Facility Limits

A bank is exposed to different type of risks when dealing with its customers. Setting a limit, for a client/party allows the bank to control the exposure to that party and also monitor its own overall position. Since limit is a risk perception of the parties, limit products could be grouped differently from business products of a bank. Every business product may be associated with a unique risk perception, or a single risk perception may be common to many business products, or a single business product may be associated with different risk perceptions.

It is possible to accommodate all these situations in the application, as it allows to classify its risk products in Facilities. Facility/Agreement/Commitment could be created according to the bank's need/situation and this allows the bank to monitor its exposure to that party at each Facility level. Example, facility could be created for import Business as a whole or facility could be created exclusively for short term loans, thereby allowing the bank to monitor and control its exposure with respect to its risk perception.

Therefore, two Limit types have been introduced under the Liability per Party Limit:

• Liability per Party/Facility
• Liability per Party/Facility/Business Sector

A sample overview on the limit structure can be seen below:

Facility limits can be set up by the Banks under the Party limit. This allows further break-down or split-up of limits into different levels to better monitor the risk exposure. For example; the bank can decide to split the limits for Domestic and International business or can set up a limit for the Past Due Loans or for Sight and Usance L/C per party as different facilities.

The application allows to set up one or many (up to 99) facility limits for each Party.

• For setting up a facility limit, an existing Party limit is mandatory. Hence, party limit becomes the parent node and facility the child node.
• In transaction Adding a Limit, user needs to select the party for which the facility limit needs to be defined, then details such as Facility ID , Facility Name, Expiry Date, Status, Limit amount etc. can be added.
• For each of these limit, a 'Limit Key' (unique key) is generated by the application which makes it easier to use it from the business transaction. Detailed explanation on how to use the facility limits from a business transaction is provided below in Using facility limits from business transactions section.
• Once saved, the facility details such as Facility name and ID is stored under database table 'FCL' and the limit details under the table 'LSB'.

Facility limit can also be setup per Business sector under the Party facility limit.

• For each facility, limit can be defined at a business sector level.
• To define a business sector limit, existing party and facility limit is mandatory. Hence, party limit is the parent node, facility the first level child node and business sector becomes the second level child node.
• More than one limit for the same business sector can be defined under the same facility. This creates a new sequence for the business sector limit and acts as a unique limit key.
• Details such as Limit name, Status, Expiry date etc. can be updated.

Further information about defining limits can be found in Maintaining Limits

Once a facility node is added to the Party limit, the limit tree overview becomes active. This provides a nice overview of how the Limit tree looks like. It also provides a quick view of the limit utilization along with the type of Limit.

Detailed view can also be seen from the 'Limit tree overview' panel. On double clicking the limit node, a pop-up window appears with information on the limit utilization , expiry etc.

Facility Limits enable user to define limits at a more detailed level and also use it from the Business transactions.

It also gives the user a possibility to book the limits on a different party other than the contract's Liability party. Example: If the applicant wants to use his Parent company limit, or the Obligor's limit, or the second applicant's limit, it can be done by choosing that particular parties Limit role in the contract.

• Facility limits can be selected from the 'Liability' panel. For each liability grid line, it is possible to allocate a different Facility limit, thus allowing the user to split the limit bookings. This also means that if there are multiple applicants, Facility limit's can be defined for each applicant.
• Also, it is still possible to use only the Party limit. Facility limits are only activated if the user selects a 'Limit Facility ID' from the 'Limit Details' panel. This means that, by default, the Limits are always booked on the Party as usual until otherwise changed by the user manually.
• Once the limit details panel is visible, the 'Limit Role' drop down lists down all the parties used in the current contract. The user can select the party on whom the Limit needs to be booked. At the moment, there are no restriction on party roles. If a role is filled used in the current contract, then it is listed here.

• Based on the selected party under Limit role, the corresponding Facility ID is populated which then further allows the user to select the corresponding Limit nodes under which the limit booking needs to take place.
• Once a Facility ID is selected, if there is only one corresponding Limit node under that facility, then that is defaulted/auto populated. If not, the user must select the required Limit ID manually.

• After the transaction is saved, the limit utilization is updated accordingly. For e.g., if a business sector limit was selected from the contract for EUR 90,000, then the same amount will be booked under the corresponding Facility and the party node.
• Limit approval for the facility limits works the same way, if sufficient funds are available then the limit is automatically booked if not user must approve from the Limit Approval for Contracts transaction.

• The Facility limits can be booked for each Liability grid line, except for Internal bookings (as they are no 'real' liabilities) and Out-bookings line. For Out-bookings, if a facility limit was available and booked earlier, then the user is allowed to view those.
• For new Liability bookings, if no Facility is selected, then the application books it by default on the Liability party as usual. Further details about Liability types can be found in Liability Concept.

• User can also book standard limits for Cash Cover, if needed. It is a widely used practice in many regions of the world, to book Standard Limits even though collateral (such as cash cover, fixed deposits, etc.) are provided.
• Facility limits can be selected in the same way as described above using the 'Limit Facility' button for each Liability grid line.
• If a Facility limit is selected for the Cash Cover, then standard limits will be booked for the selected Limit node.

Further information about cash cover can be found in LIACCV Cash Cover

* Important point to note is, unlike Party limits, the application will not create any default Facility limit nodes from the business contracts. This means that, if there was no Limit found for the liability party, then the application creates a booking entry for the party and awaits approval. Whereas, if the user wants to use the Facility limit bookings, then it must have already been created using the static data transaction Maintaining Limits and can then only be selected/used under the contract.

* Also, it needs to be decided during the Projects on how to send/communicate the Facility limit booking information to any external Limit system.