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Effective Interest Rate calculation as per FRS102

For lending businesses, is there a software that automates calculation of effective interest rate ?

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We are a fintech start-up, providing SME lending in UK, and as such need to report every quarter end, on the value of our loan book and interest receivable.

As per FRS102, Section 11 Basic Financial Instruments, at the end of each reporting period, all financial assets/liabilities need to be reported at their amortised cost using an effective interest rate which discounts the end of loan term value to zero.

Is there any readily available software available which automates the calculation of this rather than building a model using the Goal seek function within Excel, which I believe is often used for calculating the effective interest rate and amortised cost at each period end?



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By RaxJ
06th Oct 2020 09:43

I don't think there is a software out there that does that. You would be expected to use advanced Excel techniques to calculate the effective interest method using the goal seek/what if analysis functions...

It's a simple calculation if you have all the information available.

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By johnt27
06th Oct 2020 10:59

There are some bespoke bits of software that will help you monitor a loan book (google it) but they tend to be very expensive, given this is a very niche market.

Hopefully, you already have all the inputs needed for the calculations so as others have suggested I would go with Excel for the time being, albeit make better use of than PHE!!

It's also worth considering that whilst FRS 102 does not included the amendments to IFRS 9, these can adopted and will likely become part of FRS 102 at the next triennial review. This will have a significant impact on your expected loss model and the way you recognise potential defaults/losses in the accounts.

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