Enter Credit Recovery Assumptions
Use the responsive form below. It shows three columns on large screens, two on smaller screens, and one on mobile devices.
Example Data Table
This worked example uses the same default assumptions prefilled in the calculator for quick testing.
| Metric | Example Value | Explanation |
|---|---|---|
| Exposure at Default | $500,000.00 | Outstanding balance at the moment of borrower default. |
| Collateral Value | $320,000.00 | Estimated collateral before applying liquidation haircut. |
| Collateral Haircut | 25.00% | Stress adjustment to reflect forced-sale value uncertainty. |
| Guarantee Coverage / Recovery | 20.00% / 90.00% | Portion of exposure backed by guarantee and its recovery strength. |
| Other Recoveries + Collections | $30,000.00 | Cash inflows from repayments, settlements, or asset tracing. |
| Workout Costs | $22,000.00 | Legal, servicing, collection, and disposal costs. |
| Recovery Delay / Discount Rate | 10 months / 9.00% | Future recoveries are discounted to present value. |
| Cure Probability / Cure Recovery | 8.00% / 72.00% | Chance of borrower cure and expected retained value. |
| Expected Recovery | $315,914.64 | Probability-weighted recovery after discounting and costs. |
| Loss Given Default | $184,085.36 (36.82%) | Estimated net loss severity on the exposure. |
Formula Used
- Discount Factor = (1 + Annual Discount Rate ÷ 12) ^ Recovery Months
- Discounted Collateral Recovery = Collateral Value × (1 − Haircut) ÷ Discount Factor
- Discounted Guarantee Recovery = min(EAD × Guarantee Coverage, EAD) × Guarantee Recovery ÷ Discount Factor
- Discounted Other Recoveries = (Other Recoveries + Direct Collections) ÷ Discount Factor
- Net Non-Cure Recovery = Gross Discounted Recovery − Workout Costs
- Cure Recovery = EAD × Cure Recovery Rate
- Expected Recovery = (1 − Cure Probability) × Net Non-Cure Recovery + Cure Probability × Cure Recovery
- LGD Amount = EAD − Expected Recovery
- LGD Percentage = LGD Amount ÷ EAD × 100
How to Use This Calculator
- Enter the borrower exposure in the Exposure at Default field.
- Add collateral value and the haircut you want to test.
- Input guarantee coverage, recovery strength, and any expected additional collections.
- Estimate workout costs, recovery delay, and the annual discount rate.
- Add cure probability and cure recovery rate for a probability-weighted view.
- Click Calculate LGD to show the result above the form, then export it as CSV or PDF if needed.
Frequently Asked Questions
1. What does loss given default mean?
Loss given default measures the share of exposure a lender expects to lose after recoveries, costs, and collections are considered following borrower default.
2. Why is discounting included in the calculation?
Recoveries often arrive months later. Discounting converts those future cash inflows into present value, which gives a more realistic estimate of economic loss severity.
3. How does collateral affect LGD?
Higher collateral value usually lowers LGD. Larger haircuts do the opposite because they reduce the expected realizable value under stressed or forced-sale conditions.
4. What are workout costs?
Workout costs include legal fees, asset disposal costs, servicing fees, court expenses, and collection costs. These reduce net recoveries and raise LGD.
5. What does cure probability represent?
Cure probability reflects the chance that a troubled borrower returns to performing status. A higher cure assumption can improve expected recovery and reduce LGD.
6. Can I use this for secured and unsecured loans?
Yes. For unsecured loans, enter lower collateral and guarantee assumptions. For secured lending, use supportable collateral values and conservative haircuts.
7. Is LGD the same as expected credit loss?
No. LGD is one component of expected credit loss. Expected loss commonly combines probability of default, exposure at default, and loss given default.
8. How should I choose the discount rate?
Use a rate aligned with policy, portfolio risk, or effective interest assumptions. Keep it consistent across comparable facilities for cleaner analysis.