Mitigant Effect on ECL

Mitigant Effect on Expected Credit Loss enables you to calculate the Effective Loss Given Default (ELGD). The ELGD is calculated as the product of LGD and the Mitigant Effect. Mitigant Effect is calculated using the following formula:

Mitigant Effect = {(Exposure - ((1- HairCut for Collateral)*Collateral Value) + Recovery Cost) or Exposure}

Specific Provision and Forward Exposure methods used for Expected Credit Loss (ECL) calculation in OFS Loan Loss Forecasting and Provisioning application are in the scope of the Mitigant Effect.

Specific Provision uses Effective LGD at the bucket frequency to obtain the reduced ECL due to Mitigant Effect. For this, the application expects the LGD value as a download.

In Forward Exposure Method, the Mitigant term structure is expected as download and the Haircut value is assumed to be constant.