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ASSET & LIABILITY MANAGEMENT IN COMMERCIAL BANKS

Instructor……Bülent Şenver bsenver@superonline.com

ALM bsenver@superonline.com

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ALM
Assett

Liability

Asset Management
ALM bsenver@superonline.com

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

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”.com 5 . ALM bsenver@superonline.

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

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

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 .

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

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

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

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

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

com .T.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.Kearney PC INTERNET ALM BANKING BANKING bsenver@superonline.

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

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.BALANCE SHEET SHOWS • The Financial Position of a Bank • As at a specific date. • As of Dec. 31.com 19 .

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

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

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

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 .

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

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

com .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.

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 .

com 1000 (700) 300 220 (450) 70 (30) 40 34 .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.

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.com 35 .

BANKING RISKS ALM bsenver@superonline.com 36 .

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

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

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

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

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

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

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

Interest Rate Sensitivity Risk 9. Interest Rate Risk 8.BANKING RISKS • • • • • • 1. Credit Risk 7.2. F/X Position Risk ALM bsenver@superonline.4.5.CAMEL 6. Foreign Exchange Availability Risk 10.3.com 44 .

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

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

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

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

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

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

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

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

RATIO ANALYSIS CAPITAL ADEQUACY • 1. • • 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 • 2. • • Shareholders’ Equity -----------------------------------Risk Weighted Assets ALM bsenver@superonline.com 54 .

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

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

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

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

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

RATIO ANALISIS ASSET QUALITY • 2. 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. • ALM bsenver@superonline.com 60 .

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

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.RATIO ANALISIS ASSET QUALITY • 4.com 62 .

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

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

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

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

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

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

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

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

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RATIO ANALISIS EARNINGS & EFFICIENCY
• 4.

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

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

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

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

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

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

com 79 . 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.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 .

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

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

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

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

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

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

• 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.RATIO ANALISIS LIQUIDITY • 7. ALM bsenver@superonline.com 88 .

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

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.com .

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

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

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

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

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

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

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

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.

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

com 122 .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.Decrease S/T & variable rate liabilities if rates will increase • 2.

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