THE BUSINESS APPLICATION
Where and how to use it
Use it to explore downside and recovery scenarios, or to assess how a long-run estimate might behave under current conditions. It supports conversations about portfolio resilience without treating one scenario as a forecast certainty.
A lender with a geographically concentrated portfolio explores a weaker demand environment. The team examines how risk could change and whether its own history supports that relationship.
From evidence to a decision
- 01Baseline riskDefine PIT or TTC meaning
- 02Economic scenarioSpecify dated conditions
- 03Supported adjustmentEstimate the relationship
- 04Scenario risk pathInspect change and uncertainty
DATA REQUIREMENTS
What records does it need?
These are the records your team would bring together for this analysis. The exact fields and history needed depend on your lending products, the question you want to answer and the period you want to assess.
| Record category | What it contains | Why the detail matters |
|---|---|---|
| Risk history | Comparable default observations and portfolio definitions over time. | Enough coverage to evaluate changing conditions. |
| Macro time series | Relevant economic measures with release dates and revisions. | Preserve what was known at each forecast date. |
| Scenario paths | Explicit future conditions and transformation assumptions. | Label scenarios separately from observed data. |
Past loan outcomes help assess how well an estimate reflects your borrowers. For a new decision, use only the information available at that time; later repayments help you review the result afterwards.
Understand data readiness →WHAT YOU RECEIVE
The output
Scenario-specific risk paths and an explanation of how they differ from the baseline or long-run view.
WHAT TO WATCH
The limitations
Short histories may not cover a full cycle. Correlation is not causation, and foreign or aggregate data may not transfer to a local portfolio.
FOR RISK & ANALYTICAL SPECIALISTSHow the analysis works+
The modelling approach
Transparent macro adjustments and factor approaches are ways to examine this relationship. The relationship between macro series and portfolio outcomes must be justified using aligned data; a plausible story alone does not calibrate the adjustment.
What your risk team should review
Cycle coverage, lag structure, revisions, economic interpretation and sensitivity to adjustment choices.
The right approach depends on your portfolio and available history. Review the fit to your borrowers, the reliability of the estimates and the effect of missing information before using the result in a lending decision.