This study aims to improve the interpretability and transparency of forecasting results by applying an explainable AI technique to corporate default prediction models. In particular, the research addresses the challenges of data imbalance and the economic cost asymmetry of forecast errors. To tackle these issues, predictive performance was analyzed using the SMOTE-ENN imbalance sampling technique and a cost-sensitive learning approach. The main findings of the study are as follows. First, the four machine learning models used in this study (Logistic Regression, Random Forest, XGBoost, and CatBoost) produced significantly different evaluation results depending on the degree of asymmetry in forecast error costs between imbalance classes and the performance metrics applied. Second, XGBoost and CatBoost showed good predictive performance when considering variations in prediction cost asymmetry and diverse evaluation metrics. In particular, XGBoost showed the smallest gap between the actual default rate and the default judgment rate, highlighting its robustness in handling class imbalance and prediction cost asymmetry. Third, SHAP analysis revealed that total assets, net income to total assets, operating income to total assets, financial liability to total assets, and the retained earnings ratio were the most influential factors in predicting defaults. The significance of this study lies in its comprehensive evaluation of predictive performance of various ML models under class imbalance and cost asymmetry in forecast errors. Additionally, it demonstrates how explainable AI techniques can enhance the transparency and reliability of corporate default prediction models.

Recently, not only traditional statistical techniques but also machine learning algorithms have been used to make more accurate bankruptcy predictions. But the insolvency rate of companies dealing with financial institutions is very low, resulting in a data imbalance problem. In particular, since data imbalance negatively affects the performance of artificial intelligence models, it is necessary to first perform the data imbalance process. In additional, as artificial intelligence algorithms are advanced for precise decision-making, regulatory pressure related to securing transparency of Artificial Intelligence models is gradually increasing, such as mandating the installation of explanation functions for Artificial Intelligence models. Therefore, this study aims to present guidelines for eXplainable Artificial Intelligence-based corporate bankruptcy prediction methodology applying SMOTE techniques and LIME algorithms to solve a data imbalance problem and model transparency problem in predicting corporate bankruptcy. The implications of this study are as follows. First, it was confirmed that SMOTE can effectively solve the data imbalance issue, a problem that can be easily overlooked in predicting corporate bankruptcy. Second, through the LIME algorithm, the basis for predicting bankruptcy of the machine learning model was visualized, and derive improvement priorities of financial variables that increase the possibility of bankruptcy of companies. Third, the scope of application of the algorithm in future research was expanded by confirming the possibility of using SMOTE and LIME through case application.