Weight of the Default Component of CDS Spreads: Avoiding Procyclicality in Credit Loss Provisioning Framework

Table 2

Lifetime ECL for the bond of CBS Corp as of March 30, 2018.

Lifetime ECL for CBS Corp exposure as of March 30, 2018
Date (mm.yyyy)	09.2018	03.2019	03.2020	03.2021	03.2022	02.2023
Maturity horizon (years) (A)	0.5	1	2	3	4	4.9
Spread quotes (bps)	12.8	16.1	28.6	44.7	63.1	83.0
WDC of BBB-rated CDS	20.7%	20.7%	19.4%	18.0%	17.1%	16.2%
Default component (bps)	2.7	3.3	5.5	8.1	10.8	13.5
Current cumulative PD projection (see (1))	0.02%	0.06%	0.18%	0.40%	0.72%	1.09%
Current marginal PD projection (B)	0.02%	0.03%	0.13%	0.22%	0.31%	0.37%
Coupon	2.50%	2.50%	2.50%	2.50%	2.50%	2.50%
Initial Yield (C)	2.50%	2.50%	2.50%	2.50%	2.50%	2.50%
LGD (D)	60%	60%	60%	60%	60%	60%
EAD/Nominal (p.p.) (E)	101.25	101.25	102.50	102.50	102.50	102.20
Marginal ECL (p.p.) (F = B×D×E / (1+C) A)	0.01	0.02	0.08	0.12	0.17	0.20
ECL lifetime (p.p.)	0.61