Understanding LGD: A broad Lead to Loss Given Default
LGD, or “Loss Given Default,” is a critical metric in credit risk management that indicates the loss a lender might face when a borrower defaults, considering recoveries from collateral. Expressed as a percentage, it informs expected credit losses calculations, influencing pricing, capital reserves, and regulatory compliance, like Basel III. Estimating LGD involves analyzing default data, market conditions, and legal frameworks. Understanding LGD aids financial institutions in managing risk and setting strategic financial parameters.

