Flexible Loan Facility¶


Product ID	`PRD-024`
Launch tier	3
Jurisdiction	NZ + AU
Status	Planned
Regulations	CCCFA 2003 · NCC Act 2009 (NCCP) · NZ Banking Code · ABA Banking Code · RBNZ BS13 Liquidity · Interest Rate Risk in the Banking Book · RBNZ BS19 LVR · APS 220 Credit Quality

Overview¶

The Flexible Loan Facility is a single-limit credit product where the customer's approved borrowing capacity is held under one master facility, and individual components carrying their own rate, term, and amortisation profile are established within it. At any point in time the customer sees one outstanding balance and one principal-weighted effective interest rate derived from all active components. The bank's treasury view is a ladder of known fixed cash flows — the synthetic swap book — plus a residual floating leg.

Market precedents are well-established: NAB's Business Markets Loan in Australia and BNZ's Home Loan Facility structure in New Zealand both implement this pattern, as do equivalents at most major Australian lenders. The mechanics are sound, the economics are straightforward, and the product offers genuine customer value — flexibility and rate diversification within a single facility and a single credit relationship.

This is a Tier 3 launch product. The full credit infrastructure (SD05) and risk platform (SD06) must be deployed before this product can be offered.

Key terms¶

Term	Detail
Product type	Multi-component credit facility (secured or unsecured, determined at origination)
Facility structure	Single credit limit, single expiry date, single master facility agreement
Component types (v1)	Fixed-rate; floating-rate (residual/absorbing leg)
Component types (deferred)	Flexible-maturity fixed; capped-rate — require option-pricing capability; Phase 3
Maximum components	Configurable per product tier; minimum one floating residual always present
Fixed rate	Locked at component establishment; quoted against current swap curve plus customer margin
Floating rate	BKBM + margin (NZ); BBSY + margin (AU); repriced each pricing period
Effective rate	Principal-weighted average across all active components; recomputed on every component event
Break cost	Mark-to-market on interest-rate differential; may be positive (customer pays) or negative (bank pays benefit to customer)
Minimum component principal	Configurable; enforced by MOD-162
Available terms	Fixed components: 1–5 years; facility expiry: up to 15 years

Component types¶

Fixed-rate component. Principal and rate are locked at establishment. The customer pays the contracted fixed rate for the term. Early termination triggers a break cost or benefit calculated by MOD-163 as the present value of the rate differential on the remaining balance over the remaining term. This component is economically equivalent to a pay-fixed / receive-floating interest rate swap from the bank's hedging perspective; the break-cost calculation is the mark-to-market of that position.

Floating-rate component. Holds any portion of the facility limit not allocated to fixed components (the residual or absorbing leg). Rate is the applicable benchmark (BKBM/BBSY) plus the customer's margin, repriced each period. No break cost on prepayment of the floating component.

System capabilities¶

The following modules operate to deliver this product:

MOD-162 (loan facility & component manager) is the core data model. It creates and manages the parent facility entity (limit, expiry, master agreement) and individual components within it. It enforces the limit constraint (sum of components ≤ facility limit), maintains the principal-weighted effective rate, records every component lifecycle transition immutably, and publishes events for downstream consumption.
MOD-163 (break-cost calculator) computes break cost or benefit on any fixed-rate component — both on-demand indicative quotes (available to the customer at any time) and binding calculations required before any early termination or pre-maturity rollover. All calculations are immutably logged. Sourcing current market rates from MOD-085.
MOD-164 (facility component self-service) is the customer-facing app interface for component management: viewing the facility and all components, requesting rate quotes, rolling components at maturity, adding new fixed components, and initiating partial prepayments. All state-changing flows gate on MOD-050 break-cost acknowledgement where a fixed-rate component is affected.
MOD-085 (market rates ingestion) provides the live mid-market swap rates (BKBM for NZ, BBSY for AU) that MOD-163 uses for break-cost calculations and that MOD-162 uses for floating component repricing.
MOD-112 (amortisation schedule engine) generates the repayment schedule for each component at establishment and recomputes on any principal change.
MOD-005 (daily accrual calculator) accrues interest daily per component at each component's contracted rate.
MOD-006 (rate change propagation) updates the floating component's benchmark rate when the bank adjusts lending rates. Fixed components are unaffected.
MOD-027 (affordability calculator) assesses serviceability at the facility level against the approved limit.
MOD-028 (credit score & risk rating) provides the risk-based pricing inputs used to determine customer margin.
MOD-029 (pre-approval engine) issues the facility credit decision setting the approved limit and expiry.
MOD-050 (disclosure enforcement) enforces the break-cost acknowledgement gate before any fixed-rate component early termination or rollover, and the product disclosure gate at facility origination.
MOD-065 (credit servicing & collections) manages arrears and hardship at the facility level.
MOD-030 / MOD-031 (stage allocation / ECL) apply IFRS 9 staging and expected credit loss provisioning to the facility balance.
MOD-132 (loan restructure & variation) handles material facility variations — term extension, rate type change, limit increase — all requiring re-credit assessment.

