What is one-year expected loss in SAP FS-BA-PM-SFA - Smart Accounting for Financial Instruments?

SAP Term: one-year expected loss

• Component: FS-BA-PM-SFA

• Component Name: Smart Accounting for Financial Instruments

• Description: A methodology for determining risk provision in . This methodology is used to enter the expected losses for payment defaults within the next 12 months.

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• Key Concepts: 
  One-year expected loss is a term used in the FS-BA-PM-SFA Smart Accounting for Financial Instruments component of SAP. It is a measure of the expected losses that a financial institution may incur over the course of one year due to changes in market conditions, credit risk, and other factors. 
  
  How to use it: 
  The one-year expected loss is used to calculate the amount of capital that a financial institution must hold in order to cover potential losses. This capital is known as the “capital buffer” and is calculated by taking into account the one-year expected loss and other factors such as the institution’s risk profile. 
  
  Tips & Tricks: 
  It is important to remember that the one-year expected loss is only an estimate and should not be taken as an absolute measure of potential losses. The actual losses may be higher or lower than the estimated amount. 
  
  Related Information: 
  The one-year expected loss is closely related to other terms such as “expected credit loss” and “credit risk” which are also used in the FS-BA-PM-SFA Smart Accounting for Financial Instruments component of SAP.