Loan Portfolio Stress Test Analysis
The loan portfolio stress test
software application compiles expected and unexpected probability of
default (PD) or loss given default (LGD) migration matrices based on the
user defined PD and LGD stress scenarios. Expected migration matrices are
used to identify changes in loss provisions, while unexpected, but
plausible, migration matrices are used to identify economic capital
requirements.
The PD and LGD loan portfolio
stress test software applications compiles expected and unexpected
migration matrices based on the user defined PD and LGD stress scenarios.
Expected migration matrices are used to identify changes in loss
provisions, while unexpected, but plausible, migration matrices are used
to identify economic capital requirements.
The applications assigns an
objective PD or LGD rating to each customer or loan prior to an identified
stress scenario, and after the application of the stress. The assigned,
objective PD or LGD ratings are compared to the “recorded” PD or LGD
ratings.
The expected and unexpected PD
or LGD migration matrices are summarized by sub-portfolios. Customers or
loans can be viewed and reported. A PD or LGD "watch list" can be created
and distributed to the assigned loan or relationship officer.