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PLPL (Central Bank Instruction No. 5291-U dated January 20, 2020) ​

Procedure for Forming Provisions for Possible Loan Losses ​

New Requirements:

According to paragraph 5 of Central Bank Instruction No. 5291-U, microfinance organizations (MFOs) are required to form provisions for possible loan losses (PLPL) when there are risks of losses. To do this, it is necessary to:

  1. Identify risk sources:
    • Types of borrower, loan, and collateral parameters.
  2. Establish risk factors:
    • Parameter values.
  3. Determine combinations of factors — risk profiles.
  4. Set PLPL rate values for different delinquency periods.

Example: An MFO must approve what PLPL will be applied to the total debt on a loan with a 60-day delinquency, issued to an individual with a DTI of 55%, secured by collateral whose current value covers 50% of the loan debt. The following are also taken into account:

  • Number of days overdue in the previous year: 192 days.
  • Whether the borrower has another outstanding loan with its own set of risk factors.

Setting Up PLPL Calculation Parameters ​

MFOs must define their PLPL calculation parameters in accordance with their risk management system, including cases of loan impairment according to Instruction No. 493-P (clause 5.7) and Instruction No. 612-P (clause 5.8). There can be a large number of such parameters.

Before performing PLPL calculations, it is necessary to conduct an inventory of borrower, loan, and collateral parameter values.

New Widget in the "Contract" Interface ​

A new widget for PLPL configuration has appeared in the "Contract" interface. It is divided into two parts:

  1. Auto-filled fields (highlighted with a red rectangle):

    • Filled automatically based on contract settings, borrower type, and data from the decision-making system (DMS).
    • Manual editing is not available.

  2. Editable fields (highlighted with a green rectangle):

    • Available for manual editing.
    • Before launching reserve accrual, it is necessary to conduct an inventory in all contracts and check the boxes.

    Reserve calculation widget

Parameter Automation ​

With large data volumes, the following parameters can be automated:

  • Borrower bankruptcy recognition:
    • Through "Infosphere" or NBCH services.
  • Debt restructuring:
    • Only if restructuring was performed in Brainysoft software.
    • For contracts loaded from other systems, the parameter must be set manually.
  • Ratio of average monthly payments to borrower income (DTI):
    • Automation is only possible if the DTI calculation was performed in Brainysoft.

Setting Up Custom Constants ​

For correct PLPL calculation, custom constants need to be configured:

ParameterDescriptionPossible Values
Calculate regulatory reserveEnable/disable reserve calculation.Yes / No
Calculate reserve considering delinquency by statusesAccount for delinquency by statuses.Yes / No
DMS scheme ID for calculating IFRS reserve rate by contractDMS scheme ID for PLPL calculation.Specify scheme ID
Accrue regulatory reserve on interestCalculate reserves on interest.Yes / No
Calculate reserve from total interest amountCalculate reserves on all interest or only on overdue.Yes / No
Accrue regulatory reserve by rates from contractAccount for new requirements of Central Bank Instruction No. 5291-U.Yes / No
Accrue regulatory reserve on penalties for litigation casesCalculate reserves on penalties for litigation cases.Yes / No

Note: If you use IFRS and PLPL calculations simultaneously, don't forget to change the DMS ID before running the calculation.

Regulatory Reserve Accrual Process ​

To accrue the regulatory reserve, follow these steps:

  1. Go to the Admin – Complex Processes panel.
  2. Select:
    • Process type: Regular reserve.
    • Operation date: Reserve accrual date.
    • Operation time: Specify a time closer to the end of the day (e.g., 23:59:00). Make sure the process is launched after the IFRS reserve rate calculation is complete.
  3. Click the Select contracts button.
  4. Click the Run "Regular reserve" process button.

Result: Reserve accrual operations will be created for the contracts. Operations are displayed in the Additional Contract Information section.

Important Notes ​

  1. Do not run the process twice!
    • Otherwise, reserve accrual will occur twice.
  2. Do not delete operations in user mode!
  3. Zeroing reserves:
    • If the reserve was accrued with a past date, it is necessary to run the complex process "Zeroing reserves and discount after loan completion" on the date of the "Regular reserve" accrual.
  4. Calculation sequence:
    • Reserves must be accrued sequentially. For example, if the last calculation was run on June 30, the next one should be run on July 31, and then August 30.

Conclusion ​

Forming provisions for possible loan losses (PLPL) is an important element of risk management in microfinance organizations. Brainysoft software allows automating this process, which helps avoid errors and ensures compliance with regulatory requirements.