Exposure at default (EAD)

Roles that need it

• Credit Risk Analyst
• Credit Risk Model Developer
• Model Validation Analyst
• Regulatory Reporting Analyst

Skills it belongs to

• Credit risk models (IFRS 9, IRB)
• Basel framework and capital

Related concepts

• Probability of default (PD)Probability of default is the likelihood that a borrower defaults over a given horizon, usually one year. Capital models use a long-run average (through-the-cycle) PD per rating grade, while IFRS 9 uses point-in-time 12-month and lifetime PDs that react to the economic outlook.
• Loss given default (LGD)Loss given default is the share of an exposure a lender expects to lose if the borrower defaults, after recoveries from collateral and workout, and net of costs. Capital models use a downturn LGD, while IFRS 9 models use a forward-looking LGD.
• Expected credit loss (ECL)Expected credit loss is the probability-weighted estimate of credit losses over a period, the basis of IFRS 9 loss allowances. It is usually computed as PD x LGD x EAD, discounted at the effective interest rate, over 12 months for Stage 1 and over the lifetime for Stages 2 and 3.
• Credit limitA credit limit is the maximum exposure a lender is willing to have to a borrower, a group of connected clients, a sector or a country. Limits are approved by delegated authority, monitored daily or monthly, and breaches are escalated.

Sources

• Basel Framework CRE36 IRB approach: minimum requirements, BIS (external site) accessed 31 Oct 2026
• Regulation (EU) No 575/2013 (Capital Requirements Regulation), EUR-Lex (external site) accessed 31 Oct 2026

Updated 31 Oct 2026.