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Clarification for Break Identification in FTP With Default In re-Payment (Doc ID 2740691.1)

Last updated on JANUARY 13, 2021

Applies to:

Oracle Financial Services Funds Transfer Pricing - Version and later
Information in this document applies to any platform.
Oracle Financial Services Funds Transfer Pricing (FTP)
Oracle Financial Services Analytical Applications (OFSAA)
Oracle Financial Services Enterprise Performance Management (EPM)


On FTP version, Clarification for Break Identification with Default in Re-Payment

Negative Break Amount in case of Default in payment for Asset Portfolio:

1. Data Scenario for Nov-19 - Cur par Bal = 200, After Payment balance = 100, Next payment Date = 15-Dec. It means Principal Repayment should happen as 100.
2. For Dec-19, the Cur Par Bal = 120. It means, Customer had to pay 100 but in actual he / she paid just 80 and defaulted for 20.
3. Herein, instead of Pre-payment, the defaulting is happening of Contractual Obligation by Customer for 20.
4. As per Data, this as Break Record and getting populated Break Funding Charges table as -20.
5. Client believes that it is not a Break as it is an under payment, not prepayment.
6. Client's view is that, in Bank Finance, this typically means the early prepayment of a loan by a customer or the early withdrawal of deposit funds by a customer. “Early” in this sense means before the contractual maturity date. In the previous example, there is no prepayment for the loan. The payment is underpayment, so it should NOT be considered as breakage.
7. Consulting shared their opinion that FTP Functionality is working fine based on configuration done for "Minimum Break Amount" i.e. 0. The field signifies the Absolute Break Amount which Client would like to recognize in Break Funding Charges Table. E.g. if 100 is populated in Minimum Break Amount, then it means any break amount between -99, -98, -97, .... 0, .... +97, +98, +99 will not be recognized, however any break amount beyond -100 & + 100 will be populated in table.
8. Objective of the functionality is to identify, if there is any breach of Contractual Obligation which impacts Central Funding Unit in managing Liquidity Risk and Interest Rate Risk (Re-investment of fund or Borrowing of Liability).
9. Based on shared example on the understanding of the functionality, if there is Negative or Positive Break, how can Gain / Loss be recognized?

Can you share your thoughts for both the above cases, to help justify the product functionality?


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