Learning Objectives
By the end of this module, you will be able to:
Understand the Purpose and Role of PD in Commercial Lending
Recognise Probability of Default (PD) as a core measure of credit risk assessment.
Understand how PD informs loan decision-making, pricing, risk appetite, and regulatory compliance under frameworks like Basel
Evaluate Key PD Metrics and Influencing Factors
Assess PD using financial indicators like Interest Cover Ratio, Debt Service Cover Ratio and Gross Leverage Ratio.
Incorporate qualitative factors including industry outlook, management capability, and customer/supplier concentration
Tailor Loan Structures Based on PD
Use PD outcomes to guide decisions on loan terms, repayment type, security requirements, and financial covenants.
Align facility structures to mitigate credit risk while maintaining commercial viability.
Strengthen Risk Mitigation Using PD Trends
Monitor PD changes over time to identify early warning signs of financial stress.
Adjust loan terms, introduce risk mitigants, or escalate exposure management where necessary .
Apply strategies such as pricing adjustments, hedging tools, and covenant tightening
Apply PD Analysis in Real-World Scenarios
Practise assessing default risk through case studies and client examples.
Integrate PD insights into credit papers and stakeholder discussions.
Support risk-aligned lending recommendations that balance client needs with portfolio stability
