Cash Flow Method

The Cash Flow method makes use of the Contractual Cash Flow, taking into consideration any prepayments, behavior patterns, and so on. The Contractual cash flow is adjusted for the Probability of Default (PD) and Loss Given Default (LGD) to compute the Expected Cash Flow (ECF).

The first step in the cash flow methodology is to validate if the contractual cash flows are available for the specific account. The Contractual cash flows can either be generated by the engine or obtained as a download.

Note:

If the Cash Flow is not available, the account is processed through the Provision Matrix methodology.