Treasury’s Role in the Bank’s ALM Process

10.00%
8.00%
6.00%
4.00%
1 2 3 4 5 6 7 8 9 10 11 12 18 24 36 48 60

Scenario 1: P100M 36 mos Term Loan @ 11.00%

P100M 36 mos Time Deposit @ 4.50%

  Asset Liability Treasury Bank

Loan Rate 11.00%     11.00%

Depo Rate   4.50%   4.50%

TP Liability   8.50% 8.50%  

TP Asset 8.50%   8.50%  

NRFF 2.50% 4.00% 0.00% 6.50%

10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
1 2 3 4 5 6 7 8 9 10 11 12 18 24 36 48 60

Scenario 2: P100M 36 mos Term Loan @ 11.00%

P100M 12 mos Time Deposit @ 4.50%

  Asset Liability Treasury Bank

Loan Rate 11.00%     11.00%

Depo Rate   4.50%   4.50%

TP Liability   7.00% 7.00%  

TP Asset 8.50%   8.50%  

NRFF 2.50% 2.50% 1.50% 6.50%

• How is the Transfer Pool Rate determined:

– The Asset & Liability Management Committee (ALCO) composed of senior officers,
President, Head of Lending, Head of Branches, Head of Risk Management, Head of
Compliance, Chief Finance Officer, and Treasurer, meets on a monthly basis, or weekly,
if needed, to review the current asset and liability mix of the institution.

– In said meeting, the TPR, among others, is determined/agreed for dissemination to all
business units.

– The formula for the TPR is the TD board rate, grossed up to factor the reserve
requirement.

Illustration of determining the TPR:

Assumed Time Deposit Rate: 7.00%

Reserve Requirement : 19.00%

TPR

7.00%

----------

(1 – 19%)

= 8.64 or 8.75%

• In summary:

– Treasury plays an important role in the bank’s asset and liability management to enable
the business units to focus on its mandated tasks: generating funds for branch units and
lending funds for lending units.

– Treasury is the one exposed to market risk and incurs cost either thru interbank
borrowing or unexpected sale of securities to fund unexpected huge deposit
withdrawal or loan drawdowns, or both.