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FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management

A retail portfolio has 10,000 accounts that are current at the start of the month. Of these, 400 become 30 days past due by month-end. Of 800 accounts that were 30 days past due at the start of the month, 200 roll to 60 days past due, 400 cure to current, and 200 stay at 30 days. What is the 30-to-60 day roll rate, and what does a rise in it signal?

The 30-to-60 day roll rate is 200 divided by 800, or 25%. A rising roll rate indicates that more delinquent accounts are progressing toward loss, signaling deteriorating credit quality or less effective collections, rather than improvement.

  1. A2.5%; improving collections effectiveness
  2. B25%; deteriorating credit quality or weaker collectionsCorrect
  3. C4%; improving origination quality
  4. D50%; seasonal cure effects only

Explanation

Roll rate equals accounts moving from 30 to 60 days divided by accounts that were 30 days past due at start: 200/800 = 25%. A rising rate implies fewer cures and more progression toward loss. 2.5% would be 200/8,000 (wrong base), and 4% is 400/10,000, the current-to-30 roll rate. 50% is the cure rate.

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