Regulatory Compliance
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Introduction to International Financial Reporting Standards (IFRS)

The International Financial Reporting Standards (IFRS) is a common standard issued to make the financial statements understandable and comparable globally.

These standards are issued by the International Accounting Standards Board (IASB) with an objective to increase the transparency of published accounts and to assist investors in making economic decisions.

The standards are enforced by countries amending their local Generally Accepted Accounting Principles (GAAP) to be compliant with the IFRS standards.

The standards issued prior to 2001 are referred to as International Accounting Standard (IAS) and those after 2001 are referred as IFRS. Collectively, these standards are referred to as IFRS and is applicable to all companies including banks.

IFRS implementation impacts the following areas:

  • Presentation of accounts
  • Accounting policies and procedures
  • Legal documentation
  • Looking at the value of financial assets and financial liabilities
  • The way the entity’s business is conducted

IFRS9

The IFRS9 addresses the accounting for Financial Instruments with revised rules. This standard was issued in July 2014 and is effective since January 1, 2018.

A financial instrument is a contract that gives rise to a financial asset in one entity and a financial liability or equity instrument of another entity. Common financial instruments includes loans, bonds, equity shares, funds and so on.

The IFRS9 intends to make the accounting for financial instruments less complex through a number of significant changes from earlier standard, IAS 39.

The earlier standard relating to Financial Instruments - Recognition and Measurement under IAS 39 was considered complicated and subject to misinterpretations leading to inconsistency.

Financial institutions and companies were facing challenges in the application of these standards and hence were replaced with IFRS9.

Following are the improvements introduced by IFRS 9:

  • A logical model for classification and measurement
  • A single, forward looking expected loss impairment model
  • A substantially reformed approach to hedge accounting

The main differences between the IAS39 and IFRS9 are given below:

The fully integrated architecture of IFRS solution is as below:

  • The lending applications pass cash flows of the Financial Instruments to the cash flow engine to generate and store future cash flows.
  • Based on the contractual cash flows of the contract, the system supports the calculation of Effective Interest Rate (EIR), Amortised cost (AMC), fair value of the contract.
  • The future cashflows are discounted using the EIR to calculate the Net Present Value (NPV) of the contractual cashflows in the contract.
  • The accounting framework allows to raise the accounting movements for the delta between the contract balances and the calculated value using the NPV method and is termed as Delta Accounting.
  • The Provisioning (PV) module provides provisioning methodology and the classification is obtained based on the risk involved for the contract.
  • The Rules Engine facilitates the overall functionality in assessing the risk and classifying the contracts.
  • The impairment accounting is supported by IFRS9 (I9) module with the accounting rules based on the Expected Loss approach.
  • The Expected Credit Loss Model (ECL) Model includes the Probability of Default (PD) and Loss given Default (LGD) values for calculating the expected cash flows from the contractual cash flows to arrive at the ECL.
  • The system does not calculate the PD and LGD values but provides only the framework for uploading these values, either from the PD and LGD modelling within Temenos Financial Risk Management or banks themselves can provide these values for ECL calculations.
  • Hedge Accounting is optional under IFRS 9 and is supported by IH module.
  • States the Hedge Types (Fair value/Cash flow/Investments).
  • Documents the hedge relationship.
  • Define Accounting rules based on types of Hedge.
  • Framework for generating hedge accounting entries.

The IFRS9 solution is a combination of IA, PV and I9 modules as displayed below :

The following modules are currently supported by the IFRS9 solution.

  • Arrangements Lending (AL), Arrangement Accounts (AR), Arrangement Deposits (AD)
  • All in one Accounts (AZ)
  • Facility (FL)
  • Loans and Deposits (LD)
  • Money Market (MM)
  • Syndicated Loans (SL)
  • Discounted Trade Bills (BL)
  • Mortgage (MG)

Product Configuration

The IFRS9 compliance on financial instruments is achieved by configuring the following parameter tables.

  • PV configuration
  • IFRS9 configuration and
  • PD/LGD parameters

The following tables are configured in the PV module for classifying the contracts in the following order.

