Creating a Fuzzy Rule-Based Indicator for the Review of Credit Standing

Corporate insolvencies are rising and interest-rate (and thus profit) margins associated with increasing loan volumes are declining. Banking institutions need instruments that can evaluate the credit standing and general financial situation of a company quickly and accurately. Only through the use of such instruments can shaky enterprises be identified early. In this paper, we introduce and focus on a fuzzy rule-based expert system that replicates mathematically the expert knowledge of a loan officer. Our procedure uses a computer to rapidly evaluate a company's credit standing. We also consider the reliability of an evaluation of a firm's financial situation, using a credit-evaluation indicator developed from the above procedure. We perform empirical tests of our credit-evaluation indicator on 8,763 actual financial statements from the manufacturing sector