Question 8-5: Calculate the expected loss rate increase for each sector (RE and

Question

Question 8-5: Calculate the expected loss rate increase for each sector (RE and C) if: If the FI's total loan loss rate increases by 15% If the FI's total loan loss rate increases by 10%? If the FI's total loan loss rate decreases by 10%? Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Real Estate 2.850% 2.350% 2.340% 2.535% 2.437% 2.325% 2.415% 2.370% 2.152% 2.212% Consumer Total 3.625% 3.688% 3.900% 4.105% 4.062% 4.025% 3.862% 3.950% 3.875% 4.225% 3.810% 3.650% 3.790% 3.540% 3.450% 3.280% 3.400% 3.330% 3.360% 3.330%

Explanation / Answer

We will use linear regression with X variable being Total and Y variable being R / C Year Real Estate Consumer Total 2017 2.850% 3.625% 3.810% 2016 2.350% 3.688% 3.650% 2015 2.340% 3.900% 3.790% 2014 2.535% 4.105% 3.540% 2013 2.437% 4.062% 3.450% 2012 2.325% 4.025% 3.280% 2011 2.415% 3.862% 3.400% 2010 2.370% 3.950% 3.330% 2009 2.152% 3.875% 3.360% 2008 2.212% 4.225% 3.330% Slope 0.5985449 -0.581457 Intercept 0.0030728 0.059633 If Then FI Total Real Estate Consumer 4.382% 2.930% 3.416% 4.191% 2.816% 3.526% 3.429% 2.360% 3.969%

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