This application defines possible Classification indicating the level of risk.

  • Record Id is any Alphanumeric Id.
Field Description
Rank A unique ranking is maintained for the classification defined (contract level).
Stage PV.LOAN.CLASSIFICATION can be linked to the stages under IFRS 9 configuration.

The screenshots of PV.LOAN.CLASSIFICATION that can be defined for classification are shown below

 

This application defines the parameters and method for the appropriate provision calculation for each loan based upon the classification applicable for a contract.

Field Description
Prov Calc Indicates the provision amount calculation method. Should be set as IFRS for impairment calculation using IFRS cashflows.
Source Balance Holds the balance used to calculate the provision amount which can be an individual balance or a virtual balance (AC.BALANCE.TYPE) record.

This field is used to calculate provisions in case of collective impairments or undrawn commitments.
Class A multi-value set of fields that specify the provisioning percentage to be applied to a contract, based on its classification in PV.LOAN.CLASSIFICATION.
Accounting Indicates whether the calculated provision amount is to be accounted for.
  • If the DEAL option is chosen, the system raises the accounting entry.
  • If the NONE option is chosen, the system does not raise the accounting entry.
Ccf Cut Off Specifies the percentage to be excluded to derive the Exposure Amount.
Prob of Deft A multi-value field that holds the Probability of Default value.
Loss Given Deft Allows the Loss Given Default at the individual product or range of product level.
Posting Details A mandatory field that holds a valid IFRS.POSTING.DETAILS record for raising accounting entries. The position type should be IF for IFRS.
Segment Holds a valid record of PV.RISK.SEGMENT. If the risk segment of the contract matches this field, then the segment and classification details are considered for the contract
Seg Prov Calc Specifies the type of calculation to be followed for the segment to derive the provision amount.
Seg Ccf Cut Off Specifies the percentage to be excluded in order to derive the Exposure Amount at the segment level.

The screenshot of PV.PROFILE is displayed below:

This application defines the frequency for Classification, Provision Calculation process, and selection of records to be processed.

Field Description
Job Frequency Defines the frequency to run the Provisioning Process for calculation and posting.
Posting Timing Indicates when posting is to be done.
Posting Delay Defines the number of days to delay posting after the classification process.
Profile ID The mapped PV.PROFILE ID that indicates the classification and provisioning calculations.
Class Level

Defines the classification that is used for provisioning

  • LOAN - For individual classification
  • CUSTOMER - For worst classification of a customer
  • CUST.ALL.LOANS - For worst classification of a customer across all contracts of the primary owner including joint loans.
  • CUST.JOINT.LOANS - For worst classification of a customer across all contracts of the primary owner excluding joint loans.
Product Defines the selection criteria of contracts for each Product giving the starting and ending category.
Class Rule Determines the classification to assign to contract through the Rules Engine is to be defined. Using this field, banks can define their own rules for classification of contracts.
Class API Calculates the classification of the loan through an API and is mutually exclusive with Class Rule. Banks can have their own APIs and define different rules for different products.
Class Frequency Defines the frequency upon which contracts are classified. This frequency takes precedence if defined to perform classification job.
Calc Post Freq Specifies the recurrence pattern for calculating and posting the provision.

A sample record of PV.MANAGEMENT for Arrangement Architecture (AA) loans is shown below

Read the documentation on PV module for more information.

Once the PV configuration is complete, the following parameter tables need to be configured for IFRS9 compliance in the following order:

This parameter table defines the rules for the regulation. The record ID must be the name of the regulation, that is, IFRS. The screenshot below displays the parameter.

The following table explains the fields in the above screenshot.

Field Description
Description Indicates the name assigned for the regulation.
Curr Rule Book Holds the year of release of the regulation.
Prev Rule Book Displays the previous releases of the regulation. When the Curr Rule Book field is changed, the system automatically updates this field with its previous values.

This table refers to the business models or classification of financial assets and liability according to the IFRS regulation.

