Scenario-based CECL Computation

In Scenario-based CECL Computation, Probability of Default, Loss Given Default, and Forward Exposures, through stage management forecasts, are provided for multiple scenarios. As the first step, you need to add the required additional scenarios in the Current Expected Credit Loss Scenarios table and modify the Probability Weights in such a way that the cumulative of all the weights is 100.

Subsequently, the PD Codes in the PD, LGD, and ForwardExposures tables must match with the values that you have defined in the Current Expected Credit Loss Scenarios table.

The number of different PD, LGD, and Forward Exposure sets must be equal to the number of Scenarios defined. While executing the ECL Run, OFS Loan Loss Forecasting and Provisioning application replicates the account information for the given number of Scenarios. For each set, the corresponding PD, LGD, and Forward Exposure values are used.

Note:

Scenario-based Forward Exposure is used only in the case of forwarding Exposure methodology, where Forward Exposure is obtained as a download. In the case of the Forwarding Exposure method where Forward Exposures are computed using Cash Flows, within the application, or Cash Flow methodology, the same set of Cash Flows are used, thereby making CECL across all Scenarios equal. Also, Roll Rate and Provision Matrix Methodologies yield the same CECL across all Scenarios.

Using the aforementioned different Scenarios, different CECLs are computed within the processing area. While moving data into the reporting structure, the weighted average of CECLs and other related values are computed based on the weights defined in the Current Expected Credit Loss Scenarios table.

Note:

For multiple scenarios, the existing data for an MIS Date from the PD Term Structure Detail, Periodic PD Rates, and Interpolated PD term tables must be removed. After this, the SCDs and Batches must be re-executed.