Curves

Conditional default rate (CDR) is the monthly default rate for performing loans. It is based on the monthly liquidation rate annualized.

Formula: CDR: 1 - ( 1 - Liquidation Rate)¹²

Liquidation Rate refers to Written Off Amount in a month / Starting Outstanding Balance

Where the Written Off Amount refers to the Principal component of the loans written off in the current month

Where the Starting Outstanding Balance is the Outstanding balance of all active loans (excluding written off loans from previous months)

Single Month Mortality (SMM) is the ratio of unscheduled Principal paid and the expected outstanding balance at the end of the month. It represents the combined monthly attrition rate.

Formula: (Non delinquent Principal Paid - Principal Scheduled for the month) / (Starting Outstanding Balance - Principal Scheduled)

Where the Non delinquent Principal Paid refers to Actual principal payments made for non-delinquent loans. Non-delinquent is important so that no prepayment is calculated if the aggregate principal paid is still behind schedule

Where the Principal Scheduled refers to Expected principal due to be paid in the month

Where the Starting Outstanding Balance is the Outstanding balance of all active loans (excluding written off loans from previous months)

Conditional Prepayment Rate (CPR) is the monthly prepayment rate for performing loans. It is a monthly  calculation incorporating Single Month Mortality (SMM) for each month and annualized.

Formula: 1 - ( 1 - SMM)¹²