Article 180 › 2

For retail exposures, the following requirements shall apply: (a) institutions shall estimate PDs by obligor grade or pool from long run averages of one-year default rates; (b) PD estimates may also be derived from an estimate of total losses and appropriate estimates of LGDs; (c) institutions shall regard internal data for assigning exposures to grades or pools as the primary source of information for estimating loss characteristics. Institutions may use external data (including pooled data) or statistical models for quantification provided the following strong links both exist: (i) between the institution's process of assigning exposures to grades or pools and the process used by the external data source; and (ii) between the institution's internal risk profile and the composition of the external data; (d) if an institution derives long run average estimates of PD and LGD for retail from an estimate of total losses and an appropriate estimate of PD or LGD, the process for estimating total losses shall meet the overall standards for estimation of PD and LGD set out in this part, and the outcome shall be consistent with the concept of LGD as set out in point (a) of Article 181(1); (e) irrespective of whether an institution is using external, internal or pooled data sources or a combination of the three, for their estimation of loss characteristics, the length of the underlying historical observation period used shall be at least five years for at least one source. If the available observation spans a longer period for any source, and these data are relevant, this longer period shall be used. An institution need not give equal importance to historic data if more recent data is a better predictor of loss rates. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall increase by one year each year until relevant data cover a period of five years; (f) institutions shall identify and analyse expected changes of risk parameters over the life of credit exposures (seasoning effects). For purchased retail receivables, institutions may use external and internal reference data. Institutions shall use all relevant data sources as points of comparison.

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Source: EUR-Lex CELLAR · retrieved 2026-09-04