IFRS9 requires a strict classification of financial assets and liabilities according to their purpose.

The IAS.CLASSIFICATION table is used to describe the business model. The business model classification is extremely important as it defines various accounting and measurement rules to be applied.

The following records are released in Temenos Transactbased on the Business Models under IFRS9, such as AMC, FVOCI and FVPL, where the users are allowed to view these records and are not allowed to input or amend them.

This is a COMPANY LEVEL table, which governs the rules for IFRS 9 regulation.

Field Description
Description Indicates the name assigned for the regulation.
Effective Date Specifies the date from which the IFRS 9 regulation is effective. This date should fall within the year mentioned in Curr Rule Book field in ST.REGULATORY.PARAMETER.
The Stage, Loan Classification and Review Frequency fields form an associated multi-value set of fields and must be defined for every stage of credit risk.
Stage Defines the stages based on the IFRS 9 rules, such as Stage 1, Stage 2 and Stage 3.
Loan Classification Classifies the specific stage of IFRS 9 regulation by accepting a valid record from the PV.LOAN.CLASSIFICATION table. The stages are linked to this field, which defines the classification of the loan.
Review Frequency Indicates the frequency in which the contracts are reviewed and reclassified with the appropriate stage for the calculation of ECL.
Pd Type

Allows users to configure different types of Probability of Default (PD) for IFRS 9 contracts for each stage at the parameter level. The allowed options are:

  • 12 month
  • Lifetime
  • Marginal
  • Cumulative
  • 100%
Calc Ecl Option Determines when the effective credit loss is calculated. The values are:
  • ONLINE - The system calculates the ECL immediately upon committing the contracts and subsequent reviews would take place during Close of Business (COB)
  • COB - The system calculates and posts the ECL only after the COB process.
This is an optional field.
The Ias 39 Classification, Ias 39 Subtype, Ifrs 9 Classification, Ifrs9 Subtype fields form an associated multi-value set and should be defined, while taking over existing IAS39 contracts into the IFRS9 regulation through the one-time takeover process service.
Ias 39 Classification Indicates the classification of financial instrument based on IAS 39, for example, Held for Trading, Available for Sale, Loans and Receivables, Held to Maturity, and other liabilities.
Ias 39 Subtype Indicates the subtype used for accounting, based on the above classification.
Ifrs 9 Classification Indicates the business model, based on International Financial Reporting Standards (IFRS) 9, for example, Amortised Cost (AMC), Fair Value through Other Comprehensive Income (FVOCI) and Fair Value through Profit or Loss (FVPL).
Ifrs9 Subtype Indicates the subtype used for accounting, based on the above classification
Pd Val Fmt Indicates the format for probability of default values, which can be set either as Percentage or Number. PERCENTAGE is the Default value.
Lgd Val Fmt Indicates the format for Loss Given Default values, which can be set as PERCENTAGE or NUMBER. PERCENTAGE is the Default value.
External ECL API Enables users to define an API for returning the PD/LGD values for the ECL calculation
Upd Contract Stage Determines whether the risk stage information needs to be updated in contracts.

The allowed values are:

  • Yes - The Close of Business (COB) jobs update the stage information in the local Risk Stage field, configured in the PV.ASSET.DETAIL application.
  • Null or No - It is considered as the default processing.

With the risk stage updated at the contract level, it can be mapped to CONSOLIDATE.COND and used for reporting purposes.

Mat PdType Allows 100% PD option that can be applied on a matured contract.
Quantitative Cashflow type Specifies if the quantitative test that is performed during cashflow modifications is against the original cash flow or latest cash flow. By default, the system consumes the latest cash flow prior to modification.
Quantitative Threshold Holds the percentage threshold to determine whether the modification is substantial or non-substantial, while performing the quantitative test.
Ead Model Defines the EAD model used for IFRS9 ECL Calculations.

Allowed options are:

  • Npv.Discounting – Indicates EAD as NPV of contractual cashflows discounted using EIR to the present date
  • Outstanding.principal – Indicates EAD as Outstanding Principal Balance
If None is selected, the system considers the default option as Npv Discounting.
Apply Marginal Pastdue Defines how the past due balances should be considered when calculating Marginal ECL.

