+6 LGD estimation
---+6.1 General requirements specific to LGD estimation
------+100. Institutions that have obtained permission to use own estimates of LGD in accordance with …
------+101. 101. For the purpose of LGD estimation, with regard to defaults recognised on a single …
------+102. Institutions should estimate their own LGDs based on their own loss and recovery experience …
------+103. Where in the case of retail exposures and purchased corporate receivables institutions derive …
------+104. An LGD model can contain several different methods, especially with respect to different types …
------+105. Institutions should be able to demonstrate that the methods that they choose for the purpose …
------+106. The methods used by the institution in the LGD estimation, the assumptions underlying these …
------+107. For the purpose of LGD estimation institutions should use an RDS covering all of the following …
------+108. Institutions should include in the RDS information on the results of the recovery processes …
------+109. The RDS should contain at least the following information: (a) obligor-related …
------+110. In accordance with Article 229(1) of Regulation (EU) No 575/2013 institutions may use various …
------+111. Where institutions derive LGD estimates from realised losses and appropriate estimates of PDs …
------+112. Where aggregated information is collected and stored, institutions should develop an …
------+113. Institutions should demonstrate that they collect and store in their databases all information …
------+114. Institutions should take reasonable steps to recognise the sources of the cash flows and …
------+115. Institutions should recognise the recoveries as stemming from collaterals in all of the …
------+116. For the purpose of point (b) of paragraph 115 institutions should determine the value of …
------+117. Institutions should consider whether the value of repossession adequately reflects the value …
------+118. In any case the repossession of collateral should be recognised at the moment of repossession …
------+119. Any sale of credit obligations in accordance with point (d) of paragraph 115 should be …
------+120. In accordance with point (f) of paragraph 115 institutions may specify and recognise any other …
---+6.2 Model development in LGD estimation
------+121. Institutions should identify and analyse potential risk drivers that are relevant to their …
------+122. Institutions should analyse the risk drivers not only at the moment of default but also at …
------+123. Institutions should specify or calculate the risk drivers in the application of LGD estimates …
------+124. In accordance with Articles 170 and 181(1)(f) of Regulation (EU) No 575/2013 institutions may …
------+125. To the extent that LGD estimates take into account the existence of unfunded credit protection …
------+126. Institutions should take into account as a risk driver or segmentation criterion information …
------+127. Collaterals which do not meet the requirement of Article 181(1)(f) of Regulation (EU) No …
------+128. For the purpose of LGD estimation institutions may group the types of collaterals that are …
------+129. The approach developed by institutions to include the effect of collaterals in the LGD …
------+130. In order to fulfil the requirement of Article 38 of the RTS on IRB assessment methodology …
---+6.3 LGD calibration
------+6.3.1.1 Definition of economic loss and realised LGD
---------+131. For the purpose of LGD estimation as referred to in Article 181(1)(a) of Regulation (EU) No …
---------+132. For the purpose of paragraph 131, institutions should calculate the economic loss realised on …
---------+133. For the purpose of calculation of the economic loss realised on an exposure in accordance with …
---------+134. Where, relating to a default event, any part of exposure has been forgiven or written off …
---------+135. In the case of exposures that return to non-defaulted status, institutions should calculate …
---------+136. Where institutions open new facilities to replace previously defaulted facilities as part of …
------+6.3.1.2 Treatment of fees, interest and additional drawings after default
---------+137. For the purpose of Article 181(1)(i) of Regulation (EU) No 575/2013, institutions should take …
---------+138. Institutions should apply the treatment specified in paragraph 137 to any interest capitalised …
---------+139. In accordance with Article 182(1)(c) of Regulation (EU) No 575/2013 institutions that obtained …
---------+140. Where institutions include additional drawings by the obligor after the moment of default in …
---------+141. For retail exposures, where institutions do not include additional drawings by the obligor …
---------+142. Irrespective of whether institutions reflect future drawings in their conversion factors or in …
------+6.3.1.3 Discounting rate
---------+143. For the purpose of the calculation of economic loss, in accordance with point (2) of Article 5 …
------+6.3.1.4 Direct and indirect costs
---------+144. For the purpose of the calculation of the realised LGDs, institutions should take into account …
---------+145. Direct costs should include the costs of outsourced collection services, legal costs, the cost …
---------+146. Indirect costs should include all costs stemming from the running of the institution’s …
------+6.3.2.1 Historical observation period
---------+147. The historical observation period should be as broad as possible and should contain data from …
---------+148. In assessing whether the RDS includes a sufficient number of closed recovery processes in …
------+6.3.2.2 Calculation of long-run average LGD
---------+149. In accordance with letter (a) of Article 181(1) of Regulation (EU) No 575/2013 institutions …
---------+150. Without prejudice to Article 181(2) of Regulation (EU) No 575/2013 institutions should …
---------+151. Where institutions do not give equal importance to all historical data for retail exposures in …
---------+152. In specifying the weights in accordance with paragraph 151 institutions should take into …
------+6.3.2.3 Treatment of incomplete recovery processes
---------+153. For the purposes of letter (a) of Article 181(1) of Regulation (EU) No 575/2013, in relation …
---------+154. Institutions should calculate the observed average LGD for each facility grade or pool and at …
---------+155. Institutions should clearly specify in their internal policies the moment of closing the …
---------+156. Institutions should define the maximum period of the recovery process for a given type of …
---------+157. For the purpose of the calculation of the observed average LGD, institutions should recognise …
---------+158. Institutions should obtain the long-run average LGD by adjusting the observed average LGD …
---------+159. The estimation referred to in paragraph 158(b) should comply with the following principles …
------+6.3.2.4 Treatment of cases with no loss or positive outcome
---------+160. Where institutions observe that they realised profit on their observations of defaults, the …
---------+161. Institutions should calibrate their LGD estimates to the long run average LGD calculated in …
---------+162. Where institutions observe extremely high values of realised LGDs much above 100%, especially …
---------+163. In order to comply with the requirement of Article 181(1)(a) of Regulation (EU) No 575/2013 to …
---------+164. In the analysis of the representativeness of data in accordance with section 4.2.4 …
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6 LGD estimation
6 LGD estimation
1. Overview
1.1 References
1.2 Identified Requirements
1.3 Related Standards
2. Identified Requirements
Requirements
| Source |
Requirement |
3. Related Standards
Standards
| Source |
Requirement |
- EBA - Published by the European Banking Authority at https://www.eba.europa.eu/
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