Defining Risk Levels
- 11 Nov 2021
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Defining Risk Levels
- Updated On 11 Nov 2021
- 1 Minute To Read
- Print
- DarkLight
- PDF
Article summary
Risk Levels are user-defined categories that consist of an interval for days in arrears and a corresponding provision amount. These levels help calculate an organization's portfolio at risk by assessing the number of loans in arrears within each category. Users can define risk levels and their associated provision percentages according to local Central Bank regulations. Mambu automates the calculation of provisions based on the current Portfolio at Risk (PAR), accessible at any time. To create a new risk level, users navigate to Administration, then Financial Setup, and select Add Risk Level, entering the necessary details. Additionally, to account for healthy loans in provisioning calculations, a risk level from 0 to 0 days can be added, ensuring that all non-arrears accounts are included in Risk Analysis and Aging Analysis reports, which provide insights into PAR and provision amounts based on defined risk levels.
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Risk Levels are user defined categories composed by an interval for number of days in arrears and a correspondent provision amount. Risk levels will be used to calculate the organization's portfolio at risk (PAR), based on the number of loans in arrears that fall into each level.
Based on the Central Bank's legislation in your country, you can define risk levels and the correspondent percentage of provision for each. Mambu will then automatically calculate the provision given your current PAR and you can have access to this information at any time from your Risk Report.
Please Note
Risk levels in Mambu cover both loans and deposit accounts with overdraft enabled.
Please Note
This element can also be configured using Configuration as Code (CasC). For more information, see Configuration as Code.
Adding risk levels
To create a new risk level:
- On the main menu, go to Administration > Financial Setup > Risk Levels.
- Select Add Risk Level.
- Enter the name, days and percentage of provision.
- Select Save Changes.
Provisioning for healthy loans
If you also need to consider the healthy loans for the provisioning calculation, you can do it by adding a new risk level from 0 to 0 days.
This will ensure that all accounts which are not in arrears will also be included in the Risk Analysis reports and in the Aging Analysis risk levels. The Aging Analysis is a type of report in Mambu that allows users to see their PAR and the provision amount based on the risk levels defined previously.
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