Customer & Risk
Facilities
Collateral
Advanced
Integration
Customer Information & Risk Profile
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Unique identifier for the customer in the bank's system. Used for tracking and linking all facilities and transactions.
Example: CUST001234
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Legal name of the customer entity as registered. This should match official documentation and regulatory filings.
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Industry classification affects PD calculation and risk assessment. Different industries have varying risk profiles and economic sensitivities.
Used for: PIT PD adjustments, correlation factors, stress testing
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Entity classification determines correlation factors in Basel II IRB formula and regulatory capital requirements.
Corporate: ρ = 0.12-0.24 | SME: ρ = 0.04-0.24 | FI: ρ = 0.12-0.24
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Annual revenue/turnover used in correlation calculation for economic capital. Higher turnover generally reduces correlation in Basel II formula.
Correlation adjustment: S = max(0, (Turnover - 5M) / 45M)
SME threshold: < $50M turnover
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Total assets of the entity, used for correlation adjustments and entity size classification. Affects operational risk capital calculation.
Used in: Basel correlation formula, operational risk (standardized approach)
Risk Assessment & PD Calculation
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Bank's internal credit rating based on financial analysis, management quality, and risk assessment. Maps to specific PD ranges.
BB+ typically corresponds to 2.0-3.0% TTC PD
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Credit rating from external agencies (Moody's, S&P, Fitch). Used for validation and benchmarking of internal ratings.
Ba2 (Moody's) ≈ BB (S&P) ≈ BB (Fitch)
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Through-the-Cycle Probability of Default - long-term average default probability. Used for economic capital calculation (Basel II IRB).
Economic Capital = f(TTC PD, LGD Downturn, Correlation, Maturity)
More stable, less volatile than PIT PD
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Point-in-Time Probability of Default - current economic conditions adjusted PD. Used for Expected Credit Loss (IFRS 9) calculation.
ECL = PIT PD × LGD × EAD × Discount Factor
Varies with economic cycle, typically higher in stress periods
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Through-the-Cycle Loss Given Default - average loss rate in case of default, considering collateral recovery over economic cycle.
LGD = (1 - Recovery Rate) × 100%
Unsecured: 45-75% | Secured: 20-45% | Guaranteed: 10-30%
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Downturn Loss Given Default - loss rate during stressed economic conditions. Used for economic capital calculation (Basel II).
LGD Downturn = LGD TTC + Downturn Adjustment
Typically 5-15% higher than TTC LGD due to lower recovery values
AI Risk Intelligence
Risk Profile Analysis: Customer shows stable payment history with 98.5% on-time payments. Industry outlook: Moderate risk due to supply chain pressures. Correlation factor: 0.24 (Corporate, $50M turnover).
PD Recommendations: TTC PD aligned with BB+ rating. PIT adjustment for manufacturing sector: +0.33%. LGD Analysis: Downturn scenario adds 7% to base LGD due to asset liquidity profile.
Multi-Facility Portfolio Management
Term Loan Facility Primary
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Type of credit facility determines risk characteristics, CCF factors, and regulatory treatment.
Term Loan: Fixed repayment | Revolving: Variable utilization
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Total committed facility limit. For term loans, this is the principal amount. For revolving facilities, this is the maximum available limit.
Used to calculate: Interest income, capital requirements, exposure metrics
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Maturity of the facility. Used for effective maturity calculation in Basel II capital formula.
Effective Maturity = min(5 years, max(1 year, weighted average maturity))
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All-in interest rate charged to customer. Used for revenue calculation.
Interest Income = (Interest Rate - FTP Rate) × Outstanding × Utilization
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Credit spread over benchmark rate (basis points). Reflects credit risk premium.
350 bps = 3.50% spread over base rate
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Expected average utilization of the facility. Critical for revenue and exposure calculations.
EAD = Facility Amount × (Utilization + (1-Utilization) × CCF)
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Credit Conversion Factor for Expected Credit Loss calculation (IFRS 9).
