Credit
Risk & Return Analysis
The credit risk & return
software application calculates and aggregates portfolio and sub-portfolio
risk and risk-adjusted returns. The management of a loan portfolio is
similar to the management of an investment portfolio. The objective is to
build and maintain an efficient portfolio.
The application compiles
numerous portfolio reports which includes: percent volume, volume,
probability of default (PD) risk, loss given default (LGD) risk,
non-accrual rate, past due rate and loss rate, annual risk-adjusted
return, annual income, and economic income. The portfolio and
sub-portfolio risk and return information is archived and trended within
the application.
The application allocates
fixed and variable costs by loan type and loan size, along with PD and LGD
risk. The risk-adjusted return of every loan is calculated and aggregated
at the customer level. Customer reports are be created to identify
unprofitable relationships. Once identified, appropriate action can be
taken to improve the overall portfolio return.