Introduction to Lending

The Lending module comprises of the lending related functionality pertaining to Finland. It contains due date offset functionality and the fee setup to prevent customers to be charged more than 150 EUR per year.

Click here to understand the terms and abbreviations used in this module.

Due Date Offset

This functionality covers the management of the first repayment due day arrival for new loans and how to apply the due day change on the existing loan arrangement. This will provide ample time for the customer on repayment of the loan without instantly starting their repayment.

On the monthly payment schedule the first repayment deferred to month after the loan is being disbursed and on the quarterly payment schedule, the first repayment will be deferred to the next quarter unless the loan is disbursed in the last month of the same quarter.

The due day can be changed for an existing loan for the customer, to provide flexibility on the due days depending on their salary cycle date and for corporate customer to align with the cash flow cycle date.

In the AA.PRD.DES.PAYMENT.SCHEDULE application, the Bill Produce field is used to define the number of days and the issue bill which will be raised prior to the payment date. The LENDING-ISSUE.BILL-PAYMENT.SCHEDULE activity class can be defined in the ACTIVITY.MESSAGING product condition to generate the notification.

In addition, the AA.PRD.DES.ACCOUNT application contains the Date Convention field, where the user can define specific options like Backward, Forward, Forward Same month and Calendar. If the payment date falls on a holiday, as per the definition provided in the field, the payment date will be moved accordingly to the next working day.

This functionality allows the user to:

• Project a repayment schedule including due day offset when simulating a new loan.
• Create a repayment schedule including the due day offset when activating or disbursing a new loan.
• Update the repayment schedule when applying the due day change to an existing loan.
• Define the maturity date of the loan based on the last repayment.

This functionality covers the following:

• True parameter driven business functionality.
• Flexible configuration of the due day offset and the due day change.
• Enhance the interest revenue.
• Reduce technical debt.
• Ability to have different number of offset days across product offerings, e.g. loan with monthly repayment can have different initial due day offset than loans with quarterly repayment.
• Option to give the number of days or months between a due day offset or due day change so different rules can be applied per scenario, e.g. initial or first due day often has a greater due day offset than for a due day change.

Legal Fee Cap

The Finnish Consumer Protection Act for household customers introduces the concept of a fee cap, applicable for loans started from Sep 1st, 2019. A customer can only be charged a total sum of fees of 150 EUR per account and year and the charged amount cannot exceed 0,01% of the loan amount per day. This means that the maximum allowed charge per day is the lowest of either 0,01% per day of the loan amount or 150 EUR per the number of days per year (counted from the first disbursement date).

Control is required per year and it applies for fees that are considered as credit costs, so certain fees must be excluded from calculation. The existing controls for maximum amounts cannot cater for variations in the repayment period length.

This functionality calculates the charge amount method and overrides the final charge amount per day based on the cap fee rule for each fee available for a particular loan account.

Also, this functionality allows banks to define the eligibility of consumer credit for the KSL 7:17a KSL 7:17b laws for a loan contract or an overdraft account. The system calculates the annual period in various cases. Temenos Transact handles the charge calculation for student loans in two different phases, such as the disbursement and repayment phase. When the KSL 7:17a law is eligible for a particular loan product and based on the customer’s collateral, the fees check will be handled in Temenos Transact and the maximum cap interest rate can be checked when the XSUBSIDYLOANPRODUCT cap rate definition is available. The total interest rate for the particular loan will be a maximum of 20% and will be covered whenever the KSL 7:17a law is eligible. The student loan maximum fee cap check will be also followed by the KSL 7:17a loans requirements. Whenever an overdraft limit is available for a particular account, then the overdraft limit will be also covered.

The KSL 7:17b law will be used for the extension of the loan term or repayment period. Whenever the term is extended with more than 14 days, banks can collect a particular charge from a customer. If there are multiple iterations for the same extension, then the particular fee extension will be limited to the maximum of 20 EUR that can be collected from the customer.

