On one side the banks borrow and other side the banks lend. Overall interest income [lending] minus interest expense [borrowing] is called Net Interest Income [NII]. When NII is positive, then the bank is performing well. FTP helps you monitor the NII per customer account level, that can be rolled up to branch level which in turn can be rolled up to Bank level, thus allowing you to monitor the profitability of the bank at any level.
The treasury division sits in the middle as a broker of asset generating and liability generating divisions. Within the Treasury you have a central funding unit and another is marketing unit. Central funding unit sends its position to Treasury, so that Treasury knows whether to borrow or lend/invest. Marketing division is responsible for selling complete range of Treasury products such as FX, Derivatives as well as deposits to the customers of the bank.
To know the profitability, banks need to create a benchmark yield curve. And over the yield curve they deploy both assets and liabilities. The rate at which money is transferred by central funding unit to the branches is called transfer rate.
Central funding Unit takes the interest rate risk. Central Unit absorbs the loss if interest rate increases in the wider market and whilst the branch will get funds at pre-agreed price.
The benchmark interest is the interest rate used for calculating the profit or loss. For this, the banks need to compare all internal funding rates against an external benchmark. Internal funding rate is the rate at which central funding unit loans money to the branches.
Overall the banks raise resources that get deployed. The treasury manages the mismatch between the resources raised and the resources that get deployed.
FTP allows the bank to know if customer accounts are profitable by knowing their NII. FTP also provides insight if central funding unit is functioning properly.
The rate manager in OFSAA is the repository of the yield curves. These can be fetched from the systems like Reuters, Bloomberg etc. After defining the yield curves, we need to specify which curves are applicable for each instrument. Each cash flow transaction against an instrument will then use a corresponding yield curve; one single transfer rate is calculated for each cash flow. This individual transfer rate is then smoothened by different techniques.
Typically a General Ledger will not give granular details such as future payment schedules against mortgages or loans. If ledger stat is used to feed into instrument tables, then a lot of assumptions will have to be made by the OFSAA calculation engines. For example, for accounts like current, overnight deposit, term deposit, saving accounts, will all have same interest rates assumed across accounts if the data is sourced from ledger stat for FTP NII calculations in OFSAA. Even if the product segment in GL can produce granular level details i.e. the bank account type, yet an assumption will have to be made that interest rates do not vary from one customer to another.
Additionally, without instrument tables, you cannot know which customer is profitable. Therefore, you cannot manage your clients efficiently, and hence risk losing the high worth clients.
Therefore, the options for loading granular data into instrument tables is
a) FAH – Assuming FAH is granular enough. This granularity can be achieved by implementing extended chart of accounts.
b) Source Systems – The source systems can feed end of the day balances into instrument tables at the level of granularity required.
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