FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management
A bank's unsecured personal loan portfolio shows a 12-month vintage analysis. The 2023 vintage has a cumulative 90+ day delinquency rate of 4.0% at month 12, while the 2024 vintage has 6.0% at the same age. Which conclusion is best supported?
The 2024 vintage is performing worse at the same loan age. Vintage analysis compares cohorts at equal seasoning, so the higher delinquency suggests weaker underwriting or a changed customer mix, although macroeconomic causes cannot be ruled out without further analysis.
- AThe 2024 vintage is performing worse at the same age, which may indicate weaker underwriting or a changed customer mixCorrect
- BThe portfolio's overall delinquency rate must be rising because of macroeconomic conditions only
- CThe 2023 vintage will necessarily have lower lifetime losses because it is older
- DThe two vintages cannot be compared because they were originated in different years
Explanation
Vintage analysis compares cohorts at the same loan age, which removes seasoning effects. A higher delinquency at equal age signals deterioration in the cohort, possibly from underwriting or mix changes, though not proving the cause. Comparing different years is exactly the purpose of vintage curves.
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