ASSET & LIABILITY MANAGEMENT IN COMMERCIAL BANKS

Instructor……Bülent Şenver bsenver@superonline.com

ALM bsenver@superonline.com

1

ALM
Assett

Liability

Asset Management
ALM bsenver@superonline.com

Liability Management
2

ASSET & LIABILITY MANAGEMENT (ALM)
• DEFINITION
• ALM is continuously arranging and rearranging the assets and liabilities of the bank without infringing the liquidity and safety of the bank and with the purpose of maximizing the bank’s profits.
ALM bsenver@superonline.com 3

com 4 .LIQUIDITY • The ability of a bank to fulfill its obligations. ALM bsenver@superonline. and after doing so having enough cash left to do its normal daily banking business.

com 5 .SAFETY • The ability of a bank’s “Share Holder’s Equity” (SHI) to absorb the future possible losses that may arise and after doing so having enough SHI left to run the bank and to comply with the minimum “Capital Requirements”. ALM bsenver@superonline.

Capital protects your bank in rainy days!. ALM bsenver@superonline.com 6 ..

com 1970’s ASSET & LIABILITY MNG. LOAN & DEPOSIT BOTH 7 .ALM DEVELPOMENT 1950’s ASSET MNG. DEPOSIT PRODUCTS ALM bsenver@superonline. LOAN PRODUCTS 1960’s LIABILITY MNG.

com 8 .Internet Personal Training Office Automation Computerization Management Reorganization GAAP SC of Accounts Deregulations ALM bsenver@superonline.

Yesterday Tomorrow Arena Services Organizatio n & Reporting Data ALM bsenver@superonline.com 9 .

NEW DEVOPLEPMENTS • 1.com 10 . Deregulation of Foreign Exchange Operations • 3. Increase in Deposit Interest Rates ALM bsenver@superonline. Changes in Laws and Regulations • 4. Deregulation of Interest Rates • 2.

com 11 . Increase in Deposit Interest Rates • 6. Change in Deposit Characteristics • Increase in Term-Deposits • Decrease in Demand-Deposits • Increase in Short Terms ALM bsenver@superonline.NEW DEVELOPMENTS • 5.

Increase in Technology Investments 10. Increase in Operating Expenses 9. Increase in Personnel Expenses 8. Increase in Share Capital Requirements ALM bsenver@superonline.com 12 . Frequent Changes in Interest Rates 11.NEW DEVELOPMENTS • • • • • 7.

Change in Asset Structure • Increase in Government Bonds • Increase in Treasury Bills • Increase in Foreign Exch.NEW DEVELOPMENTS • 12.com 13 . Loans • Increase in Short Term Loans • Increase in Non-Performing Loans • Increase in Consumer Loans ALM bsenver@superonline.

Decrease in S/H Equity Growth 14. 24 Hours 365 Days Banking ALM bsenver@superonline. New Service Points Small Branches ATM and POS Telephone and Internet Banking 16.NEW DEVELOPMENTS • • • • • • • 13.com 14 . Increase in Customer Expectations 15.

com .T.Kearney PC INTERNET ALM BANKING BANKING bsenver@superonline.1950 SALES FORCE 1970 1980 RELATIONSHIP MANAGEMENT 1990 2000 BRANCH CALL CENTER INBOUND IN-STORE BRANCH CALL CENTER OUTBOUND DIRECT MAIL CREDIT CARD ATM TELEPHONE BANKING DEBİT CARD KIOSK DATABASE MARKETING SPACE SHARING FRANCHISE BRANCHES REMOTE RELATIONSHIP MANAGEMENT MAIL SMART CARD INTERNET ATM SCREEN PHONES INTERACTIVE 15 TV VIDEO KIOSK Kaynak: A.

