IFRS9-Syndicated Lending-'Skim fees and Interest' in EIR

[ahosanee]

Please share your views on whether 'Skim' fees and interest should be considered in the EIR.

If a participant Bank A is selling part of a Loan to another participant Bank Z and is earning additional income as 'skim' on fees and interest.
Scenario:
Loan under Participant Bank A is USD 10M with an interest rate of 8% and a fee of USD500,000 and assume the EIR is 8.25%.
Participant Bank A is selling part of the loan for 4 M to Participant Bank Z.
However Participant Bank A is not transferring USD200,000(pro-rata) with the loan but only USD150,000 and also is selling the loan at 8.1%.
Should Participant Bank A include the additional USD50,000 fee and the extra 0.1% interest from the sale of the 4M to the remaining loan of 6M in the Participant Bank A's book? That would change the EIR of that loan in the Participant Bank's book?

This link from BDO (below), says something about fees charged by lenders not an integral part of the EIR:
"Loan syndication fees received by an entity that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants) (refer IFRS 9, paragraph B5.4.3)."

In the scenario Participant Bank A still has part of the loan in its book, does it mean that the additional income should be included in the EIR?

https://www.bdo.com.au/en-au/accounting ... by-lenders

[JakobLavrod]

How does the interest skim work in practice. Let say that the customer pays 1000 CU, of which 900 are paying back principal. Do Bank A has the right to a pro-rata share of the 100 CU in interest (based on the difference between 8.25 % and 8.1 %)?

[ahosanee]

Thanks again Jakob for responding to my question! My apologies, I need to change this bit:

However Participant Bank A is not transferring USD200,000(pro-rata) with the 4M loan but only USD150,000 and when the customer makes payment, Participant A retains part of the interest from the 4M.

Should Participant Bank A include the additional USD50,000 fee and the extra interest from the 4M and it to cashflows of the remaining loan of 6M in the Participant Bank A's book? That would change the EIR of that loan in the Participant Bank's book?

[JakobLavrod]

Hi!
Thank you for the clarification. However, maybe the question I raised as well was not formulated clearly. You talk about "extra interest" from 4M going to A. My question is how this extra interest is determined. A customer C in the 4 M portfolio will each month make a payment. Part of it is principal, part of it is interest. Of the interest part, how is that amount being split between bank A and bank Z. Since you mention "extra interest", I assume some amount is paid to bank A, but the key question here is if it is a pro-rata share.