What is the best way of measuring default rates for a portfolio which contains mostly loans which are either 30, 60 or 90 days term?
Normally I use the following methodology
Look at all loans which are in the portfolio on a specific date. Any loan which does not default within the next 12 months is a
Good loan irrespective if the loan ends within those 12 months or not. Any loan which defaults within those 12 months is a
Bad loan. Loans which start within the 12 months are disregarded.
What is the best way of doing this?
- Keep everything the same way
- Scale down from 12 months to 90 days and multiply resulting default rate by 4.
- Other suggestions?