FINANCIAL STATEMENTS • 1. BALANCE SHEET • 2. STATEMENT OF SHAREHOLDER’S EQUITY • 4.com 16 . SOURCES & USES OF FUNDS STATEMENT ALM bsenver@superonline. STATEMENT OF INCOME • 3.

com 17 .Balance Sheet Assets Loans Income Statement Interest Income Deposits Liabilities Interest Earning Assests Interest Bearing Treasury Bills Liabiliti es Interest Expences Debt Net Interest Income NonInterest Earning Assests NonInterest Bearing Liabiliti Share Holders’ es Equity Total Assets = Total Liabilities ALM bsenver@superonline.

Balance Sheet Assets Loans 100 Interest Earning Assests Income Statement Interest Income Deposits 120 Liabilities 36 Interest Expence Treasury Bills 80 Interest Bearing Liabiliti es Debt Interest Rate Assets = %20 60 Interest Rate Liabiliti es = 9 Net Interest Income NonInterest Earnin g Assests Non35 Interest Bearing Liabiliti Share Holders’ Equity es 30 35 27 %5 18 Total Assets = Total Liabilities ALM bsenver@superonline.com .

1998 ALM bsenver@superonline.com 19 . • As of Dec. 31.BALANCE SHEET SHOWS • The Financial Position of a Bank • As at a specific date.

BALANCE SHEET EQUATION • • ASSETS • 100 = Equals = • = 100 • LIABILITIES • + Plus • SHAREHOLDER’S EQUITY ALM bsenver@superonline.com 20 .

com 21 .ASSET CLASSIFICATION TOTAL ASSETS NON INTEREST EARNING ASSETS INTEREST EARNING ASSETS ALM bsenver@superonline.

LIABILITY CLASSIFICATION TOTAL LIABILITIES INTEREST BEARING LIABILITIES NON INTEREST BEARING LIABILITIES ALM bsenver@superonline.com 22 .

com 150 400 200 50 100 70 80 1050 23 .BALANCE SHEET Assets • • • • • • • • Liquid Assets Loans Marketable Securities Investment Securities Fixed Assets Accrued Interest Other Assets Total Assets ALM bsenver@superonline.

BALANCE SHEET Liabilities • • • • • • • Deposits Bank Borrowings Accrued Expenses Other Liabilities Bonds Issued Shareholder’s Equity Total Liabilities & S/HE ALM bsenver@superonline.com 400 150 100 80 70 250 1050 24 .

SHAREHOLDER’S EQUITY • • • • • • • Share Capital Legal Reserves Retained Earnings Revaluation Surplus Share Premiums Net Income Total S/H Equity ALM bsenver@superonline.com 100 30 50 20 10 40 250 25 .

com 26 .BALANCE SHEET DOES NOT SHOW • • • • Interest Rates Interest Sensitivity Due Dates Foreign Currency breakdown • Collateral ALM bsenver@superonline.

STATEMENT OF INCOME SHOWS • The results of operations of a bank.com 27 . • For the period between two dates. 31 . 1998 ALM bsenver@superonline. • For the year ended Dec.

NET PROFIT NET PROFIT TOTAL INCOME TOTAL EXPENSE 28 ALM bsenver@superonline.com .

TOTAL INCOME TOTAL INCOME NET INTEREST INCOME NET NON-INTEREST INCOME 29 ALM bsenver@superonline.com .

NET INTEREST INCOME NET INTEREST INCOME INTEREST INTEREST INCOME EXPENSE (+) (-) ALM bsenver@superonline.com 30 .

$ interest income + net interest income net interest income interest expense - ALM bsenver@superonline.com time 31 .

NET INTEREST INCOME NET INTEREST INCOME INTEREST INCOME P/L INTEREST EARNING ASSETS B/S INTEREST EXPENSE P/L INTEREST BEARING LIABILITIES B/S ALM bsenver@superonline.com 32 .

NET NON-INTEREST INCOME NET NON-INTEREST INCOME NON NON INTEREST INTEREST INCOME EXPENCE (+) (-) ALM bsenver@superonline.com 33 .

