LGD Report Large Corporates 2020

Document

Author: 
Nina Brumma (GCD)
Topics: 
LGD modelling for regulatory capital
Reference data sets for LGD modelling
Time-to-Recovery
Downturn LGD
Validation of credit risk models
Specific portfolios in credit risk modelling
Large Corporates
Description: 

This Loss Given Default (LGD) report covers a reference data set of 11,572 defaulted borrowers and 19,805 facilities from 58 lenders worldwide. The data set is specific to large corporate borrowers, defined by their sales or assets being above €50m. Results confirm that historical bank recoveries average 76%, equivalent to an overall average LGD of 24%. More than 10 years after the global financial crisis of 2008-2009, the data contains the bulk of complete account of crises related losses and demonstrate that LGD is affected by and aligned with macroeconomic conditions during the workout period following default.

The analyses in this study offer an overall insight into LGD data on a global level and confirm the drivers, their direction and their levels shown in the 2019 and 2018 reports.

• Seniority and collateral are again confirmed as LGD drivers. Secured LGD is lower than unsecured LGD, particularly where a strong (primary) collateral is held. For unsecured LGD, seniority is confirmed as a driver – LGD is 26% for senior unsecured vs 38% for subordinated unsecured at obligor level. The total secured LGD is 22% and 20% for primary collateralized borrowers.
• After aggregating country-level data to regions, North America and Europe appear to have similar levels of LGD – 23% and 21% respectively.

The insights gained from these high-level analyses confirm the benefits of detailed and granular collection of post-default cash-flow data – critical for banks using data-driven credit risk modelling to understand and quantify LGD.

 

File Type: 
GCD publications
Publication Year: 
2020
Groups audience: 
Workflow status: 
Final
Group content visibility: 
Use group defaults
Short Description: 
GCD annual report on Loss Given Default (LGD) for Large Corporates