Question
How should the numerator of the loss rate be computed when some credit adjustments are applied to the exposure before the default date.
Background on the question
Ensure that there is no other interpretation.
Answer
In order to ensure a meaningful benchmarking analysis where the loss rate is compared with the LGD, it is necessary that the numerator of the loss rate incorporates all the credit risk adjustments and write-offs related to the exposures that defaulted within the year preceding the reference, including the credit risk adjustments applied before the default date.