Additional points to be considered during the system walkthrough

Dear Pradeep, kindly consider the following points extracted from our
requirements for your upcoming system walkthrough secession.

I Related to the Effective Interest Rate/EIR

- Computation of the EIR under different scenarios: incase of upfront
fees & charges, incase where contractual rates are below the
market rates?
- How application of the EIR affects the GL balances,
- how the difference is accounted for on the GL,
- how the differed income or expenses that arise from the
application of EIR are released into the income statement.
- How the market rates or EIR can be manually intervened.

II Related to Probability of defaults/PD,

- Risk classification - relation between the risk class as per the core
(pass, SM. Sub, Doubt, Loss) and the risk three stages in the IFRS,
- How PDs are computed; (a) at product group level (e.g. for all
mortgage loans), (b) for different risk class (low credit risk vs
increased credit risk), (c) what is the statistical model applied for
PD computation,
- How the internal PDs are adjusted for forward looking macro based
PDs
- how PDs can be manually amended, (a) at group of loan level, at
individual contract level, at customer level,

III Related to computing Exposure At Default (EAD): IFRS assumes that default
occur sometime in the future which the system shall logically define (using
parameters) and compute the expected loan balance at that date and
discount it to the date of the risk assessment.
- What parameters are used to define the time expected the default
to occur on,
- How the system generates 12-months cash flows and life-time cash
flows to compute the 12-month and the life-time EAD,
- How the system computes the EAD for revolving facilities like
overdrafts applying their respective CCF.
 (𝐸𝑡 −E)
CCF=
(𝐿 − 𝐸)
Where;
E = current exposure (amount utilized)
Et- amount utilized at time “t”
L = Loan limit
EAD for ODs= Outstanding balance+ Undrawn balance X CCF

IV Regarding the Loss Given Default /LGD/;

- How the system computes the LGD by applying collateral values of
loans= LGD = (EAD X 1- Recovery Rate)
(Recovery Rate = outstanding loan balance/Collateral value)
- How recovery rates are computed
- How the RR can be manually amended.

V Related to recognition of interest on Stage 3 loans

- How the system releases interest suspended on NPLs. (IFRS 9 allows
interests to be recognized on NPLs loans to the extent that they are
recoverable or on net loans after deduction of the ECL.

VI Related to Bookkeeping/Accounting;
- How the system post behind the screen the ECLs to the loan
impairment loss expenses and to the appropriate Impairment
Allowance Ledgers.
- How the system posts the difference between the contractual value
of loans and their amortized cost at the EIR to the proper differed
asset/liability account,
- How differed income/expenses are released to income/expense,