Applying Individual Adjustments in SAS Allowance for Credit Loss
In this post, we will explore the concept of individual adjustments and their role in credit risk analysis. Individual adjustments allow us to fine-tune the credit risk calculations and adjust them according to specific circumstances.
What are Individual Adjustments?
Individual adjustments are a way to customize credit risk assessments to account for unique circumstances, refining the credit risk analysis and ensuring a more accurate risk assessment.
Individual adjustments are typically applied in a post-processing step, allowing for a more granular analysis and ensuring that unique circumstances are properly accounted for.
Individual adjustments can take many forms, such as industry-specific adjustments for credit risk, collateral adjustments, or adjustments for specific borrower characteristics. These adjustments can help to better approximate the true credit risk and make the analysis more accurate and relevant.
Industry Specific Adjustments
Industry-specific adjustments are used to account for the unique risks associated with different industries. For example, the credit risk associated with the healthcare industry may be different from that of the financial services industry, and industry-specific adjustments can help to account for these differences.
Collateral Adjustments
Collateral adjustments are used to adjust credit risk calculations based on the value and quality of the collateral pledged by the borrower. They help to reflect the credit risk associated with the loan and ensure lenders take the necessary precautions.
High-quality collateral is considered safer and less risky for lenders. If the collateral is of high quality, the credit risk associated with the loan may be lower, and the collateral adjustment can help to reflect this by lowering the credit risk associated with the loan.
Adjustments for Borrower Characteristics
Adjustments can be made for a borrower's credit history. If a borrower has a history of defaulting on loans, the credit risk associated with that borrower may be higher, and an adjustment can be made to account for this.
Adjustments can be made for a borrower's payment behavior. If a borrower has a history of making late payments or missing payments, the credit risk associated with that borrower may be higher, and an adjustment can be made to account for this.
Adjustments can be made for a borrower's financial condition. If a borrower has a low income or high debt-to-income ratio, the credit risk associated with that borrower may be higher, and an adjustment can be made to account for this.
Using Individual Adjustments in the Credit Risk Analysis task within SAS Allowance for Credit Loss
In the Run Credit Risk Analysis task, you can select your individual adjustments data to apply them to the credit risk calculations, refining the analysis and making it more accurate.
Individual adjustments can be used to refine the credit risk analysis and make it more accurate and relevant. They are typically applied in a post-processing step, after the credit risk calculations have been completed.
Individual adjustments can help make credit risk analysis more accurate and relevant. The adjustments can be based on specific credit characteristics, such as collateral or borrower attributes.
Data Requirements for Individual Adjustments
To apply individual adjustments, your data must contain the following columns: Loan Identifier, Facility Identifier, Adjustment Type, Adjustment Value. The SAS Allowance for Credit Loss solution provides sample individual adjustments data that adjusts the expected credit loss lifetime amount. Individual adjustments are a powerful tool that can be used to refine credit risk calculations and account for unique circumstances. By applying individual adjustments, we can better approximate the true credit risk and make more informed lending decisions.
For more information, see SAS Allowance for Credit Loss Sample Data.
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