Credit Risk Assessment of Legal Customers using Financial and Performance Indicators (Case: Bank Mellat of East Azarbaijan Province)

Risk assessment is one of the main concerns of commercial banks when granting loans. Although there are several methods including financial ratios to assess the credit risk of customers, the aim of this article  is to apply several financial and performance indicators to assess legal customors credit risks. The statistical population of this study consists of 212 companies active in three industries (automotive, food and leather) during the time period of  2011-2013 which borrowed more than 1 Billion Rials from the Bank Mellat of East Azarbaijan Province. To measure the credit risk, we used the company’s efficiency along with financial ratios. Logistic regression was applied to test the hypotheses. The results show that the efficiency has highest predictive power than the other profitability ratios to forecast the default of loans. However, among the financial ratios, only company size (sales) was significant.