15 Effective Interest Rate (EIR) Based Interest Adjustments

As per IFRS 9 guidelines, financial institutions are required to recognize interest income using the Effective Interest Rate computed for the given instrument, instead of the Contractual Rate. Due to this change in the interest recognition process, in addition to the current practice of recognizing the interest using a contractual rate, financial institutions are required to pass an additional adjustment entry - Interest Adjustment Entry to be compliant with the IFRS 9 guidelines.

OFS Loan Loss Forecasting and Provisioning application compute the interest adjustment entry based on the Effective Interest Rate, Instrument Details, and all transactions against the given instrument.

This also allows the financial institutions to amortize the fees, premiums or discounts, and costs associated with the given instrument over the expected life.