Calculate loss given default from collateral and recoveries
Enter the exposure, collateral value, forced-sale haircut, sale costs and months to sale. Add what collections recover and when, workout costs and the discount rate to see workout LGD and where the exposure goes.
Workout LGD
€43,714 of the €200,000 is lost, with an LGD of 21.9%. Waiting 18 months for the sale and discounting at 6% adds 7.5 points to the 14.3% from adding up the cash.
Where the exposure goes
The bar shows the exposure and costs. The first two parts are recoveries in today's money, and the rest is loss.
LGD calculation
| Collateral after haircut | €184,000 |
| Collateral after sale costs | €174,800 |
| Collateral recovery | €174,800 |
| After collateral | €25,200 |
| Unsecured recovery | €2,520 |
| Workout costs | €6,000 |
| Sale discount factor | 0.9163 |
| Unsecured discount factor | 0.8396 |
| Recoveries at present value | €162,286 |
| LGD before discounting | 14.3% |
| Workout LGD | 21.9% |
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Next, work out LGD by collateral and segment inside the credit decision, so limits and prices reflect what a default would cost. Start free
View the formulas
Collateral after sale costs = Collateral value × (1 − Forced-sale haircut) × (1 − Sale costs) Collateral recovery = Lower of the two: Collateral after sale costs, Exposure at default Unsecured recovery = (Exposure at default − Collateral recovery) × Unsecured recovery rate Workout costs = Workout cost rate × Exposure at default Sale discount factor = (1 + Discount rate) ^ −(Months to sale ÷ 12) Unsecured discount factor = (1 + Discount rate) ^ −(Months to recovery ÷ 12) Workout LGD = (Exposure at default − Recoveries at present value + Workout costs) ÷ Exposure at default
This calculation uses one exposure, one sale and one recovery date, with no downturn adjustment or cure. Every rate is your own, and this is not a regulatory or accounting figure.
Calculate loss given default
Loss given default (LGD) is the share of exposure at default that is lost after recoveries and costs. This calculator works out workout LGD from collateral, a forced-sale haircut, sale costs, unsecured recovery, recovery timing and a discount rate.
LGD shows how much of an exposure may be lost in a default. Use the result to see the loss in euro, the LGD before discounting and where the exposure goes.
LGD questions
How do you calculate loss given default?
Subtract discounted recoveries from the exposure, add workout costs, then divide by the exposure. The calculator also shows LGD before discounting, using the recoveries as cash.
What is the difference between LGD and recovery rate?
LGD is the share of the exposure lost after recoveries and costs. The unsecured recovery rate is the share of what remains after collateral recovery that collections recover.
How do collateral and sale costs affect LGD?
The forced-sale haircut reduces the collateral value, and sale costs reduce it further. The amount recovered from collateral is capped at the exposure.
Why discount recoveries when calculating LGD?
The calculator discounts the collateral sale and unsecured recovery according to their timing and the discount rate. It shows how waiting changes LGD compared with adding up the recoveries as cash.
Why can a collateral-covered loan still have LGD?
The forced-sale haircut and sale costs reduce the amount recovered from collateral. Workout costs and the time until sale can also contribute to the loss.