RAROC stands for Risk-Adjusted Return On Capital. RAROC is calculated by banks to assess risk on loans and other financial instruments.

A Term Loan is a simple loan. It requires a maturity date, allows all amortization types (bullet, annual, semi-annual, etc) and allows all fee & income types. A Risk Amount on a Term Loan is calculated as follows: outstanding amount plus percentage of unused (50% for facility rating 1-4, 95% for 5-8). A Term Loan's commitment amount reduces with principal repayments.

The following assumes a simple Term Loan for a Customer with a risk rating of 2.

ActionFixture

start Raroc

check customers 0

press new customer

enter full name xyz corp

enter short name xyz

enter rating 2

press ok

check customers 1

press new facility

enter customer xyz

enter facility rating 1

enter currency USD

enter date of calculation 09/03/02

enter maturity date 09/03/03

enter commitment amount 1000

enter initial usage percentage 100

enter amortization type bullet

enter base rate LIBOR

enter spread 10.0

press calculate

check risk amount 1000

check income 1.0

check duration 0.98

check capital 6

check RAROC 13.4

ActionFixture
start	Raroc
check	customers	0
press	new customer
enter	full name	xyz corp
enter	short name	xyz
enter	rating	2
press	ok
check	customers	1
press	new facility
enter	customer	xyz
enter	facility rating	1
enter	currency	USD
enter	date of calculation	09/03/02
enter	maturity date	09/03/03
enter	commitment amount	1000
enter	initial usage percentage	100
enter	amortization type	bullet
enter	base rate	LIBOR
enter	spread	10.0
press	calculate
check	risk amount	1000
check	income	1.0
check	duration	0.98
check	capital	6
check	RAROC	13.4