New methodology for calculating expected Provision Fund outflows

Every quarter, we analyse the most recent data for each loan portfolio (e.g. consumer, commercial) and re-examine our performance forecasts and projections for future Provision Fund outflows based on this data, adjusting them as necessary. Our performance forecasts for each year of lending can be found on the statistics page.

The most recent quarterly review, published at the end of April, implemented improvements to the way we calculate future expected Provision Fund outflows for consumer loans, in order to continue to improve accuracy and reliability.

Our new methodology involves using our purpose-built scorecard which is used as part of the original decision to approve the loan. This scorecard takes a range of data points from the application form, the credit reference agencies and other information about the borrower to assess the risk.  Using this scorecard to calculate the expected loss keeps the assumption consistent with the approval decision. 

We now use a further scorecard to assess the performance of loans that have reached 9 months old.  This score includes data on how the loan has performed since it began, along with application and bureau data. The result is a granular, up-to-date assessment of future expected Provision Fund outflows across the whole active consumer loan portfolio.

The methodology applied for our other loan portfolios remains the same.

Comparison to the previous methodology