In Credit management, What is the meaning of ” “Exposure at Default” ( EAD)?

Question by Aish b: In Credit management, What is the meaning of ” “Exposure at Default” ( EAD)?

Best answer:

Answer by sail
What is the likely exposure when an advance becomes NPA?- This is known as the Exposure at Default ( EAD)

In general EAD can be seen as an estimation of the extent to which a bank may be exposed to a counterparty in the event of, and at the time of, that counterparty’s default. It is a measure of potential exposure (in currency) as calculated by a Basel Credit Risk Model for the period of 1 year or until maturity whichever is sooner. Based on Basel Guidelines Exposure at Default (EAD) for loan commitments measures the amount of the facility that is likely to be drawn if a default occurs[1].

Under Basel II a bank needs to provide an estimate of the exposure amount for each transaction, commonly referred to as Exposure at Default (EAD), in banks’ internal systems. All these loss estimates should seek to fully capture the risks of an underlying exposure.

EAD is mainly used in banking business

Give your answer to this question below!