ARTIFICIAL INTELLIGENCE-DRIVEN CREDIT SCORING MODELS AND THEIR IMPLICATIONS FOR FINANCIAL REPORTING TRANSPARENCY IN NIGERIAN DEPOSIT MONEY BANKS

Abstract

This study examines the disclosure of artificial intelligence (AI)–driven credit scoring models among Nigerian deposit money banks and evaluates their implications for financial reporting transparency. It will also investigate the scope and quality of disclosure, the forces that shape disclosure in practice, and the effects of disclosure on the confidence of stakeholders in the correctness and validity of the financial statements.The research methodology for this study is qualitative with a focus on using secondary sources like reports, statements, reporting requirements for governance practices both by the Central Bank of Nigeria and Securities Exchange Commission for compliance reporting requirements and necessary studies. The study will use a technique for analyzing themes in determining the disclosure practices in using technology like AI for credit scoring practices with a focus on governance practices and requirements for transparency, risks disclosure requirements for impairment reporting under the guidelines outlined in IFRS-9. The findings indicate that the level of disclosure on the use of AI in credit scoring is higher (59%) in Tier-1 and global banks compared to Tier-2 and local banks (34%). Key elements that contribute to better disclosure practices include the use of AI and advanced analytics in credit risk management (68%), governance and oversight of credit models (61%), effect on impairment and loan loss provisioning (55%), and explainability (38%). Factors hindering disclosure practices include the complexity of AI models (66%), lack of regulatory guidelines (58%), concerns regarding sensitive information (54%), and limitations in technical reporting capabilities (49%). Perceptions on stakeholder involvement reveal that effective disclosure practices enhance credibility in disclosed credit risk amounts (41%), credibility in financial reporting (38%), and overall transparency (39%).Conclusion: There is a need for transparency and thorough disclosure of practices involved in AI-powered credit scoring in order to improve the credibility of financial reports, and ultimately boost investor confidence in Nigerian deposit money banks.