Allowed options are:

  • All Periods - Indicates that the past due balances are considered in the EAD of all the periods from the current calculation date to the date of maturity, where periods are the number of years from the current calculation date to maturity.
  • Current Period - Indicates that the past due balances are considered in the EAD of the current period alone, where the current period is the period from the current calculation date to current calculation date + 1 year.
If None is selected, the system considers the default option as All Periods.
Discount Ecl Specifies whether discounting of 12-Month and lifetime ECLs is required.

Allowed options are:

  • Yes - Indicates that 12-Month ECLs are discounted from 12 months to the current calculation date, and lifetime ECLs are discounted from the maturity date to the current calculation date.
  • No - Indicates that 12 months and Lifetime ECLs are not discounted to the current calculation date.
If None is selected, the system considers the default option as No.

The PARAMETER table with the Stages and their corresponding loan classifications are shown below:

This table stores the accounting methods to be applied for different kinds of contracts based on the classification of assets and liabilities. Users can configure this table based on their requirements.

The Id for this record can be any alpha-numeric free text.

Field Description
Acct Head Type Forms part of a multi-value set to specify the asset types. By multi-valuing the Acct Head Type field, different values can be defined for each accounting head–AMORTISED, AMORTISED STAGE 1, AMORTISED STAGE 2, DISCLOSURE, IMPAIR AMORTISED and so on.
NPV Method Forms part of a multi-value set to specify if the Net Present Value (NPV) calculation is required based on the IAS.CLASSIFICATION and the accounting method specified. If NPV calculation is not required, an option to include an external routine to calculate the amount is given through the Calc Rtn field. Input of either of these two fields is mandatory.
NPV Rate Specifies the rate type applicable to the calculation, which can be either an EIR rate or a MARKET rate. The value in this field can be entered only if the specified NPV Method is set to Yes.
Posting Reqd Provides an option to the bank to decide whether the values need to be only calculated or posted as well. This is applicable to methods like DISCLOSURE.

All the contracts stated at AMC are valued at a market rate on the reporting date for the purpose of disclosure in order to state them at fair value. The fair value amount so calculated is not required to be posted but is only supposed to be disclosed.

Adjust Entry Indicates whether the entry to be posted is an adjustment to what has already been posted on the contract.
This is allowed only for contracts classified under fairvalue through equity
Field Description
Bal to Exld Defines the balance or asset types to be excluded from Temenos Transact balances. This functionality is available only for AC.BALANCE.TYPE records with Reporting Type set to VIRTUAL.
Hybrid Acct Type Indicates the hybrid method of IFRS accounting, where the contract is measured based on fairvalue, using the Market Key on the first day of a loan disbursement. On subsequent days, the loan is measured using the amortised cost method.
Impair Int Bal Type Defines the asset types under which accrual entries are raised for different applications.

Allows a valid record from AC.BALANCE.TYPE with Reporting Type set to VIRTUAL.

The following screenshot displays the AC.BALANCE.TYPE.

In the following example, the accounting heads AMORTISED has the AC.BALANCE.TYPE record NEWVIRBAL entered into the Bal To Exld field . All normal accounting heads uniformly follow a single Temenos Transact balance.

The above screenshot shows the Bal To Exld field in the IFRS.ACCT.METHODS table.

  • When the Bal To Exld field is populated for the AMORTISED accounting head and left blank for other Acct Head Types, the system defaults the Bal To Exld field from AMORTISED to the other normal accounting heads.
  • An error is displayed if the user enters a different AC.BALANCE.TYPE record.

The Acct Head Types under AMC is shown in the table below.

This table stores the details relating to the way the accounting entries are generated in order to make the contracts compatible with IFRS9 requirements. This displays as a separate table so that the user can configure based on their requirements.

ID of the records is free text to link to the contracts at IAS.CLASSIFICATION or IFRS.SUBTYPE level.