Term Loan: 100% | Overdraft: 50% | LC: 20%
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Credit Conversion Factor for Economic Capital calculation (Basel II/III). Often different from ECL CCF.
More conservative than ECL CCF for regulatory capital
Repayment Schedule
Year Principal Interest Total Payment Outstanding
1 $800,000 $425,000 $1,225,000 $4,200,000
2 $900,000 $357,000 $1,257,000 $3,300,000
3 $1,000,000 $280,500 $1,280,500 $2,300,000
4 $1,100,000 $195,500 $1,295,500 $1,200,000
5 $1,200,000 $102,000 $1,302,000 $0
Overdraft Facility Secondary
Add New Facility
Advanced Collateral Management
Real Estate Collateral Primary
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Type of collateral determines haircut rates, depreciation schedules, and recovery expectations. Different types have varying liquidity and volatility characteristics.
Real Estate: Lower volatility, higher haircuts | Equipment: Higher depreciation | Guarantees: PD substitution
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Current market value of the collateral as per latest valuation. This is the gross value before applying haircuts and depreciation.
Effective Value = Collateral Value × (1 - Haircut) × (1 - Depreciation)^Years
$8M property with 20% haircut = $6.4M effective value
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Regulatory or internal haircut applied to collateral value to account for market volatility and liquidation costs. Higher haircuts for more volatile assets.
Real Estate: 15-25% | Equipment: 30-50% | Inventory: 40-70% | Cash: 0%
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Annual depreciation rate for movable assets. Real estate typically has 0% depreciation or may appreciate. Equipment and machinery depreciate over time.
Depreciated Value = Initial Value × (1 - Depreciation Rate)^Years
Equipment: 10-20% p.a. | Vehicles: 15-25% p.a. | Real Estate: 0%
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Date of the latest professional valuation. Regulatory requirements typically mandate revaluation every 12-36 months depending on collateral type and volatility.
Real Estate: Every 3 years | Equipment: Every 1-2 years | Securities: Daily
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Currency denomination of the collateral. FX risk arises when collateral currency differs from facility currency, requiring additional haircuts or hedging.
USD facility with EUR collateral adds FX volatility risk
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Priority order for collateral allocation across multiple facilities. Higher priority collateral is allocated first to facilities with better risk characteristics.
Allocation: Optimize by (PD × LGD × CCF) across facilities
Priority 1 allocated to lowest risk facilities first
Effective Value: $6,400,000 (After haircut) | Coverage Ratio: 128% | Liquidity Score: 8.5/10
Corporate Guarantee Secondary
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Legal name of the entity providing the guarantee. Must be a separate legal entity with independent credit assessment and rating.
Parent company, subsidiary, or third-party guarantor
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Credit rating of the guarantor entity. Must be equal or better than borrower rating for effective PD substitution. Used to determine guarantor PD.
AA rating typically corresponds to 0.8-1.2% PD
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Maximum amount covered by the guarantee. Can be less than or equal to the facility amount. Determines the extent of PD substitution benefit.
Effective Coverage = min(Guarantee Amount, Facility Amount)
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Percentage of exposure covered by the guarantee. Used for weighted average PD calculation between borrower and guarantor.
Coverage % = Guarantee Amount / Facility Amount × 100%
60% coverage means 60% gets guarantor PD, 40% gets borrower PD
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Probability of Default of the guarantor entity based on their credit rating. Should be lower than borrower PD for effective risk mitigation.
AA rating: 0.8-1.2% PD vs BB+ borrower: 2.45% PD
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Blended PD after considering guarantee coverage. Calculated as weighted average of borrower and guarantor PDs based on coverage percentage.
Weighted PD = (Coverage% × Guarantor PD) + ((1-Coverage%) × Borrower PD)
60% × 0.85% + 40% × 2.45% = 1.89%
PD Substitution Effect: Weighted average PD reduced from 2.45% to 1.89% due to guarantee coverage
Add Collateral / Guarantee
AI Collateral Optimization
Optimization Analysis: Current collateral allocation provides 164% coverage with optimized allocation. Real estate: Prime location, +2.3% YoY appreciation. Corporate guarantee: AA-rated guarantor reduces portfolio PD by 23%. Recommendation: Consider partial release of real estate (20%) to optimize capital efficiency while maintaining adequate coverage.
Advanced Analytics & Multi-Year RAROC

