Learn / Playbooks / Loss budget and stress testing

Loss budget and stress testing

Planning season. The CFO wants a credit cost budget, and the board wants to see a stress case. Set next year's loss budget, test growth against risk, and show what a bad year does.

9 steps · 11 tools (2 free) · for risk analysts at banks and NBFCs

Tools you will use

This playbook is free to read. The prompt for each step is inside its tool. See the Pro tools.

Schema profile builderFree

Definition libraryFree

Expected vs actual loss trackingPortfolio MIS and growth

Yield and risk-adjusted returnPortfolio MIS and growth

Loss budget and credit cost planningGovernance and board

Growth-vs-risk trade-off scenariosGovernance and board

Risk appetite statement and limitsGovernance and board

Portfolio stress and sensitivityDelinquency and loan tape

Stress testingGovernance and board

Variance commentaryReporting and communication

Executive summary writingReporting and communication

Check these first

Each tool asks the same questions and gives you a prompt to build whatever is missing.

Loan tape with DPD for each account and month?

Have itAlready calculatedDon't have it

Plan for disbursals and growth?

Have itDon't have it

Risk appetite limits set?

YesNo

The steps, in order

Each step names the tool to open.

Set up

Tell the tools your table names

Tape, plan and loss tables.

FreeSchema profile builderFreeDefinition library

Look back

Expected against actual loss

Where past forecasts were wrong, and why.

Expected vs actual loss tracking

Yield and risk-adjusted return

What each segment earns after losses.

Yield and risk-adjusted return

Plan

Loss budget and credit cost

Loss rate by segment, and the budget it implies.

Loss budget and credit cost planning

Growth against risk

What happens to losses if you grow faster.

Growth-vs-risk trade-off scenarios

Risk appetite and limits

Set limits the budget can live within.

Risk appetite statement and limits

Stress

Portfolio stress and sensitivity

Move one driver at a time and see the loss.

Portfolio stress and sensitivity

Stress testing

Combined scenarios with written assumptions.

Stress testing

Deliver

Variance commentary and summary

Explain the numbers in plain words.

Variance commentaryExecutive summary writing

Check before you send

The budget reproduces last year's actual when run on last year's inputs.
Every scenario has written assumptions and a named source.
Growth plans and loss budgets use the same volume forecast.
Stress results are shown with the capital or earnings effect.

Warning signs

The budget assumes a loss rate better than any of the last 8 quarters.

The stress case is milder than the worst quarter you have already seen.

What you hand over

A loss budget by segment, a growth-versus-risk table and a stress-test summary for planning and the board.

In your profile

Once you are signed in, your profile shows which steps you can run with the tools you own, and which tools you still need.

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