Income Non Interest Income Operating Expenses Pre-Tax Profit Tax Provision Net Income ALM bsenver@superonline.STATEMENT OF INCOME • • • • • • • • Interest Income Interest Expense Net I.com 1000 (700) 300 220 (450) 70 (30) 40 34 .

com 35 .ANALYSIS OF PROFIT NET PROFIT (NP) PROFIT FROM BANKING OPERATIONS (NET OPERATING INCOME) (NOI) PROFIT FROM EXTRAORDINARY TRANSACTIONS (PEXT) PROFIT FROM SECURITY TRANNSACTIONS (PST) ALM bsenver@superonline.

BANKING RISKS ALM bsenver@superonline.com 36 .

com 37 .BANKING RISKS •C AMEL • • • • A M E L ALM bsenver@superonline.

CAMEL • Capital Adequacy ALM bsenver@superonline.com 38 .

C AMEL • Asset Quality ALM bsenver@superonline.com 39 .

com 40 .CA MEL • Management Quality ALM bsenver@superonline.

com 41 .CAM EL • Earnings Efficiency ALM bsenver@superonline.

CAME L • Liquidity Risk ALM bsenver@superonline.com 42 .

com 43 .CAMEL RISKS • Capital Adequacy • Asset Quality • Management • Earnings • Liquidity ALM bsenver@superonline.

2.3.5. Credit Risk 7.BANKING RISKS • • • • • • 1. Interest Rate Risk 8.com 44 .CAMEL 6. Interest Rate Sensitivity Risk 9. Foreign Exchange Availability Risk 10. F/X Position Risk ALM bsenver@superonline.4.

com 45 . Capital Market Operations Risk 14. Accounting & Reporting Risk 12.BANKING RISKS • • • • • • • 11. Country (Sovereign) Risk 16. Market Risk ALM bsenver@superonline. Pricing Risk 17. Computer Risk 13. Money Market Operations Risk 15.

BANKING RISKS • • • • • • • 18. Theft Risk 19. Natural Disasters 21. Fraud & Defalcations Risk 20. Transaction Risk 24.com 46 . Regulatory/Compliance ALM bsenver@superonline. Strategic Risk 22. Fiduciary Risk 23.

BANKING RISKS • 25.com 47 . Reputation Risk • 26. Large Loans/Deposits Risk • 27. Concentration Risk ALM bsenver@superonline.

com 48 .RATIO ANALYSIS Numerator ______________________ Denominator ALM bsenver@superonline.

com 49 .RATIO ANALYSIS • Balance Sheet __________________ Balance Sheet • Income Statement ________________ Balance Sheet ALM bsenver@superonline.

RATIO ANALYSIS • What is the • What is the • LEVEL ? • TREND ? ALM bsenver@superonline.com 50 .

com 51 .RATIO ANALYSIS • • • • • 1. Capital Adequacy 2. Management 4. Earnings & Efficiency 5. Liquidity ALM bsenver@superonline. Asset Quality 3.

RATIO ANALISIS CAPITAL ADEQUACY • “The Capital of a Bank protects the Bank against unexpected future losses.” ALM bsenver@superonline.com 52 .

• • Shareholders’ Equity -----------------------------------Total Assets • The ability of the present Capital to support the further growth of Assets ALM bsenver@superonline.com 53 .RATIO ANALYSIS CAPITAL ADEQUACY • 1.

com 54 . • • Shareholders’ Equity -----------------------------------Risk Weighted Assets ALM bsenver@superonline.RATIO ANALYSIS CAPITAL ADEQUACY • 2.

com 55 . • • Shareholders’ Equity -----------------------------------Risk Weighted Assets + RW Contingent Liabilities ALM bsenver@superonline.RATIO ANALYSIS CAPITAL ADEQUACY • 3.

• • Total Debt -----------------------------------Shareholder’s Equity • The ability to raise additional Debt Capital ALM bsenver@superonline.RATIO ANALYSIS CAPITAL ADEQUACY • 4.com 56 .

Financial Leverage : • • Total Assets -----------------------------------Shareholder’s Equity ALM bsenver@superonline.RATIO ANALYSIS CAPITAL ADEQUACY • 5.com 57 .