The Legal Fee Cap functionality provides a parameter-driven configuration to master the control of fees.

This functionality allows the user to:

• Control charges against the parameters defined, regardless of the payment frequency.
• Define charges to be included in the control.
• Define if the control will be applied or not at the product level.
• Use the parameters to arrive at a maximum amount that can be charged on the loan and evenly distributed over the year.

The following items have been introduced as part of this functionality:

• The Promisory Note Signing Date and Disbursement Flag fields are added to the XKELA external property class to manually capture the promissory note signing date for the student loan contract and to identify if the loan is available at the disbursement phase or not.
• New fields are added to the FILEND.LOAN.CHARGE application to capture the top-up and anniversary dates.
• New fields are added to the XLEGALCAPFEE external property class to define the consumer credit for the KSL 7:17a and KSL 7:17b laws.

Penalty Interest Amount

This functionality allows banks to generate bills in advance that include the applicable penalty interest amount so that this component can be added to the paper invoice or pre-notification that is sent to the customer. The penalty interest (if any) to be part of an invoice will be calculated only until the invoice issued date.

The FILEND.PENALTYINT.CALCULATION routine has been introduced as part of this functionality to calculate the penalty interest till the bill issue date.

Performing and Initiating Credit Loss

Banks perform partial or full credit loss for all loans, bank guarantees, and facility products, except for the technical loans created because of debt restructuring. Whenever there is a principal or interest component that is due for a particular loan, banks can write it off. The write-off will be stored at the loan level so that banks can view it later. Also, banks will have the split-up of the write-off that has been performed. For example, if there is a bill that has a principal, interest, and fee component due, and if the complete bill is written-off by the user, then after a month when the customer comes back and pays the bill, the user can view the split-up of that particular written-off bill.

When the repayment happens after writing-off the balances, Temenos Transact will automatically reverse the written-off amount and apply the repaid amount to the written-off balances. For example, the principal component is written-off for 1000 EUR by the user and when the customer comes to the bank and makes a payment for 200 EUR, the written-off balance will be paid first and the remaining amount will be applied to the outstanding bills of the accrued balances of the particular loan.

This functionality allows banks to perform full and partial credit loss using the adjust bill activity that is part of the arrangement. The adjusted balance is updated into a new local contingent balance to calculate the penalty interest. The adjusted amount is then moved into the corresponding P&L (Profit and Loss) account and the details are stored in the AA.PRD.DES.XCREDITLOSS external property class for information purposes. When banks recover money from customers, the adjust balance activity will be reversed, the payment will be applied and the balance will be increased, if necessary.

The credit loss amount is visible to the user on the loan screen and the user can review the details of the components that were written-off.

Temenos Transact supports the repayment towards the written-off amount at any time during the life of the loan.

The following have been are introduced as part of this functionality:

• The AA.PRD.DES.XCREDITLOSS external property class is used to store the write-off details.
• The LENDING-ADJUST.ALL-BALANCE.MAINTENANCE named activity can be used by the bank to perform the credit loss on the arrangement. This activity cannot be reversed by users as it is a NOREVERSE activity. Whereas another activity will be provided to reverse the credit loss performed earlier.
• New activities API’s are used to perform the write-off and reverse the write-off, if required.
• The FILEND.WRITEOFF.DETAILS enquiry is used to view and reverse the write-off details.

Forbearance Process

The European Central Bank (ECB) requires a report of the loan that has been marked as forbearance by monitoring the customer's repayment behaviour over a specific period for some specific amendments.

This functionality allows bank user to mark a loan arrangement as Forbearance, if a customer is requesting bank for any ease in loan repayment in case the customer has some temporal financial difficulties.

The following items have been introduced as part of this functionality:

• The FILEND.FORBEARANCE.PARAM application is used to configure the forbearance process conditions for a loan product.
• The FILEND.FORBEARANCE.DETAILS enquiry is used to display all loans in the forbearance status.