LGD models.
From recovery cash flows to downturn LGD.

Workout-based LGD for secured and unsecured portfolios, including downturn adjustments and the treatment of defaulted exposures.

Cumulative recovery after defaultIllustrative

Regulatory basis

CRR · EBA GL on PD & LGD estimation · EBA GL on downturn LGD

Portfolios

Mortgages, SME, corporate, unsecured retail

Outputs

Long-run LGD, downturn LGD, ELBE and LGD in-default

Used for

IRB capital, IFRS 9, stress testing

Approach

Every recovery, discounted and costed. Every downturn assumption on the record.

Discounted recoveries and workout costs per defaulted facility, incomplete workouts treated explicitly.

Segment by collateral, loan-to-value, seniority and cure likelihood.

Identify downturn periods and quantify their impact on loss rates.

Estimate ELBE and LGD in-default by time in default.

Data

Data	Needed	If missing or incomplete
Recovery cash flows	Required	—
Workout costs	Required	Cost proxy from recent cohorts, with added conservatism
Collateral valuations	Required (secured)	Indexed valuations
Cure events	Helpful	Cure rate estimated at segment level
House price and macro series	Required for downturn	Public series

In Model Studio 0.1.0

Decisions the agents propose

Each comes with a recommended option, the reason and any data gap. The model owner approves the set at the design gate.

Discount rate
Which rate discounts recoveries and costs to the default date?
Maximum workout period
After how many years is an open workout treated as closed?
Risk drivers
How are facilities segmented?
Downturn period
Which default years form the downturn period?
Margin of conservatism
How is general estimation error added?

Tests the engine runs

Shown next to each result. A test outside its threshold stays visible and becomes a limitation in the documentation.

Test	Group	Threshold
Realised versus estimated LGD	Back-testing	Recent realised ≤ estimate + 2%
Sensitivity to the discount rate	Sensitivity	Reported
Treatment of incomplete workouts	Data	\|difference\| ≤ 2 points
Downturn impact analysis	Downturn	Downturn LGD ≥ long-run LGD
Back-testing by segment	Back-testing	Coefficient of variation across years reported