Industry Leading Innovation

The PayNet AbsolutePD model combines current macroeconomic information with payment histories from PayNet's comprehensive proprietary database of term debt contracts to produce statistical estimates of probabilities of default, up to eight quarters ahead.

The credit history of the counterparty, the nature of each investment, and macroeconomic factors are taken into consideration in calculating the counterparty's probability of default and the portfolio's aggregate probability of default without the necessity of updated financial statements.

This industry-leading innovation represents the next generation of credit risk measures by factoring in economic conditions with the borrower's payment experience. This is not a score but rather a dynamic tool this is recalibrated quarterly as economic conditions change. Business development is smarter through targeted acquisition and profitable pricing. Risk is less expensive through lower credit losses and less provision surprises. Compliance costs are reduced by giving regulators transaction level risk ratings rather than score or exception based approaches.

PayNet's Solution vs. Bank's Manual Risk Rating

PayNet's Analysis of a Typical US Commercial Bank's Portfolio of Privately-held Companies

Key Results of Validation with PayNet AbsolutePD

• Capital allocations to credit-worthy borrowers substantiated with quantified default
• Provision accuracy improved with empirical evaluation using statistical estimates of probabilites of default (PD's) provided over forecast horizons up to 8 quarters
• Management's estimation corroborated with independent review of defaults
• Improved communication among management, regulators, and auditors with a standard metric

Key Benefits with PayNet AbsolutePD Include:

• A ready-now answer for large US banks required by Basel II to provide regulators with a documented process for assigning small business probabilities of default.
• The ability to quickly and accurately calculate the probability of default for any size portfolio of obligations without the need to have current financial statements.
• Creating an Empirically Derived Statistically Sound (EDSS) evaluation process with substantial improvements in the consistency of the default evaluation, since all loans are looked at with a single analytic eye no matter what the size of the portfolio.
• Sharp reductions in the cost of the probability of default evaluations as the time consuming labors of highly paid key bank personnel are reduced to one known fixed cost.
• The possibility of more frequent evaluations of the portfolio since the turnaround time for an evaluation is reduced and the personnel load is diminished. Evaluations can now be made quarterly at less than the time and aggravation of annual or semiannual reviews.
• Allowing the Chief Risk Officer (CRO) to consistently provide the Chief Financial Officer (CFO) with more reliable information for setting the Loan Loss Reserve for the bank's portfolio.

PayNet AbsolutePD Solutions

Auditors and/or regulators expect financial institutions to comprehensively monitor the business to support capital requirements. In turn, management expects accurate financial forecasts based on credible and consistent risk assessment throughout business cycles. Meeting these expectations has been very difficult for many institutions due to lack of information, technical capabilities and significant shifts in default rates related to the economic cycle.

To meet these challenges, financial institutions are adopting new systems that provide future probabilities of default without collecting and analyzing thousands of small business financial statements. These portfolio management systems provide the oversight needed to stay current on credit issues and demonstrate internal controls to regulators. See how PayNet AbsolutePD provides the solution for many of these challenges.

AbsolutePD Webinar