Multi-Year RAROC Projection

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Time horizon for multi-year RAROC projection. Longer periods show rating migration effects and changing risk profiles over facility life.
Project Finance: 7-10 years | Corporate Loans: 3-5 years | Working Capital: 1-3 years
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Model for projecting credit rating changes over time. Uses historical transition matrices to estimate probability of rating upgrades/downgrades.
P(Rating_t+1) = Transition Matrix × P(Rating_t)
BB+ has 15% chance of upgrade to BBB-, 5% chance of downgrade to BB
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Pattern of facility utilization over time. Critical for project finance and construction loans where funds are drawn gradually as project milestones are met.
Project Finance: 20% Year 1, 50% Year 2, 30% Year 3 | Term Loan: 100% immediate
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Distribution of fee income over the facility life. Affects cash flow timing and present value calculations for multi-year RAROC.
Front-loaded: High upfront fees | Performance-based: Fees tied to milestones | Standard: Even distribution
5-Year RAROC Projection
Year Expected Rating PD (%) Revenue ECL Capital RAROC (%)
1 BB+ 2.45 $425,000 $122,500 $1,200,000 18.7
2 BB+ 2.38 $398,000 $115,200 $1,150,000 19.2
3 BBB- 2.15 $365,000 $98,500 $1,080,000 20.1
4 BBB- 2.08 $325,000 $82,200 $980,000 20.8
5 BBB 1.95 $280,000 $65,800 $850,000 21.5

Derivatives & XVA Calculation

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Type of derivative instrument associated with the facility. Each type has different risk characteristics and XVA calculation methodologies.
IRS: Interest rate risk | FX Forward: Currency risk | CDS: Credit risk transfer
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Notional principal amount of the derivative contract. Used as basis for calculating market risk capital and XVA adjustments.
$2M IRS notional for hedging $5M floating rate loan
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Credit Valuation Adjustment - cost of counterparty credit risk. Reflects potential loss if counterparty defaults when derivative has positive value to bank.
CVA = LGD × Σ(EE × PD × DF)
Higher for longer-term derivatives and weaker counterparties
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Debit Valuation Adjustment - benefit from bank's own credit risk. Reflects reduced liability if bank defaults when derivative has negative value to bank.
DVA = Bank LGD × Σ(NEE × Bank PD × DF)
Controversial accounting treatment, often netted against CVA
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Funding Valuation Adjustment - cost of funding uncollateralized derivative exposures. Reflects difference between risk-free rate and bank's funding cost.
FVA = (Funding Spread) × Σ(Expected Exposure × DF)
Higher for banks with higher funding costs
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Capital Valuation Adjustment - cost of regulatory capital required for derivative exposures. Reflects opportunity cost of capital allocation.
KVA = (Cost of Capital - Risk-free Rate) × Σ(Capital × DF)
Typically 8-12% cost of capital for derivative capital requirements

Securitization & Risk Participation

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Type of securitization structure for transferring credit risk to capital markets. Each type has different risk retention requirements and capital treatment.
ABS: Trade receivables, auto loans | MBS: Mortgage portfolios | CLO: Corporate loan portfolios
Risk Transfer = (1 - Risk Retention %) × Original Exposure
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Percentage of credit risk transferred to other financial institutions through risk participation agreements. Reduces capital requirements proportionally.
Remaining Capital = Original Capital × (1 - Risk Participation %)
50% participation reduces capital requirement by half
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Credit insurance or political risk insurance coverage that provides protection against borrower default or country risk events.
Credit Insurance: Covers commercial default risk | Political Risk: Covers sovereign/regulatory risks
Effective LGD = Original LGD × (1 - Insurance Coverage %)
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Annual premium paid for insurance coverage, expressed in basis points of the insured amount. Reduces net income but provides risk mitigation.
Annual Premium = Insured Amount × Premium Rate (bps) / 10,000
100 bps on $5M exposure = $50,000 annual premium
System Integration & Data Sources

Upstream Systems
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External systems that provide critical data inputs for RAROC calculations. Integration status and data freshness are monitored in real-time.
FTP System: Funding transfer pricing rates | IFRS9: Expected credit loss models | Economic Capital: Basel regulatory capital
RAROC Quality = f(Data Freshness, System Availability, Model Versions)

