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PayNet Absolute PD®
Portfolio Manager
Small Business Credit Ratings That Enable Cost Efficient, Proactive Management of Your Borrower & Portfolio Risks.
• Identify organic growth opportunities
• Increase precision of loan loss and capital reserve forecasting
• Enhance early warning system to mitigate losses
• Lower cost and increase accuracy of loan review process
• Improve risk rating and monitor concentration risk
• Reduce cost of compliance reporting function
Taking the Risk Out of Small Business Lending
Our ground breaking Probability of Default (PD) model combines the largest North American small business borrower debt database with macroeconomic factors to create PD forecasts 8 quarters into the future.
PayNet AbsolutePD® Model
• PayNet AbsolutePD is derived from PayNet’s proprietary loan database consisting of:
3 Over 884,000 financial contracts 3 Over $77 Billion in loan value
• AbsolutePD produces accurate credit ratings without the need for financial statements.
• The AbsolutePD model was developed exclusively in collaboration with Professor Darrell Duffie (Stanford Graduate School of Business), a leading expert on credit-management and financial economics.
• The model is refreshed every quarter with the latest borrower performance information and calibrated to current macroeconomic conditions - self-correcting on a quarterly basis to adjust for past variances and incorporating structural changes, such as changes in a lender’s footprint.
• The model produces individual Probability of Default (PD) forecasts for each of eight future quarters for every small business borrower in a lender’s portfolio. These PD’s are available in dataset form as well as through the AbsolutePD Portfolio Manager online reporting platform.
Payment and Delinquency History & PatternsHistory of Serious DelinquencyYears in Business & Years BorrowingBorrowing PracticesPaydown of BorrowingsBorrower & Borrowings Size/MagnitudeIndustry Segment & SIC Code
Borrower Factors
Gross Domestic ProductOvernight RateIndustry Default PerformanceBorrower Size & IndustryHistoric Risk of Geographic Region & Area Economic ConditionsIterative Adjustment based on Recent Actual Sector Performance
Macroeconomic & Industry Factors
CalibrationPowerPayNet
AbsolutePD®
PayNetRisk Rating
Engine
Small Business Portfolio Risk Management
ChallengesAnticipating the direction of risk and positioning your small business portfolio for future risk is critical. Forecasting risk utilizing score and pool-based techniques are biased to historical trends. Historic measures consistently lag actual default levels.
PayNet SolutionsPayNet AbsolutePD mitigates the difficulty in assessing and forecasting the performance of small business borrowers.
• Forecast credit ratings 8 quarters in advance AbsolutePD combines your small business portfolio data with our powerful analytics to accurately forecast probabilities of default.
11.1% 21.3% 31.6% 41.8%
52.1% 62.5% 73.1% 83.2%
• Apply forward-looking credit ratings to enhance loss mitigation activities, identify areas for growth, and set appropriate capital levels
Updated quarterly, forecast probabilities of default can be applied to monitor changes in the credit rating forecast and
facilitate sector selection. Credit rating migration is easily seen using PayNet AbsolutePD Portfolio Manager, an online reporting platform.
Migration Monitoring
Sector Selection
Migration Detail List – Favorable ChangesReview potential upgrades from Pass
Borrower No. Borrower Name Province Business Unit
Current Exposure
($000)
Absolute PD*
Absolute PD*Change
Summary of 3 selected borrowers $ 3,500 0.45% -3.04%
*6688 Moosejaw Foodservice SK SBB-CI 2,117 0.47% -3.88%
*7405 Chinook Appliances AB SBB-CI 1,344 0.43% -1.74%
*7173 Tamarack Construction MB SBB-CI 39 0.31% -2.18%3434
Migration Detail List – Adverse ChangesReview potential downgrades from Pass to Special Mention
Borrower No. Borrower Name Province Business Unit
Current Exposure
($000)
Absolute PD*
Absolute PD*Change
Summary of 4 selected borrowers $ 1,468 7.38% 3.85%
*7001 Grizzly Trucking BC SBB-CI 531 5.32% 1.99%
*6794 Niagara Trucking ON SBB-CR 413 9.17% 4.36%
*6498 Halifax Trucking NS SBB-CI 304 9.52% 7.29%
*6943 Caribou Trucking QC SBB-CI 220 6.01% 2.64%
AbsolutePD Rating Migration - Regulatory ScaleShowing change in AbsolutePD Rating from Q3 to Q4
PD Range Risk Rating
Adverse Rating Change Favorable Rating Change
>= 5 4 3 2 1 0 1 2 3 4 >= 5 Total
0.00% - 0.05% 1 -
0.05% - 0.20% 2 -
0.20% - 0.50% 3 308 328 3 2 1 642
0.50% - 2.00% 4 6 6,244 877 29 8 7,164
2.00% - 5.00% 5 119 1,721 164 33 2,037
5.00% - 10% 6 4 90 204 76 2 376
10% - 40% 7 3 7 58 250 8 326
40% - 90% 8 1 1 23 16 41
90% - 100% 9 1 1
Total Changed by - 1 3 12 297 8,743 1,453 67 10 1 - 10,587
16 (or 0.1% of total) significantly deteriorated
10,493 (or 99.2%) are not materially changed
78 (or 0.7% of total) significantly improved
Drill down from views of risk grade migration to identify the specific accounts that have migrated.
Track and understand the degree of risk grade migration.
