The ready-to-go solution is cost-effective, quickly installed and contains simple interfaces as well as an easy-to-use UI. A business department can use this solution without IT support. The application enables capturing, simulating, monitoring and correcting the expected cash flows from non-performing, financial assets. Intra and inter-departmental processes are digitalised by the workflows and thus made more transparent and traceable.
The classification of a financial asset in stage 3 calls for the submission of ‘objective evidence of impairment’. This occurs, for example, when a customer files for bankruptcy, becomes insolvent or exceeds the threshold value for the number of days past due.
Specific impairment can be triggered by an automatic allocation of a financial asset to stage 3 where the subsequent significance test decides if lump-sum specific impairment or specific impairment will be implemented.
Alternatively, specific impairment can be triggered manually.
Depending on the procedure used, lump-sum specific impairment is calculated using the book value and the recovery rate or else derived from expected payments and a loss rate.
For specific impairment, a distinction is made between deal impairment and customer impairment. The risk provision is calculated for both cases at individual deal level. An assumption is made for the incoming payments to be expected for each individual deal. These so-called ‘recovery cash flows’ are specific to each lending operation. They are discounted using the EIR. The recoverable amount resulting from the total of these discounted recovery cash flows is compared to the book value. The difference in the amounts is the risk provision.
The future expected incoming payments relevant to specific impairment can be generated automatically or captured manually. These come from the liquidation of collateral or other expected incoming payments that were captured manually.