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What is loss given default?

LGD stands for loss given default. Loss given default is the amount of money lost by a lender if a borrower defaults on a loan. It’s also known as credit loss or probability of default (PD).

FAQ

What are PD and LGD?

The likelihood of loss materialization is tied to the borrower’s probability of default (PD) while the severity of loss in the event of default is accounted for by the loss given default (LGD).

What factors affect loss given default?

The subsequent losses are influenced by four primary factors: origination quality, servicing quality, changes in property prices and market conditions, and seasoning of the loan at the time of default.

Can LGD be negative?

Some LGD may be null or negative.