Field Description
Position Type Updates with value IF on validation of a record. User input is not allowed.
Posting Style Specifies the posting style to be adopted. Accepted values are IO or ADJUST.
Acct Head Type This field is part of a multi-value set of fields to specify the asset types. As a multi-value field, different values can be defined for each accounting head–AMORTISED, AMORTISED STAGE 1, AMORTISED STAGE 2, DISCLOSURE, IMPAIR AMORTISED and so on.
Acct Type Specifies whether the posting is to happen to the CONTINGENT or NONCONTINGENT base.
Sub Acct Head Type This field is part of the associated multi-value set of fields for Acct Head Type – Amortised. It can accept the AA properties for CHARGE.
Entry Type Specifies the type of the entry. This can have different categories to post the Profit and Loss amounts. Has options Profit, Loss and Both.
Entry Target Specifies whether the entry needs to be raised to Internal Accounts, PL categories or the CRF base.

The allowed options are:

  • ACCOUNT
  • PL
  • CRF

Users can define the category used for posting along with the transaction codes and reversal transaction codes used for generation of entries.

A sample record for the Category and transaction codes to be defined for every Acct Head Type field is displayed below:

A sample record of IFRS.POSTING.DETAILS for an AMC business model is displayed below:

This table contains the details relating to IFRS.ACCT.METHODS and IFRS.POSTING.DETAILS along with details relating to the amendments to the cash flows and EIR, if any. Record ID is free text.

The following table details the fields and description.

Field Description
Descrit Defines the sub-type.
Accounting Method Displays the ID of IFRS.ACCT.METHODS that stores the accounting methods to be applied on contracts based on the classification.
Posting Details Displays the ID of IFRS.POSTING.DETAILS that stores the details relating to the generation of accounting entries.
Def Recalc Method Defaults the recalculation method during cash flow changes for the contracts. Options allowed are either CARRY.COST, EIR or QUANTITATIVE TEST.
Event Type Defines the IFRS.EVENT.TYPE.
Recalc Method Defines the recalculation method opted for event wise. The options are CARRY.COST, EIR or QUANTITATIVE TEST.
Term Indicates the option to determine EIR and AMC. The options are
  • FULL - When this field is set to None or Full, the system calculates the EIR for the entire term of the contract. This is applicable mainly for fixed rate contracts.
  • SHORT - The system calculates the EIR up to the next rate fixing date and income is amortised over this period. This applies for contract under a floating rate, with a periodic interest rate change.
  • EXPECTED - Applies to contracts with an expected term.

The difference between the SHORT and EXPECTED is that with Short, after the end of the period, the interest rate fixing generates another cashflow for the next rate fixing period and recalculate the EIR whereas with the option of ‘Expected’ life of the contract, after the end of the period the system stops IFRS9 processing.

An example IFRS.SUB.TYPE for AMC is shown below:

This application defines accounting frequency for subtypes of different companies. ID is the Company name and under each company, for each IFRS Subtype, the accounting frequency can be defined.

The following table defines each field available in this application.

Field Description
Ifrs Sub Type Displays set of subtypes.
Acct Freq Denotes the frequency at which the specified subtype is processed. Each subtype must have its own frequency setting. However, it can be different for different subtypes.
Upd Acct Dtls Provides the option to update the system maintained table IFRS.ACCOUNTING.DETAILS. Options are Yes or No.
Split Delta Provides the option to split the amortised amount with the respective fees and cost.

The below screenshot displays the IFRS.SUB.TYPE with its corresponding frequency set.

This application stores various events that can occur over the life of a contract, which can amend the cash flows pertaining to it. The default list is as below:

Once the PV configuration and the IFRS parameter tables are configured, other tables relating to PD and LGD parameters are entered since their values are included in the ECL calculations.

Temenos Transact does not do any calculation of the PD/LGD values but provides the framework for uploading them. These PD/LGD values can be uploaded either from the PD/LGD modelling within the Temenos Financial Risk Management or their local tables.

