliability of credit scoring systems.
- Improved credit scoring practices can enhance lending decisions in Nigerian banks.
Scope and Limitations of the Study
The study focuses on Zenith Bank’s credit scoring practices between 2023 and 2025. Limitations include restricted access to proprietary data and variability in credit scoring methodologies.
Definitions of Terms
- Credit Scoring: A numerical representation of an individual’s creditworthiness, based on credit history and financial behavior.
- Loan Approval Process: The procedure through which banks evaluate and approve loan applications.
- Default Risks: The likelihood that a borrower will fail to repay a loan.
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