For significant deals, risk provisioning is calculated using information that is only provided at individual deal level.
It takes into account the available expected recovery cash flows at individual deal level. Sources for recoveries can be
- Collateral
- Regular incoming payments
- Irregular incoming payments
The definition of collateral recoveries is part of collateral management. Please refer to the section Collateral Management.
Irregular and regular expected incoming payments can be allocated in the Customer Impairment Workbench on the basis of configurable segments (refer to Segmentation for details) .
It can be defined in the setup of the Customer Impairment Workbench if the initial assignment of stage 3 to a significant financial asset starts
- immediate fuly automated treatment or
- a specific workflow that requires manual interaction.
For details about the Customer Impairment Workbench, please refer to Customer Impairment Workbench. (For details about the UI, please read more in the manual: Customer Impairment Workbench.)
In the case of fully automated treatment:
a) After objective evidence has been identified during stage assignment, recovery cash flows are generated on the basis of configured recovery sources in the Collective Impairment Workbench
b) If no individual information has been captured, the maturity of a recovery cash flow is based on the “Time to liquidation” configured for the collateral.
If a specific workflow is initialised in the customer impairment workbench
a) A record in a task list is written and notifications are sent to users with a specific role.
b) The aim of this workflow is to review recovery information first before the calculation of expected credit losses and the posting of risk provisions. The workflow includes options to edit the validity of recoveries and to allocate recoveries to specific individual deals for one customer or various deals for customers which belong to the same economic unit.
Please note:
If no individual adjustment is made, the recovery cash flow plan is equal to the one considered in the fully automated initial treatment explained above.
c) All sources of recoveries such as liquidation of collateral as well as irregular and regular payments are supported.
In both cases
- A fully automated impairment processing is provided at subsequent measurement dates
- At any point in time, recovery cash flows can be viewed and edited and simulation runs performed
- The entire functionality of the Customer Impairment Workbench is available. Please refer to section Customer Impairment Workbench