Solutions/Risk Analytics/Phase 3: RAROC/RAROC Calculator
Return to Phase 3: RAROC

RAROC Calculator

Risk-Adjusted Return on Capital. See how each input drives loan profitability.

1. Inputs

Input Risk

$
%
%
%
yrs

Interest & Fees (Loan)

%
%

Additional Revenues

$
$

Expenses (Loan)

%
$

Additional Expenses

$
$
2. Capital Variables
Variables
3. Interim Calculations

Revenue Components

Loan Revenues $1,000.00
Fee Revenues $0.00
Capital Benefit $48.32
Other Revenues $0.00

Cost Components

Funding Cost $500.00
Expected Loss $100.00
Operating Expense $300.00
Other Expenses $0.00
4. Capital Requirement
Asset Correlation (r) 0.2325
Coefficient (b) 0.0799
Maturity Adjustment 1.2725
Expected Loss
$100.00
+
Unexpected Loss
$966.49
=
Total Capital
$1,066.49
5. Totals
Total Revenues
$1,048.32
−
Total Expenses
$900.00
=
RAROC Numerator
$148.32
RAROC =
$1,048.32 − $900.00
$966.49
RAROC
15.35%
Net return on capital at risk
NOTE Unexpected Loss is calculated using the Basel IRB Vasicek single-factor formula with regulatory asset correlation, coefficient b, and maturity adjustment. The formulas are derived from the Basel IRB concepts for SME loans. The calculation is based on a one-year scenario. Use this model for training purposes only.