FTP System
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Funds Transfer Pricing system provides internal cost of funds rates by currency, tenor, and business line. Critical for accurate net interest margin calculation.
Net Interest Income = (Customer Rate - FTP Rate) × Outstanding Balance
Current FTP Rate: 4.25% | Update Frequency: Hourly | SLA: 99.9% uptime
Connected
Last sync: 2 hours ago | FTP Rate: 4.25%
IFRS9 Engine
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IFRS 9 Expected Credit Loss calculation engine providing forward-looking credit loss provisions based on multiple economic scenarios.
ECL = PIT PD × LGD × EAD × Scenario Weights × Discount Factor
Model Version: v2.3.1 | Scenarios: Base, Upside, Downside | Update: Monthly
Connected
Last sync: 1 hour ago | ECL Model: v2.3.1
Economic Capital Engine
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Basel III regulatory capital calculation engine computing credit, market, and operational risk capital requirements using advanced IRB models.
Economic Capital = Credit Risk + Market Risk + Operational Risk + CVA Risk
Framework: Basel III | Method: IRB Advanced | Confidence: 99.9% | Horizon: 1 Year
Connected
Last sync: 30 minutes ago | Basel III Framework
Finance Repository
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Central finance data repository containing revenue, expense, and P&L data for comprehensive RAROC calculation and performance tracking.
Data: Revenue streams, Operating costs, Allocations | Frequency: Daily | Format: Multiple (CSV, Excel, Database)
Net Income = Total Revenue - Operating Costs - Credit Provisions
Offline
Connection lost: 15 minutes ago

Data Quality Checks
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Automated validation rules that ensure data integrity and completeness before RAROC calculation. Failed checks prevent calculation execution.
Customer Data: Mandatory field validation | Rating Consistency: Internal vs external alignment | Collateral: Valuation recency
Data Quality Score = Σ(Passed Checks) / Total Checks × 100%

Customer Data
All mandatory fields validated
Rating Consistency
Internal/External ratings aligned
Collateral Valuation
Valuation older than 6 months
Regulatory Compliance
Basel III requirements met

Manual Data Override

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Manual override of the Funds Transfer Pricing rate from the FTP system. Used for special pricing scenarios or when system rate is not appropriate.
Market disruption, special customer arrangements, or regulatory requirements
Net Interest = (Customer Rate - Override FTP Rate) × Outstanding
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Override the IFRS 9 ECL calculation with manual input or alternative models. Requires proper documentation and approval for audit purposes.
Stress testing scenarios, model limitations, or regulatory adjustments
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Justification for overriding system-calculated capital requirements. All overrides must be documented with valid business reasons and approvals.
Pillar 2 add-ons, concentration risk, model limitations, or regulatory guidance
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Level of approval required for this RAROC calculation based on facility size, risk profile, and any overrides applied. Higher risk requires senior approval.
Standard: < $5M | Senior Mgmt: $5-50M | Risk Committee: $50M+ | Board:> $100M or high risk
18.7%
Above Target (15%)
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Risk-Adjusted Return on Capital - Primary metric for evaluating risk-adjusted profitability of the transaction.
RAROC = (Revenue - Expected Loss - Op Costs) / Economic Capital
Target: 15% | Current: 18.7% | Status: ✅ Approved
Portfolio Level Analysis
Customer Level RAROC
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Aggregated RAROC across all facilities for this customer, weighted by capital allocation.
Customer RAROC = Σ(Facility RAROC × Capital Weight)
19.2%
Relationship RAROC
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RAROC including all relationship benefits (cross-sell, deposits, fee income from related entities).
Includes: Group companies, subsidiaries, related party transactions
17.8%
Total Facilities
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Number of active facilities included in this RAROC calculation.
2
Total Exposure
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Total Exposure at Default (EAD) across all facilities after applying CCF and utilization.
Total EAD = Σ(Facility Amount × Utilization × CCF)
$7,000,000

