Banks are providing loans.
While granting a loan two scenarios can take place
- The Loan is repaid
- The Loan is not-repaid
The benefit from a re-payed loan is small profit. (Let's say 5% in general) The loss from a not re-payed loan is huge loss. (you lost all your investments)
Are there formulas that can calculate the ratio of loss of (based on pseudo-numbers for example) or other theories related to this issue?