Dividends to be paid • The internal growth of Equity Capital ALM bsenver@superonline.RATIO ANALYSIS CAPITAL ADEQUACY • 6. Capital Formation Rate : • Retained Net Income (RNI) -------------------------------------------------• Average Shareholder’s Equity • RNI = Net Income .com 58 .

RATIO ANALISIS ASSET QUALITY • 1.com 59 . • • Loans -------------------------------Total Assets ALM bsenver@superonline.

Non Performing Loans = • a) Loans past due more than 90 days • b) Loans not accruing interest • c) Loans with low interest rates • d) Loans on which repayment terms have been renegotiated.com 60 .RATIO ANALISIS ASSET QUALITY • 2. • ALM bsenver@superonline.

com 61 . ALM bsenver@superonline. • Non Performing Loans ------------------------------------Total Loans • Indicates how much of the loan portfolio is non performing.RATIO ANALISIS ASSET QUALITY • 3.

com 62 .RATIO ANALISIS ASSET QUALITY • 4. ALM bsenver@superonline. Reserves for Non Performing Loans ---------------------------------------------• Non Performing Loans • Indicates the ability of the loan loss reserve to absorb potential losses from currently non performing loans.

• Loan Loss Provision ------------------------------------Average Loans • Shows current income reduction in anticipation of loan losses.com 63 . ALM bsenver@superonline.RATIO ANALISIS ASSET QUALITY • 5.

Offs ------------------------------------Average Loans • Shows current income reduction in anticipation of loan losses.com 64 .RATIO ANALISIS ASSET QUALITY • 6. • Net Charge . ALM bsenver@superonline.

• • Interest Earning Assets ------------------------------------------------Total Assets ALM bsenver@superonline.com 65 .RATIO ANALISIS ASSET QUALITY • 7.

• • Non Interest Earning Assets ------------------------------------------------Total Assets ALM bsenver@superonline.com 66 .RATIO ANALISIS ASSET QUALITY • 8.

com 67 .RATIO ANALISIS EARNINGS & EFFICIENCY • “A Bank with no profit is like a human body with no blood.” ALM bsenver@superonline.

Finance internal growth of capital • 3.THE PRIMACY OF EARNINGS • A bank can not sustain itself long without a positive cash flow.Absorb loan losses • 2.com 68 . • Earnings are essential to : • 1.Attract investors to supply capital ALM bsenver@superonline.

RATIO ANALISIS EARNINGS & EFFICIENCY • 1. Return on Assets ( ROA ) • • Net Income -------------------------------------------Total Average Assets ALM bsenver@superonline.com 69 .

RATIO ANALISIS EARNINGS & EFFICIENCY
• 2. Return on Equity ( ROE )

Net Income -------------------------------------------Average Shareholder’s Equity
ALM bsenver@superonline.com 70

RATIO ANALISIS EARNINGS & EFFICIENCY
• 3. Return on Equity ( ROE )
• ROE = ROA * Equity Multiplier

• ROE = ( NI / AST ) * ( AST / SHEQ )

ALM bsenver@superonline.com

71

RATIO ANALISIS EARNINGS & EFFICIENCY
• 4.

Interest Income -------------------------------------------Average Interest Earning Assets
ALM bsenver@superonline.com 72

• • Net Interest Income -------------------------------------------Average Total Assets ALM bsenver@superonline.com 73 .RATIO ANALISIS EARNINGS & EFFICIENCY • 5.

RATIO ANALISIS EARNINGS & EFFICIENCY • 6.com 74 . • • Interest Income on Loans -------------------------------------------Average Total Loans ALM bsenver@superonline.

RATIO ANALISIS EARNINGS & EFFICIENCY • 7.com 75 . • Total Operating Expense ------------------------------------------------• Total Operating Income ALM bsenver@superonline.

