Loss Given Default (LGD) Calculator
Estimate potential credit losses by calculating Loss Given Default (LGD) for your credit portfolio.
Understanding Loss Given Default (LGD)
Loss Given Default is a fundamental concept in credit risk analysis that measures the severity of loss when a borrower defaults. Along with Probability of Default (PD) and Exposure at Default (EAD), LGD completes the three key components of credit risk measurement under Basel regulations.
Key Factors Affecting LGD
Collateral Quality
High-quality, liquid collateral significantly reduces LGD. Real estate typically has lower LGD than inventory.
Debt Seniority
Senior debt has priority in bankruptcy proceedings, resulting in lower LGD than subordinated debt.
Economic Conditions
Recovery rates tend to be lower during economic downturns when asset values are depressed.
Industry Sector
Some industries (like utilities) have more recoverable assets than others (like services).
LGD in Regulatory Capital
Under Basel III, banks must estimate LGD for different asset classes to calculate risk-weighted assets. The standardized approach provides supervisory LGD values, while advanced approaches allow banks to use internal models.
| Asset Class | Basel Standardized LGD | Internal Models Range |
|---|---|---|
| Residential Mortgages | 35-50% | 10-40% |
| Corporate (Senior) | 45% | 30-60% |
| Corporate (Subordinated) | 75% | 60-90% |
| Retail | 50-75% | 30-80% |
LGD vs. Recovery Rate
LGD and Recovery Rate are inversely related (LGD = 1 – Recovery Rate). However, LGD calculations often incorporate time value of money by discounting recoveries, while simple recovery rates typically don’t.
- Airport Transit Time Calculator
- Flight Wi-Fi Cost Calculator
- Height Weight Percentile Calculator
- Global Meeting Scheduler
- Free Night Reward Optimizer
- Hotel Elite Status Qualification Tracker
- Hotel Points Value Calculator
- Jet Lag Calculator
- Airport Lounge Access Calculator
Loss Given Default (LGD) Calculator
Calculate and analyze potential losses from loan defaults to assess credit risk and make informed lending decisions.
Advertisement
Related Tools
Formula Reference
Loss Given Default
LGD = (Exposure – Recovery Amount) / Exposure
Expected Loss
EL = Exposure × PD × LGD
Recovery Rate
RR = Recovery Amount / Exposure
Risk-Adjusted Return
RAR = Interest Rate – (PD × LGD)
LGD Interpretation
- LGD < 30%: Low Risk
- LGD 30-50%: Moderate Risk
- LGD 50-70%: High Risk
- LGD > 70%: Very High Risk
How to Use
- Enter loan details
- Input collateral information
- Specify recovery parameters
- Click “Calculate” to analyze