Professional Documents
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Asset Liability Management in Banks
Asset Liability Management in Banks
BANKS
Liabilities
Assets
1.
2.
3.
4.
5.
Capital
Reserve & Surplus
Deposits
Borrowings
Other Liabilities
II.
EVOLUTION
It is aimed to stabilize short-term profits, longterm earnings and long-term substance of the
bank. The parameters for stabilizing ALM
system are:
1. Net Interest Income (NII)
2. Net Interest Margin (NIM)
3. Economic Equity Ratio
ABC Approach :
ALM ORGANIZATION
The board should have overall responsibilities and should set the
limit for liquidity, interest rate, foreign exchange and equity
price risk
ALM PROCESS
Risk Parameters
CATEGORIES OF RISK
Risk is the chance or probability of loss
Credit Risk
Market Risk
Operational Risk
or damage
Transaction Risk
/default risk
/counterparty risk
Portfolio risk
/Concentration risk
Settlement risk
Commodity risk
Process risk
Infrastructure risk
Model risk
Human risk
Liquidity risk
LIQUIDITY RISK
STATEMENT OF STRUCTURAL
LIQUIDITY
All Assets & Liabilities to be reported as
per their maturity profile into 8
maturity
Buckets:
i. 1 to 14 days
ii. 15 to 28 days
iii. 29 days and up to 3 months
iv. Over 3 months and up to 6 months
v. Over 6 months and up to 1 year
vi. Over 1 year and up to 3 years
vii. Over 3 years and up to 5 years
viii. Over 5 years
Banks can fix higher tolerance level for other maturity buckets.
Capital
Liab-fixed Int
Liab-floating Int
Others
Total outflow
Investments
Loans-fixed Int
Loans - floating
300
350
50
700
200
50
200
Loans BPLR Linked
100
Others
50
Total Inflow
600
Gap
-100
Cumulative Gap -100
-14.29
Gap % to Total Outflow
200
400
50
650
150
50
150
150
50
550
-100
-200
-15.38
-4.76
-13.64
6.67
-7.69
200
200
450
200
1050
900
100
50
100
200
1350
300
0
28.57
Total
200
2600
3400
300
6500
2500
600
1100
2000
300
6500
0
0
CURRENCY RISK
Yield Curve Risk: The changes are not always parallel but
it could be a twist around a particular tenor and thereby
affecting different maturities differently
GAP ANALYSIS
DURATION ANALYSIS
SIMULATION