The Probability of Default (PD) is defined as the Probability that the obligor will default within a given time horizon. There can be a minimum of two PD values or Point-in-Time (PIT) PD values.

The multivalued field Prob of Deft is used to store the Probability of Default with minimum two PDs. The system uses the first PD as 12M PD for stage 1 contracts and the second PD as Lifetime PD for stage 2 or 3 contracts.

A multivalued field Prob of Deft is made available wherein yearly PDs are allowed to be input for a contract year wise till its maturity period. The system uses the PD defined for the corresponding periods and arrive at the ECL provisioning during IFRS processing.

LGD is defined as the percentage loss incurred relative to the Exposure at Default.

It provides the loss that a bank is bound to incur when a default occurs. This normally is based on the type of Loan or Collateral and is worked out by the Credit Risk Department of a Financial Institution.

In case of AA loans, the Reporting Property Class is to be attached to the Product Lines (both Lending and Deposits) which acts as an interface to the cash flow engine for providing cash movements of assets and liabilities.

Read the Reporting property class for more information.

Customers have the flexibility to define the PD or LGD values at various levels according to their requirement. The uploading of PD and LGD values are available at four levels. They are:

  • Through an Application Program Interface (API) in IFRS.PARAMETER
  • At Contract level
  • At Customer level
  • At Product level

The screenshot below displays the External Ecl Api field in IFRS.PARAMETER.

The following screenshot displays the multivalued fields Prob of Deft and Loss Given Deft – optional at contract level in PV.ASSET.DETAIL.

The following screenshot displays the multi-valued fields Prob of Deft and Loss Given Deft - optional - at customer level in PV.CUSTOMER.DETAIL.

The below screenshot displays the multi-valued fields Prob of Deft and Loss Given Deft  - Default - at product level in PV.PROFILE.

PD is a multi-valued field in the CUSTOMER table, while LGD is a single-valued field in the CATEGORY table for the releases before R19.

To accommodate Probability of Default (PD) or Loss Given Default (LGD) at various levels, the system allows manual inputs in the following tables.

  • PV.ASSET.DETAIL
  • PV.CUSTOMER.DETAIL
  • PV.PROFILE

The system performs Expected Credit Loss (ECL) calculations using the appropriate PD and LGD values recorded at different levels depending on the stages.

For Stage 1 contracts, 12M ECL is calculated using the first PD and LGD, and for Stage 2 and 3 contracts, lifetime ECL is calculated.

Order of Priority

The ECL calculator selects the PD/LGD values in the following order:

  • If an API is defined in the IFRS.PARAMETER
  • If PD/LGD is defined in PV.ASSET.DETAIL
  • If PD/LGD is defined in PV.CUSTOMER.DETAIL
  • If PD/LGD is defined at the product Level, the ECL calculator,
    • Picks the risk level to be applied for contract - if the classification is at the LOAN level, get the risk level from PV.ASSET.DETAIL, and if the classification is CUSTOMER, get the worst risk level for customer from PV.CUSTOMER.DETAIL.
    • Picks the corresponding PD/LGD defined for the risk level from PV.PROFILE for defined group of products.

The PV.PROFILE link is assigned to the PV.MANAGEMENT where the group of product is defined for collective impairments.

  • List of Product Category
  • List of Product.Group/Product.Line

PV.PROFILE allows one PD and LGD by Product, Segment and Risk classification for IFRS provisioning.

An option with IFRS in the Seg Prov Calc allows IFRS provisioning at the segment level similar to that of standard provisioning.

The provision process is as follows:

  • The list of risk segments is defined in the PV.RISK.SEGMENT table.
  • The borrowers are assigned a risk segment based on the criteria specified through the Rules Engine or local API in PV.MANAGEMENT.
  • The risk segment is recorded under the Auto Risk Segment field in PV.ASSET.DETAIL.
  • One PD and LGD can be specified by Product, Segment and Risk classification.

Order of Priority

If one PD and LGD by Product, Segment and Risk classification is available in PV.PROFILE, then the order of priority in retrieving the PD and LGD for the ECL calculation is as follows:

  • By Product, Segment and Risk Classification.
  • If not specified at that level, then the default level is by Product and Risk classification.