Migration Monitoring
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Risk Trend by NAICS Industry & ProvinceTruck Transportation (484)
12 Month Credit Rating Forecast
Current Last Quarter Change
Summary: 2.24% 1.96% 0.28%
BC 2.56% 2.21% 0.35%
SK 2.45% 2.30% 0.15%
QC 2.37% 2.27% 0.10%
ON 2.35% 2.42% -0.07%
MB 2.34% 2.27% 0.07%
Identify sectors most likely to improve or deteriorate in the next 12 months.
Drill down further to see an individual borrower’s likely performance.
Borrower Profile Report As reported Oct. 1stName
North Star TruckingBorrower No.
*6544Province Reported Exposure Business Unit Branch Portfolio NAICS
AB $431,394 SBB-CR Edmonton Internal General Freight Trucking, Local (484110)
Rating Characteristics
System 4 AbsolutePD 9.17%AbsolutePD Ratings
Scale Current Rating Prior Quarter Prior Year
Lender 6 5 4PayNet (1-18) 12 10 8
Industry Segment Transportation
Rating Factors (for latest APD) • Recent / Frequent Delinquency • Higher Risk Borrowing Practices • Serious Delinquency
$0
$200
$400
$600
$800
$1,000
0% 2% 4% 6% 8% 10%
Peer Group Ratings for all Alberta borrowers
Borrower Industry Province
Sector Selection
Credit History Report PayNet Direct® AbsolutePD® Portfolio Manager SBDI Reports Edit Profile Member List HelpAbsolutePD® Portfolio Manager
PayNet AbsolutePD Portfolio Manager is an online platform that applies forward-looking small business credit risk ratings from the AbsolutePD model to create customized reports that identify emerging risks and opportunities across multiple segments of your portfolio (i.e. province, exposure, risk grades, industry or business unit), track risk migration, and allow you to evaluate risks in your portfolio by many dimensions.
PayNet, Inc.2425 Matheson Blvd. EastMississagua, ON L4W 5K4866-825-3400
WEBwww.paynetonline.ca
PORTALPayNet Risk Insight Suite®www.sbinsights.paynetonline.ca
PayNet, PayNet AbsolutePD, and PayNet Risk Insight Suite are registered trademarks of PayNet, Inc. ©2016 PayNet, Inc.CPN-69
Risk Trend by Exposure Range Segmentation: ExposureReport is filtered to include borrowers with a status of (Active) in the current period and Industry Segments: Agriculture, Construction, General, Healthcare, Retail, Transportation
Current Qtr. 12-Month AbsolutePD Forecast Prior Qtr. 12-Month AbsolutePD Forecast Change
No. ofBorrowers
Exposure($000)
Exp WtdPD*
AbsolutePD*
No. ofBorrowers
Exposure($000)
Exp WtdPD*
AbsolutePD*
No. ofBorrowers
Exposure($000)
Exp WtdPD*
AbsolutePD*
Summary: 10,547 $2,049,959 $44,548 2.17% 10,535 $2,126,656 $ 49,549 2.33% 12 $ -76,697 $ -5,001 -0.16%
$ 0 to 250m 8,884 463,561 10,356 2.23% 8,828 494,109 12,113 2.45% 56 -30,548 -1,756 -0.22%
$ 250 to 500m 726 259,845 5,522 2.13% 749 266,981 6,268 2.35% -23 -7,136 -746 -0.22%
$ 500m to 1mm 445 315,031 6,383 2.03% 450 318,220 7,027 2.21% -5 -3,189 -644 -0.18%
$ 1 to 1.5mm 185 226,633 4,830 2.13% 189 231,006 5,382 2.33% -4 -4,374 -552 -0.20%
$ 1.5 to 2.5mm 174 335,831 7,574 2.26% 182 348,633 8,112 2.33% -8 -12,802 -538 -0.07%
$ 2.5mm+ 133 449,058 9,883 2.20% 137 467,706 10,647 2.28% -4 -18,648 -764 -0.08%
PayNet AbsolutePD® Portfolio Manager
Distribution by Lender Scale Distribution: SnapshotBased on exposure dollars (C$ 000) for all ratings.
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Expo
sure
($00
0)
PD Range* Risk Rating Prior Qtr. Current Qtr.
0.00% - 0.78% 1 225,257 347,796
0.78% - 1.56% 2 695,092 768,523
1.56% - 3.13% 3 991,035 854,596
3.13% - 6.25% 4 323,304 228,398
6.25% - 13% 5 50,768 56,710
13% - 25% 6 25,697 24,330
25% - 50% 7 23,518 7,264
50% - 100% 8 770 2,103
Total 2,335,440 2,289,720
*Note: Borrowers are aggregated within a given range and its respective risk rating based on each borrower’s 12 month AbsolutePD forecast beginning on that date.
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AbsolutePD Rating
7/1/2011 10/1/2011Prior Qtr. Current Qtr.
Portfolio Manager
HighlightsKey StatisticsTop 10 Borrower MovementTop 10 Borrower ExposureTop 10 Borrower Segment
MigrationRisk Rating MigrationPortfolio Risk Roll Forward
SegmentationRisk Trend by ProvinceRisk Trend by ExposureRisk Trend by NAICSRisk Trend by SBU
GrowthPortfolio Growth
DistributionRisk Rating SnapshotRisk Rating Comparison
BorrowerBorrower Profile
Risk Rating Scale
PayNet Risk Rating Scale Show More Clear
As of Date(s)
Measure
Include Non-Performing
Portfolio