Methodologies and ECL Calculation

There are five major ready-to-use Methodologies available in the product. You can choose the methodology that is applicable for every set of accounts or instruments based on the Customer Type, Product Type, and Default status (the rule can be modified to include any combination of dimensions). The five ready-to-use methodologies are:

• Cash Flow
• Forward Exposure
• Provision Matrix
• Specific Provision
• Roll Rate

Similarly, there are four submethods applicable for accounts in each of the stages (Stage 1, Stage 2, and Stage 3 plus POCI) within these methodologies. Stage one calculates the ECL for 12 months whereas all the other three stages, stage two, stage three, and stage four, calculate the ECL for a lifetime, but use different calculation approaches.

Collective Assessment: The ECL run can also determine the stage, collectively, at an aggregated level. For more information about collective assessment, see the Collective Assessment section.

For ECL calculation:

• Segments, via the Segmentation Run and applicable only for the Roll Rate methodology.
• Account Classification and Stage, via the Classification & Stage Determination Run.
• EIR, depending on the methodology.
• Transition matrices, either via the Historical Transition matrix run or UI, and applicable only for Roll Rate methodology.
• Loss rates (via the Historical Loss rate run, and applicable only for Roll Rate methodology), PD term structure (either as download or through execution of PD Model), and LGD Values, as a download, are required.