Read the Standard Provisioning section for more information.

An example of ECL calculations at various levels is shown below:

  • Input a customer and create an account for the customer.

  • For the customer created, update the PV.CUSTOMER.DETAIL with PD1 - 0.10% ,PD2 -0.15%, LGD - 50% manually.

  • Create a facility for USD 500,000 with participant bank being 999999 (own bank) for full value.

  • Create an Syndicated Lending (SL) loan contract for two years using category as 49910 with the following details :
  • Loan Amount: USD 100,000  and Interest Rate - 10% , Interest payable on the last day of every month.
  • Use Amortised Cost business model (Adjustment type) for the loan under International Accounting Standard Classification

  • Upon authorisation of SL loan, view EB.CASHFLOW, IFRS.ACCT.BALANCES and IFRS.ACCOUNTING.DETAILS.

  • Input PD1 - 0.15%, PD2 - 0.20%, LGD - 50% manually for the loan created in PV.ASSET.DETAIL.

  • For online ECL calculation, the system picks up the PD/LGD values from PV.CUSTOMER.DETAIL.

  • After Close of Business, the ECL calculation is based on PD,LGD from PV.ASSET.DETAIL being the higher order of priority.

The Probability of Default (PD) and Loss Given Default (LGD) values that are applied in the Expected Credit Loss (ECL) calculations can be uploaded at every individual record level or for group of records.

To consume the PD and LGD values in bulk, the system initiates an EB.FILE.UPLOAD process. In the example below, the EB.FILE.UPLOAD process is for two existing customer records, 100100 and 12345.

Perform the following to steps to bulk upload:

  1. Create an excel file with customer record id’s and respective PD values for upload and save the excel file in .csv format.

  2. Upload this file path in TC Upload Path field in EB.FILE.UPLOAD.PARAM table.

  3. Create a version for zero authorisation.

  4. Create an EB.FILE.UPLOAD.TYPE record, to include the versions created.
  5. Define the Upload DIR field where system updates the files uploaded. Extension of file upload to be mentioned as csv

  6. Create an EB.FILE.UPLOAD record to upload the .csv file created, which holds the customer record id’s with the respective PD values.

  7. Run the BNK/T24.UPLOAD.PROCESS service.

  8. Before upload

  9. After upload

Illustrating Model Parameters

Parameters configured in Model Bank are detailed below:

S.No. Parameters Description
1. IFRS.PARAMETER

Defines rules specific to the IFRS 9 regulation.

  • Users can configure the effective date from when the regulation is enabled through the Effective Date field.
  • Defines review frequency and loan classification records for each stage of IFRS9 Regulation.
  • Users can specify the probability of default and loss given default values in percentage or numeric format.
  • UPD.CONTRACT.STAGE - This field is used to determine whether risk stage information is required to be updated in contracts.
    • If the field value set to YES, the Close of Business (COB) jobs update the stage information in the RISK.STAGE field, configured in the PV.ASSET.DETAIL application.
    • If the field value set to NULL or NO, it is considered as the default processing.
  • The Pd Type field allows to configure the type of Probability of Default (PD) to be chosen for contracts at Stage1, Stage 2 and Stage 3.
  • The Mat Pd Type field allows 100% PD option that can be applied on a matured contract.
  • The Quantitative Cashflow Type field has Original or Latest options. This field specifies if the test is against the original cash flow or latest cash flow. By default, the system consumes the latest cash flow prior to modification.
  • The Quantitative Threshold field holds the percentage threshold to determine whether the modification is substantial or non-substantial while performing Quantitative Test.

  • If UPD.BUSINESS.MODEL field is set to Yes, then the Business Model is updated in AA.ACCOUNT.DETAILS for AA arrangements as part of a COB process.

  • The Recoverable Val Option field allows the users to select the type of LGD.

  • The Collateral Info field allow the banks to return the collateral value along with the collateral date using an API.

