Enter Borrower and Credit Inputs
This screening model estimates annual PD, multi-year cumulative PD, and expected loss. It is useful for quick portfolio reviews, borrower comparisons, and scenario testing.
This calculator is an indicative educational model. It does not replace internal rating systems, validated scorecards, regulatory capital models, or formal underwriting approval.
Formula Used
1) Score Construction
A weighted score combines leverage, liquidity, repayment strength, growth, utilization, delinquencies, collateral protection, industry conditions, macro stress, and any manual adjustment.
Score = -2.25 + 0.55×ln(1 + Debt/Equity) - 0.42×ln(1 + Current Ratio)
- 0.48×ln(1 + Interest Coverage) - 0.40×ln(1 + DSCR)
- 0.015×Revenue Growth + 0.011×Utilization + 0.021×Delinquency Days
- 0.005×Collateral Coverage + 0.28×(Industry Risk - 3)
+ 0.34×(Macro Stress - 3) + Adjustment
2) Annual Probability of Default
The score is converted into a probability through a logistic transformation.
Annual PD = 1 / (1 + e^(-Score))
3) Multi-Year Cumulative Probability of Default
The calculator assumes the annual hazard remains constant through the selected horizon.
Cumulative PD = 1 - (1 - Annual PD)^Years
4) Expected Loss
Expected loss multiplies exposure, loss severity, and probability of default.
Expected Loss = EAD × LGD × PD
How to Use This Calculator
- Enter the borrower name if you want labeled reports.
- Provide EAD, LGD, and the review horizon in years.
- Fill in leverage, liquidity, coverage, growth, utilization, and delinquency fields.
- Select industry risk and macro stress levels that fit your scenario.
- Use score adjustment only when you need an analyst override.
- Press Calculate PD to show the result above the form.
- Download CSV for spreadsheet work or PDF for sharing.
Example Data Table
| Borrower | EAD | LGD % | Years | D/E | Interest Coverage | DSCR | Utilization % | Delinquency Days | Annual PD % | Cumulative PD % | Lifetime EL |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Example Manufacturing Ltd | $250,000 | 45 | 3 | 1.80 | 3.60 | 1.25 | 58 | 12 | 3.83 | 11.06 | $12,437.12 |
FAQs
1) What does probability of default mean?
Probability of default estimates the chance that a borrower fails to meet obligations within a chosen period, usually one year. It helps compare credit quality across borrowers and loan segments.
2) Why does the calculator show annual and cumulative PD?
Annual PD gives a one-year view. Cumulative PD extends risk across multiple years using the annual estimate. Together, they support pricing, monitoring, and longer-horizon credit decisions.
3) What is EAD?
EAD means exposure at default. It is the estimated outstanding amount you expect to be at risk if the borrower defaults at the evaluation date.
4) What is LGD?
LGD means loss given default. It measures the percentage of exposure you expect to lose after recoveries, collateral liquidation, guarantees, and collections are considered.
5) Does a higher collateral coverage always reduce PD?
In this model, stronger collateral lowers the score and reduces PD pressure. Real credit outcomes still depend on collateral quality, legal enforceability, market liquidity, and seniority.
6) Should manual score adjustment be used often?
Use it sparingly. Manual adjustment is best for documented analyst views, temporary events, or sector intelligence not reflected in the numeric fields. It should never replace disciplined model governance.
7) Can this calculator replace a bank rating model?
No. This page is a screening and learning tool. Production credit decisions should rely on validated internal models, formal policies, expert review, and regulatory requirements.
8) When should I export the results?
Export when you need audit support, committee papers, borrower comparisons, spreadsheet analysis, or a quick shareable report for internal reviews and portfolio monitoring.