UNISA · NQF 8
RSK4804 Credit Risk Management — Notes, Solution Packs and Past Papers
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45 documents · 368 pages · 31 solution packs · 12 note parts · revision reference and formula sheet.
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4.3Expected loss on a revolving facility
Expected loss is the amount a lender should provide for in advance, not the loss it fears in a bad year. The three components answer three separate questions — how likely is default, how much will be owed when it happens, and how much of that is unrecoverable — and the maturity adjustment scales the answer for the time the exposure stays open. Each is estimated independently, and a candidate who blends them loses the marks allocated to the separation.
Kgothalo Steel Processors (Pty) Ltd, a steel service centre in Ekurhuleni, has applied to your bank for a revolving working-capital facility. You sit on the credit committee, which has asked for the expected loss to be priced before the facility is approved.
| Item | Figure | Source |
|---|---|---|
| Approved facility limit | R18 000 000 | Credit application, para 4.2 |
| Expected drawn exposure at default | 82% | Bank's internal EAD model |
| One-year probability of default | 2,40% | Grade 6, internal masterscale |
| Loss given default | 45% | Secured on plant, after haircut |
| Maturity adjustment | 1,15 | Basel adjustment at M = 2,5 years |
Required (8)
Calculate the expected loss on the facility, expressed in Rand and as a percentage of the exposure at default.
Step 1 — Establish the exposure the calculation runs on
The limit is not the exposure. A revolving facility is drawn in part, so the exposure at default is the modelled draw against the approved limit, and every later component is applied to that figure rather than to the limit.
Step 2 — Apply the expected-loss identity
The probability of default, the loss given default and the maturity adjustment are multiplied onto the exposure established in step 1. The maturity factor multiplies forward here because the question asks for expected loss; it divides only when a probability is being backed out of a given expected loss.
Step 3 — Express the answer as a proportion of the exposure
The committee prices in basis points, so the Rand figure is returned to the exposure it was computed from. The limit plays no part in this ratio.
The maturity adjustment is where this question is most often lost. Candidates who have learned the identity as PD × EAD × LGD either omit the factor or, having noticed it in the data, divide by it. Read the requirement: where the expected loss is being computed forward, the adjustment multiplies. It divides only when the expected loss is given and a probability is being recovered from it.
How it is examined
How RSK4804 is examined
The examination is set out of 100 marks and is closed book, so every formula — expected loss, the maturity adjustment, the credit-scoring ratios — has to be carried in memory. Earlier tutorial letters set eight questions over three hours, with assignments counting 30% and the examination 70%. Calculation questions carry marks for each substitution, so a method shown in full keeps marks even when the arithmetic slips.
Based on: Jan/Feb 2026 paper; Tutorial Letter 101 (2020). Confirm the current format in your tutorial letter or module guide.
Module facts
| Module code | RSK4804 |
|---|---|
| Institution | UNISA |
| Level | NQF 8 |
| Prescribed text | Joseph, C. Advanced Credit Risk Analysis and Management (Wiley, 2013) |
| Part of | UNISA Postgraduate Diploma in Risk Management |
| Updated | 21 September 2026 |
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