Loan Portfolio Default Stress Simulator

Translate probability-of-default stress scenarios into expected charge-offs. Enter the current portfolio balance, annual base default rate, and a macro stress multiplier to see projected losses, incremental risk versus baseline, and whether your capital buffer can absorb the hit without breaching policy limits.

Aggregate principal across the loan segment or cohort you are stressing.
Historical or expected annual default probability before stress is applied.
Scenario multiple to apply to the base default rate (e.g., 1.5×, 2×, 3×).
Defaults to 55% if blank to mimic unsecured consumer loan LGD benchmarks.
Defaults to 12 months to align with annualized default rates.
Defaults to $0 if blank; include available reserves or excess spread here.

Stress test results are simplified and should be complemented with full credit risk models, delinquency vintage analysis, and capital planning reviews.

Examples

  • Balance $185M, base default 4.2%, stress 2.4×, LGD 55%, 12-month horizon, $20M buffer ⇒ Under a 2.4× stress, charge-offs rise to $10,256,400.00 (5.54% of the portfolio) versus a base expectation of $4,273,500.00. Incremental losses total $5,982,900.00 over 12.0 months. With $20,000,000.00 in capital, coverage is 195.00%, leaving a surplus of $9,743,600.00 against the stressed loss.
  • Balance $60M, base default 3.0%, stress 1.8×, LGD blank, horizon 9 months, buffer $12M ⇒ Under a 1.8× stress, charge-offs rise to $1,336,500.00 (2.23% of the portfolio) versus a base expectation of $742,500.00. Incremental losses total $594,000.00 over 9.0 months. With $12,000,000.00 in capital, coverage is 897.87%, leaving a surplus of $10,663,500.00 against the stressed loss.

FAQ

Can I model multiple stress multipliers?

Yes. Run the tool multiple times with different multipliers (e.g., base, moderate, severe) and compare the incremental loss output for each scenario.

Does the calculator assume independent defaults?

It scales the base probability by your multiplier and does not simulate correlations. For correlated defaults, pair this output with scenario-weighted Monte Carlo runs.

How should I treat recoveries?

Include your expected recovery percentage in the loss given default input. For example, if you expect 40% recovery, enter 60 for LGD.

Additional Information

  • Losses are scaled to the analysis horizon by multiplying annual default expectations by months/12 to keep math aligned with PD assumptions.
  • Loss given default defaults to 55% when blank, representing unsecured consumer benchmarks; adjust for secured portfolios.
  • Capital coverage expresses how much of the stressed loss your buffer absorbs; values above 100% indicate excess capital or reserves.

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