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The calculator estimates a conservative limit using three independent constraints.
Example Data Table
These sample values match the prefilled defaults. Use them to test the outputs quickly.
| Field | Example | Notes |
|---|---|---|
| Requested Limit | USD 250,000 | Borrower request for comparison. |
| Credit Score | 690 | Auto PD uses this curve. |
| Annual Income / Revenue | USD 600,000 | Supports DTI and DSCR checks. |
| Annual Debt Service | USD 120,000 | Higher values increase PD in auto mode. |
| Base LGD / Collateral | 45% / USD 150,000 | Collateral haircut reduces net value. |
| Maturity / Stress | 3 years / 1.20 | Longer term increases maturity factor. |
| Loss Budget | USD 8,000 | Expected loss constraint for this name. |
| Capital Allocation | USD 40,000 | Capital constraint uses risk weight. |
| Portfolio / Caps | USD 20,000,000 | Single-name 2%, sector 15% caps. |
Credit limits that match risk appetite
A risk based limit converts underwriting inputs into a maximum exposure that fits policy. Using the default example, a USD 250,000 request is tested against expected loss, capital, and concentration controls, so the outcome stays consistent across analysts and portfolios. This structure helps align pricing, monitoring triggers, and renewal decisions with the same risk framework.
Expected loss drivers and sensitivity
Expected loss is computed as EAD × PD × LGD_eff × Stress × MaturityAdj. With PD 1.25%, LGD_eff 33%, stress 1.20, and maturity factor 1.16, a USD 250,000 exposure produces about USD 1,438 adjusted loss. Doubling PD roughly doubles the loss and halves the loss-budget limit. If collateral coverage rises from 60% to 90%, LGD_eff can drop meaningfully, lifting the loss-based capacity.
Capital allocation discipline
Capital limits are based on RWA = EAD × RiskWeight and RequiredCapital = RWA × CapitalRatio. At a 75% risk weight and 10% capital ratio, every USD 1 of exposure consumes USD 0.075 of required capital. A USD 40,000 allocation therefore supports about USD 533,333 before concentration or loss limits bind. If risk weight increases to 100%, capacity falls to USD 400,000 under the same allocation and ratio.
Concentration caps and headroom
Portfolio caps prevent single names or sectors from dominating outcomes. With a USD 20,000,000 portfolio, a 2% single-name cap equals USD 400,000. If USD 50,000 is already outstanding, only USD 350,000 remains for that borrower. A 15% sector cap equals USD 3,000,000; after USD 1,500,000 existing sector exposure, remaining room is USD 1,500,000. Tracking headroom monthly improves limit governance and highlights where diversification is needed.
Reading results and taking action
The recommended limit is the minimum of the three limits, and the binding constraint explains why. If concentration binds, reduce other exposures or raise caps. If loss binds, improve collateral, lower maturity, or reduce stress assumptions. If capital binds, consider guarantees, lower risk weight structures, or reallocate capital. Export reports to document approvals and monitor drift periodically.
FAQs
What does this calculator produce?
It estimates a recommended exposure limit and the approved amount up to the request, based on loss budget, capital allocation, and concentration caps. It also shows expected loss, risk‑weighted assets, required capital, and which constraint binds.
When should I use Auto PD versus Manual PD?
Use Auto PD for quick screening when you have a score and basic risk ratings. Use Manual PD when you have a validated model output, rating grade mapping, or observed default data that should override the score curve.
How does collateral change the limit?
Collateral reduces effective LGD after applying a haircut. Lower LGD reduces expected loss for any exposure, which can increase the loss‑budget limit. If capital or concentration is binding, collateral may not change the final limit much.
Why can the recommendation be far below the request?
The tool takes the smallest of three limits. A tight loss budget, high PD or LGD, strong stress assumptions, limited capital allocation, or low concentration caps can each compress the maximum exposure even if other constraints allow more.
What inputs most affect the capital constraint?
Risk weight and capital ratio drive required capital per unit of exposure. Higher risk weight or higher capital ratio lowers the capital‑based limit. Increasing the capital allocation raises the limit linearly, assuming other constraints are unchanged.
Can I use this for renewals or monitoring?
Yes. Re-run it with updated financials, current exposures, and revised caps. Compare the new recommended limit with the existing limit to identify drift, headroom, or early warning signals, then document changes using the export buttons.
Formula Used
SectorRoom = (PortfolioTotal × SectorCap) − ExistingSectorExposure
LimitConc = min(SingleNameRoom, SectorRoom)
How to Use This Calculator
- Enter the borrower request, score, and basic financial totals.
- Choose PD mode: Auto estimates PD from score and risk ratings.
- Enter LGD and collateral details to reflect security and haircuts.
- Set your loss budget, capital allocation, capital ratio, and risk weight.
- Provide portfolio totals and concentration caps to enforce limits.
- Click Calculate Limit and review the constraint breakdown.
- Use the CSV and PDF buttons to export the latest results.