What does PD mean?

PD stands for Probability of Default in finance. It is a measure used by financial institutions to assess the likelihood that a borrower will default on their debt obligations. PD is calculated based on a variety of factors including the borrower's credit history, financial stability, and industry-specific risks. It is an important metric in determining the credit risk associated with lending to a particular individual or company. A higher PD indicates a greater risk of default, while a lower PD suggests a lower risk. Financial institutions use PD to inform their lending decisions, set interest rates, and determine the amount of capital reserves required to cover potential losses.