This course introduces the concept of Loss Given Default (LGD) Assumption Design within the Personal Loan Credit (Salaried/Self-Employed) framework. It focuses on designing robust LGD assumptions that accurately reflect expected losses in the event of borrower default, incorporating recovery behaviour, cost structures, and product characteristics.
Learners will explore key assessment dimensions such as estimating recovery behaviour across segments, incorporating cost considerations (collection, legal, and operational expenses), assessing the limited or absent collateral context in unsecured lending, and linking LGD assumptions with borrower income stability profiles, with an emphasis on independent validation and well-documented rationale. The course highlights how inaccurate LGD assumptions can distort pricing, misrepresent risk, and lead to suboptimal credit decisions. It also examines how LGD varies across customer segments, delinquency stages, and economic cycles.
The course distinguishes LGD assumption design from broader portfolio diversification strategies, emphasizing its role in quantifying loss severity at the exposure level and enabling structured risk assessment and breach response, whereas diversification focuses on spreading risk across segments. Each requires distinct evidence standards, ownership, and approval authority.
By the end of the course, participants will understand how to design, validate, and apply LGD assumptions in practice, particularly within Pricing, Tenor, and Risk–Reward Calibration. The course also emphasizes the role of the credit manager in validating team-level analysis, approving case recommendations, and managing segment-level exposure within Personal Loan Credit, ensuring risk-aligned pricing and alignment with credit committee priorities.