1. RISK TRAINING SESSION#2/ 19TH OF MAY 2010 QUANTITATIVE CREDIT METRICS FOR: DEPT . OF LOCAL INVESTMENTS DONE BY: QUANTITATIVE RISK ANALYTICS TIIB – HEAD OFFICE

3. Internal Risk Based Approach

6. FIRB IRB ECONOMIC CAPITAL MODELING AIRB

8. EAD – (Exposure at Default)

9. PD - (Probability of Default)

10. RR - (Recovery Rate )

11. RP - (Repayment Probability)

12. EL - (Expected Loss)

14. LGD can be mathematically expressed as: LGD% = (1- Recovery Rate%)

17. (1 -0.75) = (0.25) 25 %

20. EAD = Total Line * Drawdown Rate = YR 300 Mio * 0.10 = 30 Mio

22. Probability of Default can be inferred from the credit score assigned by the analyst

24. PD can be computed using LOGIT Model

25. For example if internal risk rating assigned to a bank customer by local investments is 2 , what will be the PD ?

26. PD = 1/ (1+exp ^(-zi))

27. PD = 1/(1+ exp ^(-2))

29. RR% = (1- LGD) = (1-0.45) = 55.0%

32. RP = (1-PD) = (1- 0.05) = 95%

34. EL is mathematically expressed as :

36. EL = PD* LGD = 25%*11% = 2.75%

38. UL (Unexpected Loss) is the volatility of losses around EL (Expected Loss)

40. UL = (1- EL)= (1- 0.10) = 90%