Quantitative Loan Portfolio Management Process

Step #2: Risk Identification

Step two is the identification and monitoring of sub-portfolio risk. The foundation of effective loan portfolio management is contained within the probability of default (PD) and loss given default (LGD) rating system. Portfolio risk migration and portfolio stress testing are used to identify sub-portfolio volatility. Industry correlation coefficients are used to manage portfolio concentrations and to lower economic capital requirements.
  

Supporting Solutions:
 
Economic Capital Application
identifies and trends minimal allowance for loan and lease losses and optimum economic capital requirements.
Risk & Return application
identifies and trends sub-portfolio probability of default and loss given default risk.
Risk Migration application
identifies and trends sub-portfolio risk migration patterns and correlation coefficients.
Stress Testing application
identifies potential and probable sub-portfolio volatility.

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