5.3 ECL and Amortization Processes

This module discusses the procedure for creating and executing the ECL and Amortisation Process. This process is defined at the Modelling Set and Economic Scenario Rule level. Users can select the Amortization rule. Users can select only EIR calculation also. Users can provide cash flow elements which help to create the cash flow. This cash flow will be used in effective interest rate calculation. With this process, the user can map expected credit loss methods at the product, customer type and other dimensions of the modelling set level.

EIR is calculated for the following Account Type Codes:
  • Assets: 100, 110, 120, 150, 200, 610, 800
  • Liabilities: 300, 310, 320, 350, 375, 400, 500, 600, 620

The IFRS 9 Stage and Account Classification Process and ECL components are optional for EIR and EIR Amortization execution. If the user chooses not to provide the IFRS 9 Stage and Account Classification data (even within the instrument tables), the Amortization Engine will still execute it, assuming Stage = 1 and Account Classification = AMRTCOST by default. However, if the user provides the Stage and Account Classification details within the instrument tables, then that will get referred in amortization in case the user did not execute Stage and Account Classification Process. In cases where the ECL data is either not available in the instrument tables or the ECL Process has not been executed, the amortization process will assume an ECL value of 0.

The system also supports downloaded EIR and Downloaded cash flow. ECL is not applicable for liabilities. The following are the key points about its' use in Amortization and ECL:
Stage/POCI Cash Flow (CF) Indicator Downloaded CF Downloaded EIR Discount Rate ORIG EIR and AOD EIR Calculation Modified NBV Calculation Generated Cash Flow used for ECL Downloaded Cash Flow used for ECL
Stage 1,2,3 or Liabilities Yes Yes No NA Yes Yes No Yes
Yes Yes Yes NA No Yes No Yes
Yes No Yes NA No Yes Yes No
Yes No No NA Yes Yes Yes No
POCI Account Yes No No NA No No No No
Yes Yes No NA Yes Yes No Yes
Yes Yes Yes NA No Yes No Yes
Yes No Yes NA No No No No
Stage 1,2,3 or Liabilities No Yes No Yes No NA No No
No Yes Yes Yes No NA No No
No No Yes Yes No NA No No
No No No Yes No NA No No
POCI Account No No No Yes No NA No No
No Yes No Yes No NA No No
No Yes Yes Yes No NA No No
No No Yes Yes No NA No No