Track: Simulation Competition

Abstract

Effective Improvement the loan portfolio is crucial for banks as it directly influences their profitability and overall performance. Effective Improvement allows banks to achieve greater diversification, enhance asset quality, and improve liquidity management. Profitability and liquidity risk management of this portfolio are influenced by several factors, with the budget allocated to each product being one of the most significant. This budget directly impacts profitability and customer satisfaction. The product budget refers to the maximum loan amount that the bank offers to customers for each product. In this research, we aim to create an appropriate portfolio of bank loan products by analyzing the behavior of loan applicants and determining the budget ceiling for each product. Our objective is to meet the diverse needs of our customers, including the amount and variety of loans, while maximizing profitability. To achieve this goal, we employ a fourth-step approach. First, we analyze customer behavior and create a simulation model to determine the budget ceiling increase for each product. Second, due to the large number of scenarios, we use the design of experiments approach to select and evaluate a subset of scenarios using the simulation model. Subsequently, we employ a neural network approach to assess the remaining scenarios. Finally, we develop a mathematical model for the optimal allocation of funds to different products, resulting in the formation of the optimal product portfolio. The results of the proposed approach, compared to the bank's performance last year, demonstrate average improvements of 9.2% in profitability and 8.7% in customer satisfaction, underscoring the effectiveness of our method.