7. Annexure 2 – Revaluation

Oracle Banking ELCM caters to different types of currencies backed by marketable securities. Exchange rates and the value of marketable securities are driven by market forces and hence tend to fluctuate over a period of time. Revaluation is essential to keep set limits realistic and to reflect the current market trends.

Currency Revaluation - The changes in the exchange rates of currencies involved in the active contracts and collateral linked to the Facility affects the Credit Limit under the facility.

7.1 Currency Revaluation

Currency revaluation is triggered off as a result of the cases explained in the sections explained below.

7.1.1 Facility Currency and Utilization Currency

Consider that a change takes place in the exchange rate between the line currency and the currency of a contract utilizing the limit under the line. Due to this change in exchange rate revaluation takes place in two in the following two stages:

Stage 1 - Currency Revaluation occurs between utilized contract and the credit line of the facility

In the Currency Rates Screen of the Core services module, you can maintain exchange rates for currency pairs that your bank deals with. Along with this, you can also specify the Mid Rate and the Buy or Sell Spread for various currency pairs. After you update and authorize the new exchange rates, they become effective.

While defining a credit line for a facility, you have the option of maintaining currency restrictions for the line. If you do not specify currency restrictions for a facility, then contracts having currencies other than the facility currency, can utilize the limit under the credit line. The revaluation process is applicable for such a line.

If the above conditions hold good, then a change in the exchange rate triggers the revaluation process. The system calculates the Facility currency equivalent of all the contracts linked to the facility (using the new exchange rates) and updates the utilization and available amount under the line.

Example

You have defined a line for Loans, and linked the Liability Code Symphony Group to it. The credit limit assigned to the credit line is USD 100,000, the facility currency is USD. No currency restrictions have been maintained for the facility.

Liability code	Line code	FacilityLimit	Facility Currency
Symphony Group	Loans	100,000	USD

On 01 January 2008 the following Loan contracts has been sent to Oracle Banking ELCM system for utilization, which are linked to this Credit Line. At the time of saving these utilization details, the line utilization is computed based on the exchange rates as of the transaction date (that is, 01 January 2008) of these contracts. The following table contains the details.

Loan Amount	Exchange Rate	Facility Currency Equivalent (USD)	Utilization	Availability
AUD 15,000	1.50	22500	22500	27500
DEM 2000	1.20	2400	2400	25100
GBP10,000	0.5	20000.00	20000.00	5100.00
INR 72,000	36.00	2,000	2,000	31000.00
Total			$46900.00	$3100.00

On 01 February 2008 the exchange rates have changed (now 1USD=1.6 AUD). After the exchange rate revision has been changed and authorized, the revaluation process (online process) scans the contracts linked to the line, converts the contract currency to the Facility currency (using the new exchange rates) and updates the line’s utilization and available amount.

The following table indicates these details:

Loan Amount	Exchange Rate	Facility Currency Equivalent (USD)	Utilization	Availability
AUD 15,000	1.60	24000.00	24000.00	26000.00
DEM 2,000	1.20	2400.00	2400.00	23600.00
GBP10,000	0.5	20000.00	20000.00	3600.00
INR 72,000	36.00	2,000.00	2,000.00	1600.00
Total			$48400.0 0	$1600.00

Stage 2: Revaluation occurs between the facility and the liability which is linked to that facility.

Due to the currency revaluation between utilized contract and the credit line of the facility (as per Stage 1) there is a revaluation on credit limit utilized by the liability.

Considering the same example as in Stage 1.

You have defined a line for Loans, and linked the Liability Code Symphony Group to it. The credit limit assigned to the credit line is USD 100000.This liability is linked only to one Facility (or line code) Loans.

Initially before the change in the exchange rate the utilization of the liability is as shown in the table:

Liability Code	Line code	Liability Limit	Liability CCY	Liability Utilization	Availability
Symphony Group	Loans	100,000	USD	$46900.00	$53100.00

After the change in the exchange rate between the line currency and the currency of a contract utilizing the limit under the line, due to this the utilization at the facility level is changed. Due to this change the utilization at the Liability level also gets changed as shown in the table below:

Liability Code	Line code	Liability Limit	Liability CCY	Liability Utilization	Availability
Symphony Group	Loans	100,000	USD	$48400.00	$51600.00

7.1.2 Facility Currency and Collateral Currency

Change in exchange rates between the Credit Line currency and the currency of the collateral.

When you update and authorize the exchange rates in the currency table, the system scans all the collateral linked to a line (bearing different currencies). The collateral contribution is then converted the into the line currency (using the latest exchange rates). After the conversion, the collateral contribution to the line is updated.

The calculated limit contribution of the collateral has to be linked to the pool. This pool containing the pool amount is linked to the Facility. Hence any revaluation at collateral level affects the pool amount.

Example

You have defined a line for Loans on 01 January 2008, and linked the Liability Code Symphony Group to it. The credit limit assigned to the credit line is USD 100,000, the facility currency is USD. No currency restrictions have been maintained for the facility. Let us say that the Loans line has been backed by Collateral “ABC” and its maximum contribution amount that can be linked to the limit is GBP 10,000.

(1 GBP= 2 USD)

Collateral code	Max. Collateral Contribution amount	Collateral CCY	Pool code	Pool CCY	Collateral Pool % linkage	Pool amt
ABC	10,000	GBP	Pool1	USD	100%	20,000

Pool contribution to the line

Pool code	Pool CCY	Line code	Line CCY	Pool Line Linkage	Pool contribution	Line Avl amt
Pool1	USD	Loans	USD	100%	$20,000	$120,000

On 01 February 2008 the exchange rates have changed. After the exchange rate revision has been changed and authorized, the revaluation process (online process) scans all the pools where this collateral has been linked and having the above exchange pair is revaluated.

(1 GBP= 1.5 USD)

Collateral code	Line Code	Max. Collateral Contribution amount	Collateral CCY	Pool code	Pool CCY	Collateral Pool % linkage	Pool amt
ABC	Loans	10,000	GBP	Pool1	USD	100%	20,000

 

Pool contribution to the line

Pool code	Pool CCY	Line code	Line CCY	Pool Line Linkage	Pool contribution	Line Avl amt
Pool1	USD	Loans	USD	100%	$15,000	$115,000

The revaluation in both cases is triggered off automatically whenever there is a change in the exchange rates (that is, online process).

The process explained above is an online process wherein the change in the currency exchange rate immediately revaluates all the contracts and the collaterals having this exchange pair with the facility currency. If at the Oracle Banking ELCM Global Parameter maintenance, the option for Revaluate Currency during Offline (batch) has been selected then the currency revaluation as explained above is taken up as part of revaluation batch process.

 

7.1.3 Collateral currency and child record currency

Wherever collateral currency and child record currency is different (For example, Collateral currency is USD and Inventory currency is GBP) and the exchange rate between these two currencies undergoes a change, then the currency revaluation batch revaluates all such collaterals and updates the collateral value as part of end of batch process. After revaluation, amount in collateral currency field at each child level is updated with the revaluated price of the child.

Same is extended when multiple currencies are involved as in the case of Account receivable type of collateral where different currencies can be considered for collateral, account receivable and invoices attached to account receivable.