38 Frequently Asked Questions

You can see the Frequently Asked Questions which is developed with the interest to help understand OFS Loan Loss Forecasting and Provisioning.
  1. Can LLFP be used with other cash flow engines instead of Oracle CFE? If yes, then what is required to be done?

    Oracle LLFP can be used with other cash flow engines. LLFP uses the Oracle cash flow engine to generate contractual cash flow at the account level and cash flow as of the account start date to calculate EIR. If any external engine is used then cash flow generated by other engines needs to be given as download in the STG_ACCOUNT_CASH_FLOWS table in the format as specified in download specifications.

  2. Effective Initial Rates calculated by Oracle LLFP are calculated as of which date?
    The following is the EIR computation of Oracle's LLFP application:
    • Origination Date EIR: Computed only for Fixed-rate accounts and ideally only in the lifetime of the account, unless the application is explicitly made to recompute the same.
    • Current Date EIR: Computed for both Fixed-rate and Floating rate accounts.

    For more details, see the EIR Preferences section.

  3. How can the Origination Date EIR be made to compute again for a Fixed-rate account?

    The origination date EIR will be computed for accounts:

    Where the value is not available

    With EIR EIS COMPUTATION FLAG = "Y"

  4. How is collective assessment handled in Oracle LLFP?

    Collective assessment of accounts is handled using the Cohorts feature of the application. As a first step, a configurable rule is used to identify the set of accounts that can potentially be treated collectively. Based on the configured criteria, this Rule marks the corresponding accounts to be treated collectively. The cohort process considers this input along with various parameters such as Rating or Delinquency date band, Product Type, Customer Type, Methodology assigned, Maturity band, and so on. groups account based on their common values, across all these parameters. All the necessary values corresponding to these accounts are also aggregated to the cohort's level, for example, Carrying Amount, Undrawn amount, CCF Percent, Cash Flows, and so on are aggregated. Next, based on the methodology corresponding to each cohort, the Expected Credit loss values, Allowance, and Provision are computed. Finally, the computed values are then apportioned back to the individual accounts for final account-level reporting.

    Note:

    To retain efficiency, accounts under Cash flow or Forward Exposure methodology are grouped only if the minimum cohort size meets the set value in the preference table.
  5. Does the user need to give a cash flow download every time for same-day execution?

    Yes. Cash flow needs to be in the staging table for each run.

  6. Is it feasible to compare individually calculated allowances and those which are allocated back to the account level from the collective assessment?

    While performing collective assessment all the parameters required to compute Expected Credit Loss are aggregated using various logics. Once, the aggregated ECL is computed, the same is apportioned back to individual accounts. While doing this there is bound to be a difference between the ECL computed using the Collective Assessment approach or the Individual Approach. Accounts having similar behavior and potential cash flow are combined to generate cash flow more efficiently. These are typically large-in-volume accounts like retail exposures. Considering carrying amount as a weight for individual allocation, the allowance may be compared with individual treatment. If the allocation factor is other than the Carrying amount then there will be some difference.

  7. Is EIR calculated collectively or individually?

    EIR is calculated only at the account level.

  8. Can a Run be without collective assessment?

    The option to perform computations at a cohort level is controlled by a configurable Rule. This Rule will determine which set of accounts can be processed collectively by flagging them. In addition to the rule, the LLFP application also looks at specific parameters to be common across the accounts that are marked to be processed collectively. If and only if both the flag and the parameters are common, for accounts, the corresponding accounts are treated collectively.

  9. Can Provision Matrix and PD Term Structures be based on External Ratings?

    No. Both the Provision matrix and PD Term Structures must be based on internal ratings.

  10. Can an account be collectively assessed under Cash Flows or Forward Exposure methodologies?

    Yes

  11. Can the application calculate EIR if cash flow is provided as a download?

    Yes

  12. How do I enable the Subledger feature on the LHS menu for a user group, for example, an analyst?
    Before you create SubLedger definitions, performed the following user role and group mappings and approvals:
    1. Log in as a System Administrator.
    2. Navigate to Identity Management, then Security Management, then User Administrator, and then User Maintenance.
    3. Add a new user definition. For more information, see the User Maintenance section in the OFS Analytical Applications Infrastructure User Guide.
    4. Log in as a System Authorizer.
    5. Navigate to Identity Management, then Security Management, then User Administrator, and then User Authorization.
    6. Authorize the user that you created in step 3. For more information about authorizing a user, see the User Authorization section.
    7. Log in as a System Administrator.
    8. Navigate to Identity Management, then Security Management, then User Administrator, and then User - User Group Map.
    9. Map the user to the IIA Application Approver Group and IIA Application Analyst Group. For more information about mapping a user to a user group, see the User - User Group Map section.
    10. Navigate to Identity Management, then Security Management, then User Administrator, and then User Group Role Map.
    11. Map the User Group UGIIAANALYST to Sub Ledger Maker, and then map the User Group UGIIAAPPROVER to Sub Ledger Checker. For more information about mapping a user group, see the User Group Role Map section.
    12. Log in as a System Authorizer.
    13. Authorize the mappings that you performed in step 11. For more information about authorizing a user, see the User Authorization section.

      Note:

      You can use the same user that you created in the preceding steps for performing actions in the Subledger Manual Adjustment feature.
  13. How are Cohorts different from Segments?

    Cohorts have very specific utility within OFS Loan Loss Forecasting and Provisioning. Cohorts, Collective Assessment, are run specific grouping of records that contain similar risk characteristics such as Ratings or DPDs, Regions, Products, and so on. Moreover, Cohorts created for Stage determination are not reused for ECL computation - in other words, constituent records will be different as parameters for ECL cohorts are different. Segments can be any composition of records that a business deems fit to track per its risk policy. Unlike Cohorts, constituent records of a Segment remain intact across the applications.

  14. If segments are already created, should Cohorts be created for Collective Assessment?

    If Segments are created, then the same can be used as one of the dimensions for Cohort formation in all the Runs.