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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 04 June, 2012, 14:08Be the first to give this comment the thumbs up 0 likes

Since the risk-based collections methodology pivots around PBAD, it's obvious that creditors have to get their PBADs right. Is there any methodology to quantify PBAD that is relatively free of subjective judgment?

A Finextra member
A Finextra member 04 June, 2012, 21:02Be the first to give this comment the thumbs up 0 likes

Thanks Ketharaman Swaminathan for your comment.  Methods in Mathematical Statistics methods exist to generate PBADs in an objective manner, that is PBADs based on historical data and statistical distributions.  The PBADs across various segments can be compared against historical actual bad rates to check for degree of alignment.  Since PBADs for collection purposes should be designed to predict out for a short window, 6 to 12 months, at most, with annual validations and calibrations you can keep the PBAD up to date relative to macro-economic and industry wide factors.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 05 June, 2012, 07:09Be the first to give this comment the thumbs up 0 likes

@CJWimley: Thank you for elaborating. It'd be great if you could refer me to some whitepaper(s) on PBAD quant models.

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