Exposure at time of default

The actual exposure is likely to vary over the term of the loan. In the case of mortgages the principal outstanding falls over time. Continued drawdowns on loans for project financing or real estate will result in the principal increasing over time. Where the exposure is a credit facility it is likely that the customer in financial distress will draw down to the maximum allowed under the terms of the facility before defaulting on any other loans. Derivative and other transactions may also result in the bank having an outstanding exposure and these will need to be taken into account.


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