Introduction to Obligor Objects

The Obligor Objects (OX) module is designed to support the structural component of the regulatory requirements associated with the following to provide the basis for assessing contagion:

• European Banking Association (EBA)
• Banking Commission of Central Africa (COBAC)

The Capital Requirements Regulation (CRR) Regulation (EU) No 575/2013 established the definition for a default obligor. This is used for the Internal Ratings Based (IRB) and Standard approach (SA) to measure the credit risk in regulatory capital calculation.

The EBA resolved to harmonise the supervisory approaches across the European Union (EU), after identifying the areas that IRB showed extreme flexibility in its application.

In Sept 2016, the EBA and RTS published the following:

• EBA – Final guidelines on the definition of default.
• RTS – Materiality threshold of credit obligations that are past due.

Following are the links to the guidelines and RTS relating to Regulation (EU) No 575/2013:

a) https://eba.europa.eu/documents/10180/1597103/Final+Report+on+Guidelines+on+default+definition+%28EBA-GL-2016-07%29.pdf/004d3356-a9dc-49d1-aab1-3591f4d42cbb

b) https://eba.europa.eu/regulation-and-policy/credit-risk/regulatory-technical-standards-on-materiality-threshold-of-credit-obligation-past-due

The key guidelines of the above regulations that define the scope of the functionalities available in the Obligor Objects module are as follows:

Key Regulatory Guidelines	Functionality Offered
A joint obligor, is a specific set of individual obligors that have a joint credit obligation towards an institution. The joint obligor must be treated as a separate obligor and not linked to the individual obligors.	A unique identity is assigned to a joint obligor to facilitate their identification of default.
Applying the definition of default at obligor level.	The Obligor Objects module handles a joint obligor, independent from the underlying individual obligors. The Provisioning module (PV) in Temenos Transact, holds the logic to perform asset and customer classification, with which the definition of default is applied on both individual and joint obligors. In the absence of PV module, an external system can provide the default assessment results.
Institutions that decide to apply the definition of default for retail exposures at the obligor level need to specify the rules in detail, when handling joint credit obligations and default contagion, between exposures in their internal policies and procedures.	The PV module or an external system identifies the default details that the Obligor object holds along with the contagion results. Hence, it provides the default status of all the obligors (including the default by contagion) for the following purposes: Standard Provisioning Regulatory capital calculations

The Obligor Objects module is the foundation of the overall solution, which include:

• Default assessment of individual and joint obligors independently.
• Contagion effect on default in the case of retail exposures.

It supports the provisioning and regulatory capital requirement calculations. The following diagram shows the overall solution (supported by Obligor Objects), aimed at meeting the regulatory requirements as mentioned above.

Illustrating Model Parameters

This sections allows the user to view the below Model Parameters:

S.No.	Parameter	Description
1	OX.OBLIGOR.PARAMETER	This table allows the user to configure the creation and maintenance of Obligor Objects. Obligor API – The user must enter a value in this field to determine the process for Individual or Joint Obligor. Product – Users can select the products available in the system from the drop-down. Product Category Start and End – The range of category codes can be specified here for obligor processing. Product Line and Product Group – Users can specify the AA Product Line or AA Product Group, if the Product is AA. Reference Customer Rule or API – Users can specify the rule or API to determine the reference customer for Joint Obligor. Default Equivalent Classification – Users can specify the classifications that need to be considered as default. Default Update Frequency – Users can enter a suitable frequency for updating the default status of obligors. Default Update API – Users can attach an API to this field, if Provision (PV) module is not installed to get the default status. Contagion Type – Type of contagion to be considered for contamination. Contagion Rule – Rule for the selected Contagion Type Contagion Frequency – Users can enter a suitable frequency for updating the contagion status of obligors.

Illustrating Model Products

Model Products are not applicable for this module.