Introduction to Credit Past Due

The credit past dues development covers three major requirements as follows:

• Change of status from PDO to NAB automatically, when the loan is liquidated and has a principal balance due more than 30 days or the interest balance is due for more than 90 days.
• Reversal of the penalty interest and spread of the accrual from PL to an internal account until paid.
• Separate the interest accrued before and after NAB to be reported in different balance sheet lines.

A brief explanation about the requirement:

• Change of status from PDO to NAB:

  As per the Mexican legal regulations, loans that consist of periodic interest payments and principal payment at maturity date should be transferred to a due portfolio when the interest payment becomes overdue for more than 90 days, or when the principal payment becomes overdue for more than 30 days.

  In terms of the system, the bank needs to have the functionality in Temenos Transact to be able to make the loans pass to NAB depending of the debt age of its amount type "IN or PR".

  The number of days for each status should be parameterizable.

• Reversal of penalty interest and spread from PL:

  By legal regulations in Mexico, Penalty interests generated by the non-paid principal shall be recorded in memorandum accounts, from its beginning till they are recovered. The bank needs to report the penalty interest as an off balance sheet item.

• Separate the interest accrued before and after NAB to be reported in different balance sheet lines.

  As per the Mexican legal regulations, the interest accrued on loans will be suspended, when the unpaid capital of the credit it considered as due. While the loan is kept in the due portfolio, the accrued interests shall be kept in memorandum accounts.

• When the loan reaches the NAB status, the outstanding interest accrued to date, should be reported in a different general ledger account, but from beginning NAB the interest should be suspended and accrued in different memorandum accounts.
• The overdue interest unpaid before the loan reached NAB should be reported in the general ledger account, but the interest that becomes overdue during status NAB should be reported in different memorandum accounts. The overdue installments of loans are controlled by the PD module.

Functionality Overview

The Temenos Transact solution to address the requirements of credit past dues consist of the following:

• Change of status from PDO to NAB based on principal and interest- setups:

  Change of status from PDO to NAB automatically, when the loan is liquidated and have principal balance due for more than 30 days or Interest balance due for more than 90 days.

  New field Nab Period PR in PD.PARAMETER parameter application has to move the status from PDO to NAB based on principal amount due days, status change concerning to interest amount due days will be handled using the existing core field Nab Period Int in PD.PARAMETER application.

  Local Process: Changes the status from PDO to NAB, based on payment due days parameterized in PD.PARAMETER application.

  The functionality is for loans liquidated and has past dues associated with it, for all other cases, the core functionality will be used.
• Preventing the change of status from NAB to PDO:

  Once the loan status is made to NAB based on the principal balance due days, Manual NAB field will be updated to YES automatically, this prevents the core process of changing the status from NAB to PDO for that PD record based on core field Nab Period Int when a partial payment is made. This has been explained in detail in Working with section.

• PL reversal for penalty interest:

  Once the loan payment becomes due, the system charges penalty charges on the loan amount and this penalty interest or spread is accrued to PL on a daily basis until it is capitalized.

  As per the Mexican requirement, penalty interest accrual needs to be reported in an internal account and should not be taken to PL head. The purpose is to report the penalty interest as an off balance sheet item. This requirement is covered by new fields in the parameter application and a local job that has been created reverses all interest accrued to PL and credits it to the internal account.

  New fields in PD.PARAMETER application: New fields introduced in parameter application as given below, the purpose of these fields is to capture the internal account category codes and transaction codes for reversing entries from PL and crediting to internal account for penalty interest or spread accrual.

  • Pe Int Cat.
  • Pe Txn Code Dr.
  • Pe Txn Code Cr.
  • PS Int Cat.
  • PS Txn Code Dr.
  • Ps Txn Code Dr .
  Once the penalty interest or spread is capitalized or paid, the penalty interest or spread will be credited back to PL.

  Local process: A local process calculates the daily penalty interest accruals and raises an accounting entry debiting the PL and crediting the defined internal account.

  Once the penalty interest or spread is capitalized, the internal account will be debited and PL will be credited.

• Interest accrued before and after NAB to be reported in a separate line.

  As per the Mexican legal regulations, the interest accrued on loans will be suspended, when the unpaid capital of the credit is considered as due. While the loan is kept in the due portfolio, the accrued interests will be kept in memorandum accounts.

  LD: If the LD becomes NAB in between current interest period, the interest accrued before NAB will be reported in a separate line bypassing adjustment entries, debiting and crediting the internal account as defined in local MXMB.H.ADJ.PARAM application.

  PD: Once the PD becomes NAB, any amount due reported to PD after NAB will be reported in a separated line bypassing adjustment entries, debiting and crediting an internal account as defined in local MXMB.H.ADJ.PARAM application :

  • MXMB.H.ADJ.PARAM: A new parameter application to store the internal account category and transaction codes to raise adjustment entries
  • PD.PARAMETER: The Suspend Income field is set in the PD.PARAMETER, for this functionality to work.
  • Local process: The process raises adjustment entries to report the interest accrued before NAB separately in case of LD, and report the due amount after NAB status separately in case of PD.

Click here to understand the terms and abbreviations used in this functionality.