What is 'haircut' in SAP FS-BA-PM-CR - Credit Risk?

haircut - Overview

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Amount deducted from the value of the collateral. This amount reflects the fact that there is a risk of volatility in the exposure, the value of the collateral, and in the currency. The haircut takes into account the volatility in the exposure, collateral, and currency separately.

haircut - Details

• 
  Key Concepts: 
  Haircut is a risk management tool used in the FS-BA-PM-CR Credit Risk Management component of SAP. It is used to reduce the risk of default by setting a minimum value for collateral that must be held against a loan. This value is known as the haircut and is calculated as a percentage of the loan amount. 
  
  How to use it: 
  In order to use the haircut tool, you must first set up the parameters for the loan. This includes setting the loan amount, interest rate, and repayment terms. Once these parameters are set, you can then calculate the haircut percentage. This percentage will be used to determine the minimum value of collateral that must be held against the loan. 
  
  Tips & Tricks: 
  When setting up the parameters for a loan, it is important to consider the risk associated with it. The higher the risk, the higher the haircut percentage should be set. Additionally, it is important to keep in mind that haircuts are not static and can be adjusted over time depending on changes in market conditions or other factors. 
  
  Related Information: 
  The haircut tool is just one of many risk management tools available in SAP’s FS-BA-PM-CR Credit Risk Management component. Other tools include credit scoring, stress testing, and portfolio analysis. Additionally, SAP provides a range of services and support to help customers