THE BUSINESS APPLICATION
Where and how to use it
Use it in limit reviews, expected-loss estimates and portfolio scenarios. It connects repayment structure and undrawn commitments to the amount of credit risk the business may carry.
Two facilities have the same current balance. One repays monthly; the other allows further drawings. Their potential exposure paths differ, which matters when comparing limits and loss scenarios.
From evidence to a decision
- 01Current facilityBalance + available commitment
- 02Contractual pathScheduled repayments
- 03Possible drawingsAdditional use before default
- 04Exposure estimateAmount at risk at default
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 |
|---|---|---|
| Facility terms | Limits, repayment form, interest terms and scheduled principal. | Preserve changes to terms over time. |
| Utilisation history | Dated balances, drawdowns, repayments and available commitments. | Observe how headroom changes before default. |
| Default observations | Default dates and realised exposure at default. | Needed for fitting or checking drawing assumptions. |
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
Exposure estimates over the decision horizon and an explanation of contractual versus behavioural components.
WHAT TO WATCH
The limitations
CCF ratios can be unstable when undrawn commitments are zero or small. Results outside simple ranges require investigation, not automatic suppression.
FOR RISK & ANALYTICAL SPECIALISTSHow the analysis works+
The modelling approach
A contractual amortisation schedule provides a baseline. Where revolving use is relevant and supported by evidence, a credit conversion factor (CCF) or drawing model estimates additional utilisation before default.
What your risk team should review
Schedule reconciliation, limit changes, zero-undrawn cases, balance definitions and default timing.
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.