For the Individual Recovery Cash Flow Approach, the The Customer Impairment Workbench provides a framework to capture and maintain expected recovery cash flows for stage 3 impaired deals.
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Depending on the significance of a customer or the significance of an individual deal, the estimated recovery cash flow plan is
- captured cash flow by cash flow in the Customer Impairment Workbench or
- derived on the basis of the estimated future cash flow plan, applying a recovery rate for each individual cash flow.
These recovery cash flows are then used to calculate the recoverable amount.
The recoverable amount is calculated using the effective interest rate as the discount factor.
The threshold used to identify the signifcance can be configured at portfolio level, taking definable criteria for the portfolio assignment into account.different types of impairment are supported:
- Specific Provision
- Lumps sum specific provision
The impairment type links
- the significance of an financial asset
- with the method which will be applied for calculation of the risk provision
- and specific report positions
For significant deals, specific provisioning is based on individual expected recoveries (collaterals, regular and irregular payments) captured in the Customer Impairment Workbench.
For significant deals the impairment type "specific risk provsion (SRP)" is assigned.
For not significant deals different ways are supported to calculate the recoverable amount, e.g. the recoverable amount is can be calculated by the following methods:
- Lump Sum Specific Provision:
Each individual epected recovery cash flows which are derived based on the contractual cash flow plan, taking a recovery-rate into account before, is discounted with the original effective interest rate (EIR) of the financial aasset. The sum of discounted recoveries equals the recoverable amount.
For not significant deals using the gross carrying amount and a loss rate as input to calculate the recoverable aount, the impairment type "LSSP carrying amount" is considered. - Lum Sum Carrying Amount:
multiplication of the current gross carrying amount with a loss-rate.
For not significant deals using the gross carrying amount and a loss rate as input to calculate the recoverable aount, the impairment type "LSSP carrying amount" is considered.