Limits

The exposure is the risk a financial institution is taking on for writing the loan. Every time a financial institution grants any type of credit facility to a customer (a loan), the financial institution monitors its exposure to various financial indicators, which can negatively affect the customer and the institution itself. The financial institution uses various algorithms to calculate their exposure to the risks, but this calculation simply adds up to their exposure.

When referring to a loan, this page refers to all types of loans: unsecured loan, secured loan, overdraft, promissory note, working capital loan, and so on.

In FintechOSLoan Management an exposure can be related to a group or to a customer.

The approval of limits is subject to validation, depending on the type of customer. These validations are detailed below.

Group Exposure Types

  • Total Exposure - the total amount of principal the lender is willing to allow the group to use in lending products at a certain moment in time.
  • Country Exposure - the limit placed by a financial institution on the number of loans that can be given to borrowers in a particular country. They are used to control the financial institution' risk exposure to particular regions.
  • Company Exposure - the exposure of a particular company in the group the lender is willing to allow for granting loans.
  • Product Type Exposure - the maximum amount of credit an institution extends to the group for a specific type of product.
  • Product Exposure - the maximum amount of credit an institution extends to the group for a specific product.
  • Exchange Exposure - the risk a company undertakes when making financial transactions in foreign currencies. All currencies can experience periods of high volatility which can adversely affect profit margins, if suitable strategies are not in place to protect cash flow from sudden currency fluctuations.

Customer Exposure Types

  • Total Exposure - the total amount of principal the lender is willing to allow the borrower to use in lending products at a certain moment in time.
  • Product Type Exposure - the maximum amount of credit a financial institution extends to the customer for a specific type of product.
  • Product Exposure - the maximum amount of credit a financial institution extends to the customer for a specific product.
  • Exchange Exposure - the risk a company undertakes when making financial transactions in foreign currencies. All currencies can experience periods of high volatility which can adversely affect profit margins, if suitable strategies are not in place to protect cash flow from sudden currency fluctuations.
NOTE  
You can define new limit types that are based on roles associated to contract participants specific to your business, and use them throughout Loan Management with all the functionality of any other default limit type. Read the dedicated page to learn how to manage limit type records.

Validations

IMPORTANT!  
The LimitMandatoryForIndividual Loan Management system parameter allows banks to specify whether their system should validate limits for individual customer, the same way it validates limits for legal entity customers. The limits for legal entities and groups are validated by Loan Management by default.

Calculation of Available Limit Amount

After loan approval, the available amount for each corresponding limit is recalculated by subtracting the loan amount from the limit amount. When calculating the group limit available amount, the application takes into account all group members. If the limit currency and loan currency are different, the application automatically converts the loan amount using the current exchange rate.

All group and customer limits are updated daily in accordance with the exchange rate. This is done via a job called Daily Limit Recalculation.

If a limit is revolving (Is Revolving = True at the limit level), then the limit is a revolving limit, meaning that the Available Amount of the limit is replenished either on each repayment of the principal or on loan contract closure, depending on the On Repayment field's value. If Is Revolving = False, then the limit is not revolving in any circumstances.

At a revolving limit's level, if On Repayment = True, then the Available Amount of the limit is replenished on each repayment of the principal with the repayment value. If On Repayment = False, then the limit amount is replenished on loan contract closure with the amount of the contract.

If a customer that already has approved contracts becomes a member of a group, all its active limits are suspended. The same applies when excluding a customer from a group.

If a customer is a child company for more than one company which are part of different groups, it should have impact on the available limit amount on the group to which it was first added, unless if it was already part of a group.

Managing Limits

NOTE  
You must have the Corporate Credit Officer, Retail Credit Officer, or Risk Officer security roles to add and update limits. Other associated roles allow you only to read limits information.

To manage limit records:

  1. In FintechOS Portal, click the main menu icon and expand the Loan Management Operational menu.

  2. Click Customer Limit menu item to open the Customer Limits List page.

On the Customer Limits List page, you can create a new limit record for a customer, delete records in Draft status, and search for a specific record. You can also edit the information for limits in Draft or Version Draft status, or create new versions for approved limits to change their information.

Alternatively, you can also manage limits at a customer level from the Customer Core menu, by selecting a customer from the list and managing their limit records within the Groups & Limits tab.