Scenario-based ECL Computation

In Scenario-based ECL 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 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 Forward Exposures tables must match with the values that you have defined in the 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 replicate 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 ECL across all Scenarios equal. Also, Roll Rate and Provision Matrix Methodologies yield the same ECL across all Scenarios.

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