Introduction to Credit Compliance

The Credit Compliance functionality covers the following points:

• Creation of product governing the Mexican rules and regulation and eligibility of customer.
• Product and sub product classification for LD.
• Eligibility of customer to the products.
• Taxes on the commission paid by the customer as per the Mexican regulation.
• Enquiries to show the loan schedules, payment made Interest accrued etc.
• Early closure of loan, if the account has sufficient balance.
• UDI currency and exchange rate for conversion.
• Limit opening check.

Brief explanation about the requirement:

• Loan products and eligibility: Certain loan products which meets the Mexican regulation needs to be created like simple short term loan, Simple long term loan and credit loan.

  This loan product suits the needs to different customer, so the loan products have restriction for customer.

  EXAMPLE: Simple short term and simple long term loan can be offered to corporate customer whereas credit loan can be offered to individual customer.
• Product and sub product classification:

  Core Temenos Transact functionality offers loan categories between 21050 and 21074. This limits the bank to have a minimum number of loan products.

  A bank needs to define a N number of loan products, a sub products concept will be required, wherein under a loan category various sub products can be introduced.

• Taxes on charges:

  As per Mexican regulation it’s necessary for customer to pay 16% tax on the charges. The various charges for loan products are Opening commission charge, Monthly administration charge, prepayment charges and in case the customer wishes to optain a life insurance, the bank will charge the customer for life insurance toward the premium.

• Early closure of loans:

  Mexican regulation offers functionality to pre-close the loan automatically if the underlying account has sufficient balance to clear all loan balances.

• Enquiries:

  Mexican regulation needs the loan balance summary to display all types of charges and taxes, so the customer is aware of the amount that needs to be paid towards the loan.

• UDI currency and exchange rate for conversion:

  The Mexican Unidad de Inversion (ISO 4217 code MXV) is an index unit of funds used in Mexico. It can be traded in many currency markets because its value changes concerning for currencies. Unlike currencies, it is designed to retain its purchasing power and not be subject to inflation. The Mexican credit system (especially mortgages) uses the UDI rather than the peso because of its stability.

  An exchange rate is used for converting UDI to peso.

  The below applications are required:

  • CURRENCY.PARAM and CURRENCY application to be configured for currency as UDI.
  • MXMB.H.EXCHANGE.RATE application to hold the exchange rate on daily basis.

The Temenos Transact solution that address the requirements of credit statement consists of the following:

1. Products and eligibility:
   • Eligibility:

     MXMB.H.LD.PD.TXN.TYPE.COND: This application is used to define the eligibility criteria for products. The ID is either category or category followed by sub product code.

     The eligibility criteria will be based on Cus.Type field of customer.

   • Products:

     Three products have been introduced as part of this requirement as follows.

     • Short term loan
     • Long term loan
     • Credit loan

2. Sub products:
   • MXMB.H.SUB.PRODUCTS: This application is used to define the sub products codes. Up to 99 sub products can be defined.
   • Switch for the usage of sub product concept:

     A field at the company record Use Sub Product indicates whether the bank uses sub product concept or not. This is required because certain banks might not require sub product concepts.

     NOTE: If the bank uses Sub product concept, Sub product is mandatory at Loan level.
   • MXMB.H.LD.PD.TXN.TYPE.COND – This application is used for defining values that need to default to underlying loan contracts like interest rate, etc. This application is also used to set min and max term allowed for the products and appropriately override will be popped if the underlying loan contracts have exceeded Max term or fall below Min term.

     This application is similar to the core application LD.TXN.TYPE.CONDITION (Configured for category). This application will be configured only if the bank uses sub product concept and the ID will be category and sub product.

     NOTE: For eligibility, this can be configured with ID as a category if sub product is not used.
     NOTE: If the bank does not uses sub product concept, MXMB.H.LD.PD.TXN.TYPE.COND application is to be configured with ID as a category only for eligibility check.

     If the bank uses sub product concept then is mandatory to set MXMB.H.LD.PD.TXN.TYPE.COND with values like interest rate, frequency, min term, max term etc, with ID as category and sub product.

   • Limit Reference and Limit Parameter applications:

     If the bank uses sub product concept, its necessary that limit reference product is created for sub product concept.

     Limit Parameter: This application is used to link the limit product with CATEGORY application. This application needs to be configured to accept category and sub product.

   • Consolidate cond:

     If the bank wishes to use sub product concept, its mandatory that in consolidate cond the sub product field is introduced. The consolidate cond acts as a base of reporting, so this setup helps to differentiate loans based on sub product in reporting.

3. Charges and Taxes:

   Taxes will be calculated as charges with different category codes. In order to differentiate various charges and Taxes parameter application is defined.

   MXMB.H.CREDIT.STMT.PARAM: This application holds differentiate the various charges code, so that the enquirers and loan statement have clear picture of various charges and Taxes.

   As per Mexican regulation, 16% will be charged as TAX on loan charges.

4. Application has to be configured:
   • FT.COMMISSION.TYPE: Defining rates.
   • LMM.CHARGE.CONDITIONS – linking to FT.COMMISSION.TYPE to LD.

5. Enquiries:

   New enquirers have been introduced to display sub product codes, differentiate various charges and display the taxes on charge.