19 Multiple Ratings

Rating is a key dimension that is required for OFS Loan Loss Forecasting and Provisioning application to compute various outputs and for other specific processing, such as Expected Credit Loss, Stage Determination, HTM, and so on. All the processing within LLFP is performed at Account Level granularity and hence it is required for each account to be mapped to a specific Rating. Currently, every account is mapped with the Counterparty's Rating as of the given date. At the same time, the Counterparty's Rating valid as of the Account Start Date is mapped as the inception rating for a given account.

In many instances, it is noticeable that the account's repayment capability is strongly influenced by account-specific aspects such as covenants, seniority, collateral or mitigants, and so on. In addition to the characteristics of the counterparty. The same is the case with the influence of sovereign-related aspects.

Therefore, the effects of the Account's Ratings and the Sovereign's Ratings on an Instrument are now considered by OFS Loan Loss Forecasting and Provisioning application, in addition to the Counterparty Rating. As part of this, the application look-up for the following Ratings for every account from various external and internal rating providers:

• Account Rating
• Party Rating
• Sovereign Rating
• Instrument Rating

For Stage Determination, which determines the significance of the increase in credit risk, the ratings as of the Account Start Date, inception, or origination, are also determined. However, the same is determined for every date for a given account. Instead, it is sourced as a one-time process and then reused for all subsequent execution dates.

Once the ratings are sourced, the number of notches that a given Account, or Party, or Sovereign has been upgraded or downgraded is determined, based on the provider-specific rating rank list.

For Stage Determination, multiple ratings, only from a single source provider can be used. Stage Determination Run in the application now offers three new Rules for determining the stage, based on notch movement in Account Rating, Counterparty Rating, and Sovereign Rating.

The purchase of Instruments during various periods is rated separately. OFS Loan Loss Forecasting and Provisioning application looks for the ratings of Instruments, on or before the MIS Date, and is picked. The instrument Rating feature enables you to set up a preference for Instruments as well. The UI also enables you to select various rating providers and select the preferences for these rating providers. Depending on these preferences you set through the UI, the Rating Types and corresponding rating providers are selected.