Unit 05             Portfolio Management

Learning Outcomes:

What the candidate must do:

5.1.1    Review dynamic delinquency reports and identify the type of effect

5.1.2    Discuss the problem of tracking profitability and suggest alternatives

5.1.3    Calculate Expected Loss (PD x EAD x LGD)

What the candidate must know:

5.1.4     The three types of portfolio effect

5.1.5     Metrics replacing profitability must have risk and reward elements

5.1.6     The meaning of EAD, LGD and PD 

Learning Outcomes:

What the candidate must do:

5.2.1  Read a CHAID tree to identify the need to build more than one behavioural scorecard

5.2.2  Discuss a case study

5.2.3  Identify good and bad scorecard characteristics

5.2.4  Review a Balance Index graph 

What the candidate must know:

5.2.5    How to determine whether more than one behavioural scorecard is required

5.2.6    How to identify good and bad behavioural scoring characteristics and scorecards

5.2.7    How to calculate and plot Balance Index

Learning Outcomes:

What the candidate must do:

5.3.1    Discuss and propose alternative credit limit increase strategies

5.3.2    Identify bad challenger strategies 

What the candidate must know:

5.3.3    Why and how to avoid strategy overlaps

5.3.4    The principles of strategy testing

Learning Outcomes:

What the candidate must do:

5.4.1  Review tracking reports

5.4.2  Calculate the Profit Index

5.4.3  Identify the area of opportunity

What the candidate must know:

5.4.4   How to calculate Profit Index

5.4.5   How to track behavioural strategies

Learning Outcomes:

What the candidate must do:

5.5.1     Calculate the expected delinquency

5.5.2     Compare the observed and expected results to determine significance

5.5.3     Discuss alternative problem solving techniques

What the candidate must know:

5.5.4     How to calculate the expected result with statistical confidence

5.5.5     Alternative credit problem solving techniques  

Learning Outcomes:

What the candidate must do:

5.6.1     Calculate the expected delinquency

5.6.2     Calculate expected losses from roll rates

5.6.3     Discuss stress testing

What the candidate must know:

5.6.4     How forecast using roll rates

5.6.5     How to construct regression and other loss models

Learning Outcomes:

What the candidate must do:

5.7.1     Discuss a case study

5.7.2     Identify the best customer segments

5.7.3     Calculate the most profitable interest rate 

What the candidate must know:

5.7.4    That single profit models are unlikely to work; risk and reward models must  be combined

5.7.5    How to calculate relative profit 

Learning Outcomes:

What the candidate must do:

5.8.1     Discuss the drivers of a recession

5.8.2     Review graphs showing deterioration of portfolios in the last recession

5.8.3     Discuss the over-indebtedness problem and suggest solutions

What the candidate must know:

5.8.4      How to spot a recessionary effect on a portfolio

5.8.5      The problem of over-indebtedness