Theta SA grants a customer a revolving credit facility (credit card type). Theta's ability to demand repayment does not limit its exposure to credit risk to the notice period. According to the case, the period of exposure to credit risk not mitigated by credit risk management actions is 18 months. Expected exposure at default: 400,000; probability of default over that period: 5 %; loss given default: 60 %. Case convention: expected loss = exposure × probability of default × loss given default, without discounting. Calculate the expected credit loss of the facility.
- Unmitigated exposure period
- 18
- Expected exposure at default
- 400,000
- Probability of default over the period
- 5 %
- Loss given default
- 60 %