Modeling Risk adjusted CLV for bank’s borrowers

Banks and financial institutes, have two main tasks. The first is attracting low-cost deposits and the second is allocating these funds as loans and investments. The second part is more vital because banks have to choose low risk customers (or borrowers) to cover cost of capital and marginal profit. Possibility of modeling risk, based on common risk approach faced a lot of challenges in Iran. The main challenges in financial statements are low financial information transparency and lack of on time disclosure and invalid information. To overcome these challenges, we apply three source of valid data, customer’s deposit, loans and fees (bank guarantee and other facility fees). Customer lifetime value (CLV) model is a common approach to evaluate customer value in banks. We apply credit risk model to this approach to make a better instrument for lending decisions.