What is LGD grading in SAP FS-BA-PM-CR - Credit Risk?

SAP Term: LGD grading

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Function that assigns a value for the loss given default LGD to an LGD grade. &EXAMPLE& In mortgage lending, an LGD is assigned depending on the LGD grade, which results from the term of the loan, its type, and the location of the real estate.

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• Key Concepts: 
  LGD grading is a component of the Credit Risk Management module in SAP FS-BA-PM-CR. It is used to assign a grade to a loan based on its likelihood of default. The grade is determined by analyzing the borrower’s creditworthiness, the loan’s terms, and other factors. The grade is then used to determine the expected loss in the event of a default. 
  
  How to use it: 
  To use LGD grading, first enter the borrower’s creditworthiness and other relevant information into the system. Then, enter the loan’s terms and conditions. Finally, run the LGD grading algorithm to assign a grade to the loan. 
  
  Tips & Tricks: 
  When entering information into the system, make sure to double-check for accuracy. This will ensure that the LGD grading algorithm produces accurate results. Additionally, it is important to keep up with changes in creditworthiness and other factors that may affect the grade assigned to a loan. 
  
  Related Information: 
  LGD grading is closely related to other components of Credit Risk Management, such as credit scoring and stress testing. Additionally, it is important to understand how LGD grading interacts with other components of SAP FS-BA-PM-CR, such as loan origination and portfolio management.