Eligibility¶

Assessment is at the facility level. All criteria below must be satisfied before a facility is established:

Minimum age 18 (or corporate equivalent)
NZ or AU residency or eligible visa category per credit policy
Satisfactory affordability assessment (MOD-027) at the contracted rates plus the configured stress buffer
Credit risk rating (MOD-028) within the product's approved risk appetite range
AML/CDD completed to at least Standard tier (MOD-009)
If secured: security instrument registered and LVR within policy limits (MOD-066, MOD-115 where applicable)

Account opening¶

Credit application — Customer submits income, commitments, and requested facility limit. MOD-027 (affordability) and MOD-028 (credit score) run in parallel.
Pre-approval — MOD-029 issues a facility credit decision (APPROVE / DECLINE / REFER) with the approved limit and expiry.
Disclosure — MOD-050 enforces product disclosure delivery and acknowledgement before the customer can accept the facility offer. Disclosure includes the break-cost mechanics and a worked example per CRE-009.
Facility establishment — MOD-162 creates the parent facility record. The floating residual component is automatically created holding the full approved limit.
Component establishment — Customer elects the initial component structure (e.g. 60% in a 3-year fixed component, 40% floating residual). MOD-162 creates the fixed component, updates the floating residual principal, and recomputes the effective rate.
Drawdown — MOD-001 posts the drawdown. MOD-112 generates component-level repayment schedules. MOD-005 begins daily accrual per component.

Break cost¶

Break cost is the central commercial and conduct feature of this product. MOD-163 computes it as:

break_cost = PV( (contracted_rate − current_market_rate) × outstanding_principal, discount_rate, remaining_months )

Where current_market_rate is the mid-market swap rate for the component's residual tenor sourced from MOD-085 at calculation time.

If contracted_rate > current_market_rate (rates have fallen since fixing), the result is positive — the customer pays the bank. If contracted_rate < current_market_rate (rates have risen since fixing), the result is negative — the bank pays the customer a break benefit. Break benefits are passed to the customer in full per CRE-009.

The same formula is used for both indicative quotes (no account action) and binding calculations (required before any component change). On-demand indicative quotes are available in-app at any time via MOD-164 without initiating a change.

Interest calculation¶

Fixed-rate component: MOD-005 accrues interest daily at the contracted rate on the outstanding principal of that component. The contracted rate does not change during the fixed term regardless of market rate movements.

Floating-rate component: MOD-005 accrues daily at the current benchmark plus margin. MOD-006 propagates benchmark rate changes to the floating component.

Effective rate (customer view): MOD-162 maintains the principal-weighted average: Σ(component_principal × component_rate) / total_facility_principal. This is recomputed on every component event and is the rate shown on statements and in-app.

Component management (self-service)¶

MOD-164 provides the following self-service flows in the customer app:

Component overview. All active components, each showing: principal, rate (or benchmark + margin), maturity date, current indicative break cost, and the facility-level effective rate.

Rollover at maturity. Available from 90 days before component maturity. The customer elects: rate type (fixed or floating), principal amount, and term for the replacement component. Where the existing component is fixed, an indicative break cost is shown; a binding break-cost acknowledgement via MOD-050 is required before the rollover is confirmed. At maturity, if no election has been made, the component converts to floating.

Add component. Customer allocates a portion of the floating residual into a new fixed-rate component. The floating residual must not be reduced below zero. MOD-163 quotes the contracted rate; the customer confirms; MOD-162 creates the new component and reduces the floating residual principal accordingly.

Partial prepayment. Customer nominates a fixed-rate component for partial or full early repayment. MOD-163 generates a binding break-cost calculation. MOD-050 delivers the disclosure and captures acknowledgement. On confirmation, MOD-162 reduces the component principal (or cancels the component) and increases the floating residual by the same amount.

