ASSET LIABILITY

MANAGEMENT
(ALM)

B.PRIYANKA
 What Is Asset Liability Management?

Asset Liability Management is the process of managing the

use of assets an cash flow to reduce the firm’s risk of loss from not
paying a liability on time.

Well-managed assets and liabilities increase business

profits.
The AssetLiability Management process is typically
applied to bank loan portfolios and pension plans.

It also involves the economic value of equity

 ALM sits between risk management and strategic
planning.
 It is focused on a long-term perspective rather than
mitigating immediate risks and is a process of
maximising assets to meet complex liabilities that may
increase profitability.
 ALM includes the allocation and management of assets,
equity, interest rate and credit risk management
including risk overlays, and the calibration of company-
wide tools within these risk frameworks for optimisation
and management in the local regulatory and capital
environment.
SCOPE OF ASSET LIABILITY MANAGEMENT:

1. Liquid Risk

2. Interest Rate Risk

3. Capital Markets Risk

4. Currency Risk Management

5. Funding and Capital Management

 LIQUID RISK:
The current and prospective risk arising when the
bank is unable to meet its obligations as they come due
without adversely affecting the bank's financial
conditions.
INTEREST RATES RISK:
The risk of losses resulting from movements in
interest rates and their impact on future cash-flows.
Generally because a bank may have a
disproportionate amount of fixed or variable rates
instruments
CAPITAL MARKETS RISK:
The risk from movements in equity and/or credit on
the balance sheet.
Risk is then mitigated by options, futures, derivative
overlays which may incorporate tactical or strategic
views.
CURRENCY RISK MANAGEMENT:
The risk of losses resulting from movements
exchanges rates.
To the extent that cash-flow assets and liabilities
are denominated in different currencies.
FUNDING AND CAPITAL MANAGEMENT:

As all the mechanism to ensure the maintenance of

adequate capital on a continuous basis.
It is a dynamic and ongoing process considering
both short- and longer-term capital needs and is
coordinated with a bank's overall strategy and planning
cycles.
(usually a prospective time-horizon of 2 years).
 ASSET LIABILITY MANAGEMENT CONCEPT:

 Limits on the maximum size of major asset/ liability categories

 Correlating maturities and terms

 Controlling liquidity position and set limits in terms of ratios and

projected net cash-flows, analyse and test alternative sources of
liquidity

 Controlling interest rate risk and establishing interest rate risk

measurement techniques
• Controlling currency risk
 Controlling the use of derivatives as well as defining
management analysis and expert contribution for
derivative transactions
 Frequency and content for board reporting
 But also practical decision such as :
 Who is responsible for monitoring the ALM position
of the bank
 What tools to use to monitor the ALM framework