Commercial and Industrial Asset-Based Lending Credit Risk Model Validation (ABL)

Commercial and Industrial Asset-Based Lending Credit Risk Model Validation (ABL)

A regional bank collaborated with Prescio to perform DFAST Stress Testing model validation for the Asset-Based Lending (ABL) Credit Risk Model. The model forecasts ABL loan probability of default given assumed loss given default rate for currently growing loans, under three supervisory scenarios: Base, Adverse, and Severely Adverse. Transition matrix was used in the model development. Prescio reviewed the model methodology and assessed the data assumption. Prescio made a recommendation regarding use of external data to proxy internal data performance.