EL without any corelation

Adjusted exposure 10000000

Probability of Default 1
Loss Given Default 75
Expected loss 0.0075 percentage
Expected loss 75000 Amount

EL with 50% correlation

Corelation 0% PD and LGD
SD of PD 0.0995 Sqrt(PD(1-PD))
SD of LGD 25% given

Convert corelation to a covariance

Here x and y = PD and LGD
Correlation =(covariance xy)/ (standard deviation x)* (standard deviation y)
So Covariance = correlation *SDX *SDY

Covariance of PD and LGD = (Correlation of PD and LGD) * SD(PD)*SD(LGD)

Covariance of PD and LGD 0
EL = covariance + (PD*LGD) 0.0075
EL (amount) 75000
 PD PND
1 0.3 0.7
2 0.26 0.74
3 0.35 0.65
4 0.38 0.62 0.791246

PD PND
1 0.3 0.7
2 0.3 0.7
3 0.3 0.7
4 0.3 0.7 0.7599
 Loan Amt PD Default rate Recovery rate
50,000,000 2.30% 15% 85%

Year Opening Bal Repayment Interest Total repayment Closing balance

0 50,000,000 - 6,000,000 6,000,000 50,000,000
1 50,000,000 6,000,000 6,000,000 50,000,000
2 50,000,000 6,000,000 6,000,000 50,000,000
3 50,000,000 10,000,000 6,000,000 16,000,000 40,000,000
4 40,000,000 10,000,000 4,800,000 14,800,000 30,000,000
5 30,000,000 10,000,000 3,600,000 13,600,000 20,000,000
6 20,000,000 10,000,000 2,400,000 12,400,000 10,000,000
7 10,000,000 10,000,000 10,000,000
50,000,000 16,800,000 66,800,000

66,800,000
Reduce the period of the loan to 6 years
Loan Amt PD Default rate Recovery rate
50,000,000 2.30% 15% 85%

Year Opening Bal Repayment Interest Total repayment Closing balance

0 50,000,000 - 6,000,000 6,000,000 50,000,000
1 50,000,000 - 6,000,000 6,000,000 50,000,000
2 50,000,000 10,000,000 6,000,000 16,000,000 40,000,000
3 40,000,000 10,000,000 4,800,000 14,800,000 30,000,000
4 30,000,000 10,000,000 3,600,000 13,600,000 20,000,000
5 20,000,000 10,000,000 2,400,000 12,400,000 10,000,000
6 10,000,000 10,000,000 10,000,000 -
7 - -
50,000,000 28,800,000 78,800,000 200,000,000

78,800,000

Increase interest to 13%

Loan Amt PD Default rate Recovery rate
50,000,000 2.30% 15% 85%

Year Opening Bal Repayment Interest Total repayment Closing balance

0 50,000,000 - 6,500,000 6,500,000 50,000,000
1 50,000,000 - 6,500,000 6,500,000 50,000,000
2 50,000,000 10,000,000 6,500,000 16,500,000 40,000,000
3 40,000,000 10,000,000 5,200,000 15,200,000 30,000,000
4 30,000,000 10,000,000 3,900,000 13,900,000 20,000,000
5 20,000,000 10,000,000 2,600,000 12,600,000 10,000,000
6 10,000,000 10,000,000 10,000,000 -
 7 - -
50,000,000 31,200,000 81,200,000 200,000,000

81,200,000

Increase interest to 13% with structured schedule with no holiday period

Loan Amt PD Default rate Recovery rate
50,000,000 2.30% 15% 85%

Year Opening Bal Repayment Interest Total repayment Closing balance

0 50,000,000 - 6,500,000 6,500,000 50,000,000
1 50,000,000 5,000,000 6,500,000 11,500,000 45,000,000
2 45,000,000 10,000,000 5,850,000 15,850,000 35,000,000
3 35,000,000 10,000,000 4,550,000 14,550,000 25,000,000
4 25,000,000 10,000,000 3,250,000 13,250,000 15,000,000
5 15,000,000 10,000,000 1,950,000 11,950,000 5,000,000
6 5,000,000 5,000,000 5,000,000 -
7 -
50,000,000 28,600,000 78,600,000 175,000,000

78,600,000

Increase interest to 13% with structured schedule with no holiday period

Loan Amt PD Default rate Recovery rate
50,000,000 2.30% 15% 85%

Year Opening Bal Repayment Interest Total repayment Closing balance

0 50,000,000 - 6,500,000 6,500,000 50,000,000
1 50,000,000 10,000,000 6,500,000 16,500,000 40,000,000
2 40,000,000 10,000,000 5,200,000 15,200,000 30,000,000
3 30,000,000 10,000,000 3,900,000 13,900,000 20,000,000
4 20,000,000 10,000,000 2,600,000 12,600,000 10,000,000
5 10,000,000 10,000,000 1,300,000 11,300,000 -
6 - - -
7 -
50,000,000 26,000,000 76,000,000 150,000,000

76,000,000
Expected loss Recovered
20,700 5,979,300 Probability of default
20,700 5,979,300 Default rate
20,700 5,979,300
55,200 15,944,800
51,060 14,748,940
46,920 13,553,080
42,780 12,357,220
34,500 9,965,500
230,460 66,569,540 99.6550 0.345 (PD*LGD) = Expected loss 0.00345

Expected loss Recovered

20,700 5,979,300
20,700 5,979,300
55,200 15,944,800
51,060 14,748,940
46,920 13,553,080
42,780 12,357,220
34,500 9,965,500
- -
271,860 78,528,140 99.6550 0.345 (PD*LGD) = Expected loss 0.00345

Expected loss Recovered

22,425 6,477,575
22,425 6,477,575
56,925 16,443,075
52,440 15,147,560
47,955 13,852,045
43,470 12,556,530
34,500 9,965,500
 - -
280,140 80,919,860 99.6550 0.345 (PD*LGD) = Expected loss 0.00345

Expected loss Recovered

22,425 6,477,575
39,675 11,460,325
54,683 15,795,318
50,198 14,499,803
45,713 13,204,288
41,228 11,908,773
17,250 4,982,750
- -
271,170 78,328,830 99.6550 0.345 (PD*LGD) = Expected loss 0.00345

Expected loss Recovered

22,425 6,477,575
56,925 16,443,075
52,440 15,147,560
47,955 13,852,045
43,470 12,556,530
38,985 11,261,015
- -
- -
262,200 75,737,800 99.6550