HOW TO DETERMINE PD FOR EMPLOYEE LOAN USING HISTORICAL DATA

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sobode
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Joined: 02 Feb 2023, 15:22

HOW TO DETERMINE PD FOR EMPLOYEE LOAN USING HISTORICAL DATA

Post by sobode »

Good day,
Please i need guidance on how to estimate the Probability of Default on loans granted to employees by an organization.
i intend to use internally generated historical data for the estimate.

Thank you
DJP
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Re: HOW TO DETERMINE PD FOR EMPLOYEE LOAN USING HISTORICAL DATA

Post by DJP »

You could use a transition matrix.
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JakobLavrod
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Re: HOW TO DETERMINE PD FOR EMPLOYEE LOAN USING HISTORICAL DATA

Post by JakobLavrod »

Hi Sobode!

This is quite a massive topic. However, a good method I can recommend for IFRS 9 usage is survival curves (https://en.wikipedia.org/wiki/Proportio ... ards_model) as they allow you to easily model the probability of default for each month during the period which will be needed when you compute the ECL.

Best of luck! :D
IFRS 9 Impairment Specialist
Risk Control at Svenska Handelsbanken
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Marek Muc
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Re: HOW TO DETERMINE PD FOR EMPLOYEE LOAN USING HISTORICAL DATA

Post by Marek Muc »

I got a headache just by looking at all these equations @JakobLavrod :lol:

Maybe something easier? :)
https://ifrscommunity.com/knowledge-bas ... ion-matrix

I guess this is something that DJP had in mind...
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