Efficiency Ratio • Non Interest Expense ---------------------------------------------------• Net Interest Income + Fees Commissions ALM bsenver@superonline.com 76 .RATIO ANALISIS EARNINGS & EFFICIENCY • 8.

com 77 .RATIO ANALISIS EARNINGS & EFFICIENCY • 9. Break Even Ratio • Total Expenses .Non Interest Income ---------------------------------------------------• Total Average Interest Earning Assets ALM bsenver@superonline.

com 78 .RATIO ANALISIS EARNINGS & EFFICIENCY • 10.Non Earning Assets -------------------------------------------------• Interest Earning Assets ALM bsenver@superonline. Net Free Funds Ratio • Non Paying Liabilities .

Interest Rate Sensitivity Gap : • Interest Rate Sensitive Assets ( minus ) • Interest Rate Sensitive Liabilities • Shows the net amount to be effected by the future change of interest rates in the market ALM bsenver@superonline.com 79 .RATIO ANALISIS EARNINGS & EFFICIENCY • 11.

Interest Rate Sensitivity Gap Ratio : • • Interest Rate Sensitive Assets ------------------------------------------------Interest Rate Sensitive Liabilities ALM bsenver@superonline.com 80 .RATIO ANALISIS EARNINGS & EFFICIENCY • 12.

RATIO ANALYSIS LIQUIDITY • “Inadequate Liquidity of a Bank may cause an accident similar to an airplane crash !” ALM bsenver@superonline.com 81 .

RATIO ANALISIS LIQUIDITY • 1. • • Loans ------------------------Deposits ALM bsenver@superonline.com 82 .

RATIO ANALISIS LIQUIDITY • 2. • • Liquid Assets ------------------------Deposits ALM bsenver@superonline.com 83 .

RATIO ANALISIS LIQUIDITY • 3. • • Liquid Assets -------------------------------Deposits + Borrowings ALM bsenver@superonline.com 84 .

RATIO ANALISIS LIQUIDITY • 4. • • Assets Due for the Period ----------------------------------------Liabilities Due for the Period ALM bsenver@superonline.com 85 .

ALM bsenver@superonline.RATIO ANALISIS LIQUIDITY • 5. • Measures the extent to which net earning assets would be effected by the loss of a bank’s large liabilities. Net Large Liabilities ----------------------------------------• Net Earning Assets • Both numerator & denominator are net of short-term assets.com 86 .

ALM bsenver@superonline. • Liquid Assets ----------------------------------------Large Liabilities • Measures the assets readily available to cover a loss of large liabilities.com 87 .RATIO ANALISIS LIQUIDITY • 6.

• Core Deposits ----------------------------------------Earning Assets • Indicates the extend to which earning assets are funded by those deposits considered stable and not subject to interest rate disintermediation.com 88 .RATIO ANALISIS LIQUIDITY • 7. ALM bsenver@superonline.

• Brokered Deposits ----------------------------------------Earning Assets • Measures the extent to which a bank is funding assets with high-priced and volatile brokered deposits.com 89 .RATIO ANALISIS LIQUIDITY • 8. ALM bsenver@superonline.

com .MATURITY ANALISIS Days Cash Loans 0-10 100 200 300 Deposit 400 Borrow 150 550 10-30 200 500 700 300 200 500 30-60 300 200 500 800 200 1000 60-90 50 100 150 20 30 50 90 ALM bsenver@superonline.

-200 Long + 1300 91 .MATURITY ANALYSIS Days Asset Liab 0-10 100 300 10-30 500 200 30-60 1000 1500 -500 +300 ALM bsenver@superonline.com 60-90 2000 700 Short .

OFF . ALM bsenver@superonline. • Loan Commitments ----------------------------------------Average Assets • Shows the extent of a bank’s obligation to make loans.BALANCE SHEET RISK • 1.com 92 .

BALANCE SHEET RISK • 2. ALM bsenver@superonline.OFF .Contingent Liabilities & Commitments ---------------------------------------------------• Average Assets • Shows the extent of a bank’s commitments & contingent liabilities.com 93 .

ALM bsenver@superonline. due dates.... RISKS I manage Liabilities % rates.com 94 . due dates.I manage Assets! % rates..

com 95 .ASSET & LIABILITY MATCH ALM bsenver@superonline.

