Network Centrality and Credit Risk: A Comprehensive Analysis of Peer-to-Peer Lending Dynamics

Finance Research Letters, Forthcoming

15 Pages Posted: 12 Mar 2024

See all articles by Yiting Liu

Yiting Liu

University of Twente; Bern University of Applied Sciences

Lennart John Baals

University of Twente; Bern University of Applied Sciences (BFH)

Joerg Osterrieder

University of Twente; Bern Business School

Branka Hadji Misheva

Zurich University of Applied Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: February 14, 2024

Abstract

This letter delves into credit risk assessment within the Peer-to-Peer (P2P) lending domain by leveraging a com- prehensive dataset from Bondora, a leading European P2P platform. Through combining traditional credit features with network topological features, namely degree centrality, we showcase the crucial role of a borrower’s position and connectivity within the P2P network in determining loan default probabilities. Our findings are bolstered by robustness checks using shuffled centrality features, which further underscore the significance of integrating both financial and network attributes in credit risk evaluation. Our results shed new light on credit risk determinants in P2P lending and benefit investors in capturing inherent information from P2P loan networks.

Keywords: P2P-lending, Credit-Default Prediction, Machine Learning (ML), Network Centrality

JEL Classification: G00, G1, G12, G14, G02, G4

Suggested Citation

Liu, Yiting and Baals, Lennart John and Osterrieder, Joerg and Hadji Misheva, Branka, Network Centrality and Credit Risk: A Comprehensive Analysis of Peer-to-Peer Lending Dynamics (February 14, 2024). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4726490 or http://dx.doi.org/10.2139/ssrn.4726490

Yiting Liu

University of Twente ( email )

Postbus 217
Twente
Netherlands
(+41)798122239 (Phone)

Bern University of Applied Sciences ( email )

Quellgasse 21
CP 1180
Biel/Bienne, BE 2501
Switzerland
(+41)798122239 (Phone)

Lennart John Baals (Contact Author)

University of Twente ( email )

Postbus 217
Twente
Netherlands

Bern University of Applied Sciences (BFH) ( email )

Quellgasse 21
CP 1180
Biel/Bienne, BE 2501
Switzerland

Joerg Osterrieder

University of Twente ( email )

Drienerlolaan 5
Departement of High-Tech Business and Entrepreneur
Enschede, 7522 NB
Netherlands

Bern Business School ( email )

Brückengasse
Institute of Applied Data Sciences and Finance
Bern, BE 3005
Switzerland

Branka Hadji Misheva

Zurich University of Applied Sciences ( email )

IDP
Technikumstrasse 9
Winterthur, CH 8401
Switzerland

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