Allowance and Other Comprehensive Income (OCI) Computation

The final step of the process is to compute the Credit Loss Allowance. The present value of expected cash flows is computed in the application. The Effective Interest Rate (EIR) engine provides the capability to discount cash flows using the EIR of the asset.

Allowance for credit loss is computed as the difference between Amortized Cost and the present value of expected cash flows, subject to fair value floor. If the Allowance for credit loss is less than the overall impairment, then the decline in fair value due to non-credit factors is recognized in the Other Comprehensive Income (OCI).

Note:

If the ECL of an account is calculated using the AFS method, that account will not be considered to calculate the change during Reconciliation.