Credit Risk: Vintage Analysis |
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This tutorial explains the concept of vintage analysis and how it is used in banking. Vintage analysis is also called 'cohort' analysis.
Introduction to Vintage Analysis
In credit risk, it is a popular method for managing credit risk. The term 'Vintage' refers to the month or quarter in which account was opened (loan was granted). In simple words, the vintage analysis measures the performance of a portfolio in different periods of time after the loan (or credit card) was granted. Performance can be measured in the form of cumulative charge-off rate, proportion of customers 30/60/90 days past due (DPD), utilization ratio, average balance etc.
The vintage analysis is used for a variety of purposes. Some of them are listed below - Identify if accounts opened in a particular month or quarter are riskier than others Determine the optimal period of performance window in development of scorecard Monitor or track risk of a portfolio Estimate minimum months required after that we can cross-sell to new customers Forecast risk Can be used in stress testing How Vintage Analysis is used in credit risk modeling? It is used to determine the number of months' data you should consider for performance window. If customer defaults (90 days or more past due) during the performance window, borrower would be considered as a 'bad' customer and labeled as 'event' in dependent variable.To do this process, we first need to take multiple periods. Let's take 6 different time periods for demonstration - 36 months window starting from Q1,2016. Q1,2016 is the period when accounts were opened and we would see their performance in the next 36 months. 30 months window starting from Q3,2016. Why 30 months? For accounts opened in 3rd quarter of 2016, we only have 30 months of data. 24 months window starting from Q1,2017 18 months window starting from Q3,2017 12 months window starting from Q1,2018 6 months window starting from Q3,2018 Next step is to calculate the cumulative % of bad customers or cumulative charge-off rate (also known as cumulative loss rate) against months on books (MOB) which is the number of months that have completed since the loan origination Date. New Vintage means recently opened accounts.![]() Deepanshu founded ListenData with a simple objective - Make analytics easy to understand and follow. He has over 10 years of experience in data science. During his tenure, he worked with global clients in various domains like Banking, Insurance, Private Equity, Telecom and HR. While I love having friends who agree, I only learn from those who don't Let's Get Connected Email LinkedIn |
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