  • The Collateral Rate Amort field is used to calculate the value of collateral under the Amortised Cost Method.

  • The Ead Model field allows the users to define the EAD approach used for IFRS9 ECL calculations. It supports Npv Discounting and Outstanding Principal options.

  • The Apply Marginal Pastdue field allow the users to define the past due balances during Marginal ECL calculations.
  • The Discount ECL field enables users to specify if the ECL must be discounted. ECL can be discounted for 12 months and lifetime.
2. IFRS.ACCT.METHODS
  • Stores the accounting methods to be applied for different kinds of contracts based on the classification of the assets and liabilities.
  • Specifies different asset types, as per regulation, that can be AMORTISED, FAIRVALUE, DISCLOSURE, IMPAIR.AMORTISED, UNWIND, IMPAIR.AMC.ADJUST, IMPAIR.FAIRVALUE, IMPAIR.FV.ADJ.INC or IMPAIR.FV.ADJ.DEC and CURE.INTEREST.
  • User can specify whether the Net Present Value (NPV) calculation is based on IAS classification and the accounting methods specified or using external routine.
  • User can define the rate type applicable for calculation, and the possible values are Effective Interest Rate (EIR) or Market Rate.
  • User can define whether the values need to be calculated only or calculated and posted.
  • User can define whether the current account method follow Hybrid method of IFRS accounting when attached to contracts, and possible values are listed below:
    • YES – The Acct Head Type field should have FAIRVALUE defined first followed by AMORTISED.
    • NO or NULL – Any existing definition is allowed but FAIRVALUE followed by AMORTISED is stopped.
  • User can define if the below market treatment is required using the Below Market Acct field.
3. IFRS.POSTING.DETAILS
  • Captures details related to the way the accounting entries are generated to make contracts compatible with the IFRS requirements.

  • User can specify different asset types, as per regulation, that can be AMORTISED, FAIRVALUE, DISCLOSURE, IMPAIR.AMORTISED, UNWIND, IMPAIR.AMC.ADJUST, IMPAIR.FAIRVALUE, IMPAIR.FV.ADJ.INC or IMPAIR.FV.ADJ.DEC and CURE.INTEREST.

  • User can specify the asset types that define IFRS.ACCT.METHODS, posting style (IO or Adjust), internal account categories for account type entries, PL category for profit and loss entries or CRF asset type.
  • This table defines the transaction codes and reversal transaction codes used for generation of entries.
  • User can define the category used while posting entries for backdated or future-dated amendments. For backdated entries, respective category is used to adjust previous or current month’s and previous year’s profit and loss.
  • Sub Acct Head Type field is added to define the AA Charge property as part of splitting the delta process and posting it to profit and loss.
4. IFRS.SUB.TYPE
  • This table contains details related to IFRS.ACCT.METHODS and IFRS.POSTING.DETAILS.
  • User can specify default recalculation method during cash flow changes for contracts falling under this subtype and allowed values are EIR and Carry Cost.
5. IFRS.ACCRUAL.PARAM
  • Defines accounting frequency of different companies’ subtypes.
  • IFRS.SUB.TYPE-IMPAIR is allowed to do impairment processing.
  • User can update the IFRS.ACCOUNTING.DETAILS by specifying YES or NO values in the Upd Acct Dtls field.
  • Split Delta field provides the option to split the amortised amount with its respective fee or cost and it is a onetime setup.
  • RECOVERY.ORDER field has two options, fee/cost or Iap. This field is used to specify an order with which the recovery to take place once amount is repaid whether fee/cost should be settled or Iap.
6. IFRS.IMPAIRMENT.CODE
  • Provides different impairment codes and the reason for impairment.
  • List of impairment codes are given below:
    • 100 – Financial difficulty
    • 200 – Breach of contract
    • 300 – Legal and economic factors
    • 400 – Observable data
    • 500 – National and local conditions
    • 999 – Others

Illustrating Model Products

Model Products are not applicable for this module.

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Published on :
Monday, May 27, 2024 2:02:54 PM IST