A & L Match
• • • • • • Amounts Currency Due Dates Interest Rates Interest Sensitivity Volatility
96

ALM bsenver@superonline.com

Foreign Exchange Position
• USA $ Short Position • $Liabilities>$Assets

• USA $ Long Position • $Assets>$Liabilities
ALM bsenver@superonline.com 97

F/X Position Strategy
Increasing F/X Rates Long Position
YES NO

Decreasing F/X Rates

Short Position
NO
ALM bsenver@superonline.com

YES
98

ALM bsenver@superonline.Interest Rate Sensitivity • Interest Rate Sensitive Assets/Liabilities • IRSA/L are such assets and Liabilities whose interest rates will change before their due dates when there is a change in market interest rates.com 99 .

Interest Rate Sensitivity Interest Rate Sensitive Assets & Liabilities Interest Rate Non-Sensitive Assets & Liabilities VARIABLE RATES FIXED RATES ALM bsenver@superonline.com 100 .

com 101 .Interest Rate Sensitivity Gap • Positive Gap • IRSA>IRSL • IRS GAP = • (IRSA – IRSL) • Negative Gap • IRSL>IRSA ALM bsenver@superonline.

com YES 102 .Interest Rate Sensitivity Strategy Interest Rates Will Increase Positive IRS GAP Negative IRS GAP Interest Rates Will Decrease YES NO NO ALM bsenver@superonline.

com 103 .INTEREST MARGIN INCREASING THE INTEREST MARGIN % ALM bsenver@superonline.

com 104 ..200 • Interest Expense…………( 50 ) ---------• INTEREST MARGIN…. 150 ---------- ALM bsenver@superonline.INCREASING INTEREST MARGIN • Interest Income…………..

com time 105 .$ interest income + net interest income net interest income interest expense - ALM bsenver@superonline.

INCREASING THE INTEREST MARGIN BANK STRATEGY TO INCREASE THE INTEREST MARGIN INCREASE SIZE CHANGE INTEREST SPREAD ALTER ASSET/LIABILITY MIX ALM bsenver@superonline.com 106 .

Expand Assets • 2.INCREASING THE INTEREST MARGIN • BANK STRATEGY • ACTION • 1.Increase Equity Base • Increase Size ALM bsenver@superonline.com 107 .Reduce Fixed Assets • 3.

Re-Price Asset Portfolio • 2.com 108 .INCREASE THE INTEREST MARGIN • BANK STRATEGY • ACTION • 1.Re-Price Liability Portfolio • Change Interest Spread ALM bsenver@superonline.

Plan Taxes 2.Increase Aggressiveness • 4.com .Change Liability Cost Sensitivity 109 • Alter Asset / Liability Mix ALM bsenver@superonline.INCREASE THE INTEREST MARGIN • BANK STRATEGY • • • • ACTION 1.Change Asset Yield Sensitivity • 5.Reduce Liquidity 3.

Open new Branches • 3.Offer new Products and Services • 2.Expand Promotion Budget • 4.com .INCREASE THE INTEREST MARGIN • BANK STRATEGY Increase Size • ACTION Expand Assets • IMPLEMENTATION • 1.New Loans/Deposits • 2.Reduce Interest Spread 110 ALM bsenver@superonline.

Need for Capital • 3.EXPAND ASSETS • REPERCUSSION • 1.Increase operating Expenses • 2.Reduce ROA • IMPLEMENTATION • 1.Open new Branches • 4.Reduce Interest Spread 111 ALM bsenver@superonline.F/A Regulations • 4.New Loans/Deposits • 3.Decrease Capital Ratio • 5.com .Offer new Products and Services • 2.Expand Promotion Budget • 5.

Reduce Dividend pay out • 2.com .Establish Employee Stock Ownership PL 112 ALM bsenver@superonline.INCREASE THE INTEREST MARGIN • BANK STRATEGY Increase Size • ACTION Increase Equity Base • IMPLEMENTATION • 1.Sell Stock • 4.Offer Dividend reinvestment • 3.

