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  • Outstanding – Generic term referring to that portion of the bank asset which has already been extended to the borrowers (in case of loans and bonds) and also to other receivables in the form of contractual payments which are due from its customers
  • Commitments – Refers to loans and consist of two portions – drawn and undrawn. A commitment is an amount which a bank has committed to lend at the borrower’s request e.g. Lines of Credit


  • Covenants – The terms and provisions, which are the options banks reserve to itself granted to
  • the obligor
  • A reduction of the maximum percentage of draw down under the commitment
  • An increase in the seniority of the borrowing
  • An increase in the collateral requirement
  • Repricing of the loans

Adjusted Exposure

  • Let the value of bank asset at time T be V
  • Let the already drawn amount be OS (outstanding)
  • Let COM be the commitment
  • Let “d” be the fraction of the commitment which would be drawn before the default
  • Portion which is not drawn and risk free = COM*(1-d)
  • Risky portion = OS + d*COM
  • This Risky Portion is known as Adjusted Exposure also known as Exposure At Default
  • EL = Adjusted Exposure*LGD*PD
  • “d” is also known as Usage Given Default (UGD)

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