Roll Rate Calculator
Calculate delinquency transition percentages for credit risk analysis.
How to Calculate Roll Rates
Roll Rate analysis (also known as flow rate analysis or transition matrices) is a fundamental tool in credit risk management and loss forecasting. It measures the velocity at which delinquent accounts "roll" from one stage of delinquency to the next worse stage over a specific timeframe, typically month-over-month.
Understanding roll rates allows financial institutions to project future charge-offs and bad debt provisions based on the current composition of their portfolio.
The Roll Rate Formula
The calculation is a simple ratio of the volume flowing into a worse status divided by the volume available to flow from the previous status:
Roll Rate % = (Volume in Bucket B at Time T / Volume in Bucket A at Time T-1) × 100
Variables Defined:
- Bucket A (Source): The initial delinquency stage (e.g., 30-59 Days Past Due).
- Bucket B (Target): The subsequent delinquency stage (e.g., 60-89 Days Past Due).
- Time Lag: The period between measurements must match the bucket definition. For 30-day buckets, the lag is typically one month.
Real-World Calculation Example
Let's assume you manage a credit card portfolio and want to calculate the 30-to-60 day roll rate for February.
- January 31st (Period 1): You have $1,000,000 in outstanding balances that are 30-59 days past due.
- February 28th (Period 2): Of that specific group, $200,000 failed to pay and became 60-89 days past due.
- Calculation: ($200,000 / $1,000,000) = 0.20
- Result: The roll rate is 20%. This means 20% of your 30-day delinquencies are deteriorating into 60-day delinquencies.
Why Roll Rates Matter
1. Loss Forecasting: By chaining roll rates together (e.g., Current to 30, 30 to 60, 60 to 90, 90 to Charge-off), analysts can predict exactly how much money will be lost to bad debt months in advance.
2. Early Warning System: A sudden increase in the "Current to 30" roll rate is often the first indicator of economic stress or underwriting issues, appearing long before actual losses materialize.
3. Collection Strategy: High roll rates in specific buckets indicate where collection efforts should be focused. If the 30-to-60 roll rate spikes, resources should be shifted to early-stage collections.