Loss given default (LGD)
What is loss given default?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
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Loss given default is the share of an exposure a bank expects to lose if the borrower defaults, after what it recovers from security, guarantees and the borrower's other assets, and after the time and cost of recovering it. It describes the loan rather than the borrower: one company can carry a low loss given default on a facility secured over property and a high one on an unsecured line. It is where a lender's security, its ranking and its realisable value become a number, which is why it is estimated at forced-sale value rather than at book.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
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