SMART: Structured Missingness Analysis and Reconstruction Technique for credit scoring

The Basel Accord emphasizes the necessity of employing internal data models to manage key credit risk components, including Probability of Default (PD), Loss Given Default (LGD), and Exposure At Default (EAD). Among these, internal datasets are critical for estimating PD, a fundamental measure of borrower creditworthiness. Nevertheless, practical application often faces challenges due to incomplete datasets, which can skew analyses and undermine the accuracy of credit scoring models. Traditional approaches to addressing missing data, such as sample deletion or mean imputation, are widely used; however, they often prove insufficient for accurate prediction. Consequently, imputation methods are typically favored over deletion, as they allow for the full utilization of available data. Recent advancements have introduced more sophisticated techniques, such as Generative Adversarial Imputation Networks (GAIN), which utilize a generative adversarial network to model data distributions and impute missing values with greater precision than conventional methods. Building on these developments, this study proposes a novel imputation approach, SMART (Structured Missingness Analysis and Reconstruction Technique) for credit scoring datasets. SMART consists of two primary stages: first, it normalizes and denoises the dataset using randomized Singular Value Decomposition (rSVD), followed by the implementation of GAIN to impute missing values. Experimental results demonstrate that SMART significantly outperforms existing state-of-the-art methods, particularly in high missing data contexts (20%, 50%, and 80%), with improvements in imputation accuracy of 7.04%, 6.34%, and 13.38%, respectively. In conclusion, SMART represents a substantial advancement in handling incomplete credit scoring datasets, leading to more precise PD estimation and enhancing the robustness of credit risk management models.