Detailed Component Breakdown

Revenue Components
Interest Income
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Net interest income from the facility based on spread over funding cost.
Interest Income = (Interest Rate - FTP Rate) × Outstanding Balance × Utilization
$5M × 85% × (8.5% - 4.25%) = $180,625 annually
$425,000
Fee Income
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Non-interest income including arrangement fees, commitment fees, and other charges.
Fee Income = Arrangement Fee + Commitment Fee + Other Fees
Typical: 0.5-1.5% of facility amount upfront + 0.25% commitment fee
$35,000
FTP Benefit
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Funds Transfer Pricing benefit - difference between actual funding cost and FTP rate.
FTP Benefit = (Market Rate - FTP Rate) × Outstanding Balance
Positive when FTP rate < actual market funding cost
$28,500
Total Revenue
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Sum of all revenue components before costs and provisions.
Total Revenue = Interest Income + Fee Income + FTP Benefit
$488,500
Cost Components
Expected Credit Loss
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IFRS 9 expected credit loss provision based on PIT PD and forward-looking scenarios.
ECL = PIT PD × LGD × EAD × Discount Factor
2.78% × 45% × $4.25M × 0.95 = $122,500
$122,500
Operational Costs
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Direct operational costs including relationship management, processing, and administration.
Op Costs = (Salary + Systems + Overhead) × Allocation %
Typically 0.5-1.5% of facility amount annually
$45,000
XVA Adjustments
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Valuation adjustments for derivatives: CVA (Credit), DVA (Debit), FVA (Funding), KVA (Capital).
XVA = CVA - DVA + FVA + KVA
$15K + $8.5K + $12K + $18.5K = $18,500 net
$18,500
Total Costs
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Sum of all cost components including provisions and operational expenses.
Total Costs = ECL + Operational Costs + XVA Adjustments
Total Costs $186,000
Capital Requirements
Credit Risk Capital
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Economic capital for credit risk using Basel II IRB Advanced approach.
K = LGD × N[(1-ρ)^-0.5 × G(PD) + (ρ/(1-ρ))^0.5 × G(0.999)] - PD × LGD
Where ρ = correlation, N = cumulative normal, G = inverse normal
$1,200,000
Operational Risk Capital
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Capital for operational risk using Standardized Approach (TSA).
Op Risk Capital = β × Gross Income
β = 15% for corporate finance, 12% for commercial banking
$85,000
Market Risk Capital
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Capital for market risk including interest rate, FX, and commodity risks from derivatives.
Market Risk = VaR × Multiplier + Specific Risk
Typically minimal for vanilla lending products
$32,000
Total Capital
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Sum of all risk-weighted capital requirements for RAROC denominator.
Total Capital = Credit Risk + Operational Risk + Market Risk
$1,317,000
Net Income
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Revenue after all costs and provisions - the numerator in RAROC calculation.
Net Income = Total Revenue - Total Costs
$488,500 - $186,000 = $302,500
$302,500
Risk-Adjusted Capital
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Total economic capital allocated to the transaction - the denominator in RAROC.
Risk-Adjusted Capital = Total Capital Requirements
$1,317,000
RAROC
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Risk-Adjusted Return on Capital - key profitability metric for risk-adjusted performance.
RAROC = Net Income / Risk-Adjusted Capital × 100%
$302,500 / $1,317,000 = 18.7%
18.7%
Advanced Sensitivity & Stress Testing
Rating Sensitivity:
Rating ↓1 notch (BB): 16.2%
Rating ↓2 notches (B+): 13.8%
Rating ↑1 notch (BBB-): 21.3%
Collateral Sensitivity:
Collateral ↓20%: 17.1%
Collateral ↓50%: 14.9%
Economic Scenarios:
Mild Stress: 17.2%
Severe Stress: 14.5%
Stage 2 migration: 14.8%
MIS Drill-Down Navigation
Segment Level
Division Head Level
Regional Manager Level
Unit Manager Level
Relationship Manager Level
Customer Level
Product Level
AI-Powered Strategic Recommendations
Pricing Optimization: Consider 25bps rate reduction to improve competitiveness while maintaining 17.2% RAROC
Risk Mitigation: Add covenant for quarterly financial reviews and debt-to-equity ratio maintenance
Tenure Optimization: 3-4 years optimal for maximum RAROC (21.5% projected Year 4)
Cross-Sell Opportunity: Customer profile suggests FX hedging needs (~$500K additional revenue)
Monitoring Alert: Industry concentration risk - monitor supply chain disruptions