Fee structure¶

Fees are configured in MOD-110 and are tenant-configurable per jurisdiction:

Fee	Timing	Notes
Establishment fee	At facility activation	Covers application processing and origination
Component establishment fee	Per fixed component created	May apply on initial establishment and each rollover
Break cost	On early termination of a fixed component	Market-rate-dependent; may be positive or negative; formula per CRE-009
Monthly facility fee	Monthly (if applicable)	May be waived subject to product tier and balance
Discharge fee	On facility closure	Covers administration of final account closure

Statements¶

Monthly statements are generated by MOD-113 and show all component balances, rates, and maturity dates as well as the facility-level effective rate. The statement aggregation — one effective rate, one total balance — is the customer view; component-level detail is always visible on request and in-app.

Annual summary statements include total interest paid per component and the facility effective rate over the period.

Regulatory compliance¶

New Zealand:

CCCFA affordability assessment is mandatory at facility origination (MOD-027). Responsible lending disclosure is enforced by MOD-050.
Break-cost disclosure obligations under the CCCFA are satisfied by MOD-163 (binding calculation) and MOD-050 (acknowledgement gate) per CON-005 and CRE-009.
RBNZ BS19 LVR restrictions apply where the facility is secured over residential property (MOD-115, MOD-066).
CoFI Act conduct obligations require the embedded derivative nature of fixed components to be clearly disclosed. Product information summary must include a worked break-cost example per CRE-009.

Australia:

NCCP responsible lending obligations are satisfied by the MOD-027 affordability assessment and MOD-050 disclosure workflow.
APRA APS 220 credit quality requirements are met through collateral management (MOD-066) and credit provisioning (MOD-030, MOD-031).
The embedded interest-rate risk in fixed components is treated as IRRBB exposure per APRA's prudential standards. Repricing gap and EVE/NII sensitivity data at the component level is required for the bank's IRRBB capital framework.

Both jurisdictions:

IFRS 9 expected credit loss staging is applied to the facility balance via MOD-030.
Credit bureau reporting is handled by MOD-059.
AML CDD is performed at onboarding via MOD-009, satisfying AML-002.
The break-cost formula is disclosed to the customer in plain language before any fixed-rate component is established, consistent with banking code obligations in both NZ and AU.

Scope boundary¶

Standalone derivative products (interest rate swaps, caps, or collars sold to customers as separate agreements) are out of scope for this product and for the current software. The internal synthetic swap position that the bank's treasury manages to hedge the aggregated fixed-component book is an internal risk management construct, not a customer-facing product. Customers interact only with fixed-rate loan components governed by this product; they do not enter or exit derivative contracts directly.

Governing policies¶

CRE-001 — Credit Risk Management Policy
CRE-002 — Responsible Lending Policy
CRE-003 — Credit Decisioning & Scorecard Policy
CRE-004 — Loan Origination Standards
CRE-006 — Impairment & Provisioning Policy
CRE-009 — Fixed-Rate Component Break-Cost Methodology Policy
CON-004 — Product Disclosure & Sales Practice Policy
CON-005 — Fee & Pricing Transparency Policy
CON-008 — Financial Hardship Policy
CLQ-001 — Capital Adequacy Policy
CLQ-002 — Liquidity Risk Management Policy
REP-002 — Prudential Reporting Policy
REP-004 — Financial Statements Policy
AML-002 — Customer Due Diligence (CDD) Policy
PRI-001 — Privacy Policy

Implementation modules¶

Module	Name	Status
MOD-001	Double-entry posting engine	Deployed
MOD-002	Immutable transaction log	Deployed
MOD-005	Daily accrual calculator	Deployed
MOD-006	Rate change propagation	Deployed
MOD-007	Account state machine	Deployed
MOD-027	Affordability calculator	Deployed
MOD-028	Credit score & risk rating	Deployed
MOD-029	Pre-approval engine	Deployed
MOD-030	Stage allocation model	Deployed
MOD-031	ECL calculation & GL posting	Deployed
MOD-044	JWT role-based access control	Deployed
MOD-050	Disclosure enforcement module	Deployed
MOD-059	Credit bureau submission engine	Deployed
MOD-065	Credit servicing & collections	Deployed
MOD-066	Collateral & security management	Deployed
MOD-068	Authentication & session management	Deployed
MOD-085	Market rates ingestion & normalisation	Deployed
MOD-110	Fee engine	Deployed
MOD-112	Amortisation schedule engine	Deployed
MOD-113	Statement generation	Not started
MOD-132	Loan restructure and variation workflow	Deployed
MOD-161	Transfer pricing	Deployed
MOD-162	Loan facility & component manager	Deployed
MOD-163	Break-cost calculator	Deployed
MOD-164	Facility component self-service	Not started
MOD-165	Synthetic swap book aggregator	Not started

Compiled 2026-05-22 from source/entities/products/PRD-024.yaml