Calculate Non-Core Portions

In banking practice, non-maturing products (for example, savings accounts or deposits) are often handled for transfer pricing at portfolio level. A common approach is to split the monthly balances into core and non-core portions, for example. The core portion is a relatively stable part of the balance, and usually assigned a long-term FTP rate (for example, a 1-year rate). The non-core portion, on the other hand, is a relatively unstable part, and assigned a short-term FTP rate (for example, overnight, a 1-month or 3-month rate). The splitting of core/non-core portions can be achieved by observing the monthly inflows/outflows; in other words, the difference between two consecutive monthly balances of a portfolio. From these monthly inflows/outflows the n-th worst flow will then be selected as the monthly non-core potion according to a given confidence level. In this sample content, the GL accounts are considered as portfolios, monthly inflow/outflows from the past 24 months before 2019 are observed and used to determine core/non-core portions with the assumed confidence level of 95%.

In the input, the Join Events and Positions function is used. The fields Event Type with selection MCLBAL and Product with CDDA, CREDCD, MMDA and TDA are used to filter for correct data.

For demonstration purposes, the following rules have been defined:

• Rule DELTA – Monthly Delta Calculation selects the records of Posting Date before February 1, 2020. The monthly difference between every two consecutive monthly closing balances is calculated and assigned to the field FTP Component Value. Furthermore, the FTP Component is marked as MON_CF (monthly cash flow).

• Rule NONCORE – Percentage Ranking selects the records marked as MON_CF in the field FTP Component from the previous rule DELTA. The non-core portions are calculated and assigned to the field FTP Component Value. The Curve Type is assigned with MAVG3M. Furthermore, the FTP Component is marked as NON_CORE (Non-core portion).