Coupon Accepted Successfully!


Expected Loss (EL)

  • EL = (Assured payment at Maturity Time T )* Loss Given Default * (Probability that the default occurs before maturity Time T)
  • The term “Assured payment” is more relevant for bonds than loans
  • For Bank Loans the terms Assured Payment is better replaced by “Exposure”
  • EL = Exposure * LGD*PD
  • EL is the amount the bank can lose on an average over a period of time
  • However, during the same period because of macroeconomics conditions, or market trends there could be some deviation from the expected loss which is known as “Unexpected Loss” (UL). Banks need capital to take care of this loss


Test Your Skills Now!
Take a Quiz now
Reviewer Name