INCREASE EQUITY BASE
• REPERCUSSIONS • 1.Hurt shareholders • 2.Double taxation S/H 3.Reduce ability to leverage ROA, dilution of earnings • 4.Continued Employee Expectations • IMPLEMENTATION • 1.Reduce Dividend pay out • 2.Offer Dividend reinvestment • 3.Sell Stock • 4.Establish Employee Stock Ownership PL
113

ALM bsenver@superonline.com

INCREASE INTEREST MARGIN
• BANK STRATEGY Change Interest Spread • ACTION Re-price Portfolio

• IMPLEMENTATION • 1.Increase rates on Loans • 2.Compound return more frequently • 3.Reduce rates on Deposits • 4.Compound cost less frequently
114

ALM bsenver@superonline.com

REPRICE PORTFOLIO
• REPERCUSSIONS • 1.Lose business Loan quality decrease • 2.Increase operations Client dissatisfaction • 3.Lose business Liquidity problem • 4.Increase operations Client dissatisfaction • IMPLEMENTATION • 1.Increase rates on Loans • 2.Compound return more frequently • 3.Reduce rates on Deposits • 4.Compound cost less frequently
115

ALM bsenver@superonline.com

Minimize cash • 2.com .Increase short term Deposits 116 • ACTION • Reduce Liquidity ALM bsenver@superonline.INCREASE INTEREST MARGIN • IMPLEMENTATION • BANK STRATEGY • Alter Asset/Liability Mix • 1.Minimize due from • 3.Sell Securities & Bonds • 4.

com .Increase volatility of deposits ALM bsenver@superonline.Sell Securities & Bonds • 4.Liquidity Risk • 2.Lose correspondent • 3.Minimize cash • 2.REDUCE LIQUIDITY • REPERCUSSION • 1.Incur book losses • IMPLEMENTATION • 1.Minimize due from • 3.Increase short term Deposits 117 • 4.

com 118 .Increase highest yielding loans • 3.Increase loan/deposit ratio • 2.Increase highest yielding securities • ACTION • Increase Aggressiveness ALM bsenver@superonline.INCREASE INTEREST MARGIN • BANK STRATEGY • Alter Asset/Liability Mix • IMPLEMENTATION • 1.

Increase security losses • IMPLEMENTATION • 1.com 119 .Increase loan/deposit ratio • 2.Increase need for capital • 2.Increase highest yielding loans • 3.Increase loan losses • 3.Increase highest yielding securities ALM bsenver@superonline.INCREASE AGGRESSIVENESS • REPERCUSSION • 1.

Decrease S/T & variable rate assets if rates will decrease • ACTION • Change Asset Yield Sensitivity ALM bsenver@superonline.Increase S/T & variable rate assets if rates will increase • 2.INCREASE INTEREST MARGIN • BANK STRATEGY • Alter Asset/Liability Mix • IMPLEMENTATION • 1.com 120 .

Increase S/T & variable rate assets if rates will increase • 2.CHANGE ASSET YIELD SENSITIVITY • REPERCUSSION • 1. thereby reducing interest spread • IMPLEMENTATION • 1.Decrease S/T & variable rate assets if rates will decrease ALM bsenver@superonline.Wrong estimate of interest movement.com 121 .

Increase S/T & variable rate liabilities if rates will decrease • ACTION • Change Liability Cost Sensitivity ALM bsenver@superonline.INCREASE INTEREST MARGIN • BANK STRATEGY • Alter Asset/Liability Mix • IMPLEMENTATION • 1.com 122 .Decrease S/T & variable rate liabilities if rates will increase • 2.

com 123 .Decrease S/T & variable rate liabilities if rates will increase • 2.Wrong estimate of interest movement. thereby reducing interest spread • IMPLEMENTATION • 1.CHANGE LIABILITY COST SENSITIVITY • REPERCUSSION • 1.Increase S/T & variable rate liabilities if rates will decrease ALM bsenver@superonline.

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