The probability of default (PD) is the probability of a borrower defaulting on loan repayments. The financial and banking institution use the probability of default to calculate the expected loss from an investment.
The aim of our PD tool is to determine the rate of decay of loans on the basis of the information sent by the Bank of Italy, on a quarterly basis, to each reporting intermediary through the “Return flow on the decay of cash loans”. Following the procedure, the return flow on the dacay of the cash loans and the phenomena present in the flow itself are acquired in input: adjusted suffering, new adjusted suffering, stock of live uses and stock of suffering on own account. The data used in the input and the results of the calculations carried out are reported in a special summary report.
The determination of the PD index is the basis of the calculation of the Probability of Default (ccdd. PD), average if any to be used in the calculation of the concentration risk and the capital requirement required for the risk.
The informative dispositions contained in the administrative and technical documentation concerning the “Return flow on the decay of cash loans” of Banca d’ Italia of 7 April 2011 have been considered.
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