ASSET-LIABILITY MANAGEMENT AT STANDARD CHARTERED BANK

Darshana Pratap (09MBA016) Chandni Mariann Thomas (09MBA015)

Standard Chartered Bank
‡ The Standard Chartered Group is an international banking and financial services group particularly focused on the markets of Asia, Africa and the Middle East ‡ Indian branch operations are conducted in accordance with the banking license granted by the Reserve Bank of India

each of which is controlled by a designated risk type owner (RTO). have responsibility for establishing minimum standards and for implementing governance and assurance processes. who are all approved persons under the FSA regulatory framework. The RTOs. The RTOs report up through specialist risk committees to the GRC or GALCO.Risk Management Framework of SCB ‡ The Group s Risk Management Framework (RMF) identifies the risk types to which the Group is exposed. . The major risk types are described individually in the sections below.

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policies relating to balance sheet management. capital adequacy and structural foreign exchange rate risk. and compliance with.‡ The Group Asset and Liability Committee (GALCO). is responsible for the management of capital ratios and the establishment of. ‡ The Group Pensions Executive Committee. through its authority delegated by the court. is responsible for the management of pension risk. . including management of the Group s liquidity. through its authority delegated by the court.

country risk. market risk. policies relating to credit risk. is responsible for the management of all other risks. . including the establishment of. through its authority delegated by the court. ‡ The GRC is chaired by the Group chief risk officer (GCRO). and compliance with. regulatory risk and reputational risk. The GRC is also responsible for defining the Group s overall risk management framework. The GALCO is chaired by the Group finance director.‡ The Group Risk Committee (GRC). operational risk.

liquidity and capital adequacy. whose members are all non-executive directors of the Company. . The ARC receives regular reports on risk management. reviews specific risk areas and monitors the activities of the GRC and GALCO. and is authorized to investigate or seek any information relating to an activity within its terms of reference. policies and standards. adherence with internal controls.‡ The Audit and Risk Committee (ARC). regulatory compliance. including the Group s portfolio trends.

.‡ Risk limits and risk exposure approval authority frameworks are set by the GRC in respect of credit risk. country risk and market risk. The GALCO sets the approval authority framework in respect of liquidity risk. Risk approval authorities may be exercised by risk committees or authorized individuals.

‡ The Liquidity Management Committee (LMC) receives authority from the GALCO and is responsible for setting liquidity limits and proposing liquidity risk policies and practices.‡ Liquidity risk management policy is approved by GALCO (Group Asset and Liability Committee). .

their volumes. yields and costs in order to maintain liquidity ‡ Asset Liability management (ALM) is a strategic management tool to manage interest rate risk and liquidity risk faced by banks . mixes. Organizing & Controlling of Assets & Liabilities.Asset Liability Management ‡ ALM is a practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank ‡ It is a dynamic process of Planning. maturities.

‡ The main objective of ALM is to manage Net interest margin. ‡ The net difference between interest earning assets (loans) and interest paying liabilities (deposits) to produce consistent growth in the loan portfolio and shareholder earnings. ‡ Net interest income = (interest revenue interest expense) . regardless of short-term movement in interest rates.

.Liquidity Risk ‡ Liquidity risk is the risk that the bank do not have sufficient financial resources available to meet all their obligations and commitments as they fall due. or can only access these financial resources at excessive cost.

Liquidity Risk Policy at SCB ‡ To maintain adequate liquidity at all times. and hence to be in a position to meet all obligations as they fall due. ‡ Medium-term. . customer deposits and wholesale funding where ever required. the focus is on ensuring that the cash flow demands can be met through asset maturities. in all geographic locations and for all currencies. the focus is on ensuring the balance sheet remains structurally sound. ‡ Short-term.

.Liquidity Management ‡ The GALCO is the responsible governing body that approves the liquidity management policies. ‡ The Liquidity Management Committee (LMC) receives authority from the GALCO and is responsible for setting liquidity limits and proposing liquidity risk policies and practices.

. able to meet all its obligations to make payments as they fall due.‡ Liquidity in each country is managed by the Country ALCO within the pre-defined liquidity limits set by the LMC and in compliance with Group liquidity policies and local regulatory requirements. and operates within the local regulations and liquidity limits set for the country. ‡ Each ALCO is responsible for ensuring that the country is self-sufficient.

There are limits on: ‡ The mismatch in local and foreign currency behavioural cash flows ‡ The level of wholesale borrowing to ensure that the size of this funding is proportionate to the local market and our local operations .Policy and Procedure Liquidity risk management framework requires limits to be set for prudent liquidity management.

‡ Commitments. both on and off balance sheet. to ensure there are sufficient funds available in the event of drawdown on these commitments ‡ The advances to deposits ratio to ensure that commercial advances are funded by stable sources and that customer lending is funded by customer deposits ‡ The amount of medium-term funding to support the asset portfolio ‡ The amount of local currency funding sourced from foreign currency sources .

Committee Structure .

‡ The ALCO also reviews balance sheet plans to ensure that projected asset growth is matched by growth in the stable funding base. It is overseen by the country Asset and Liability Committee (ALCO). with the active support and guidance from Group ALCO ‡ The Asset and Liability Committee (ALCO) in each country monitors trends in the balance sheet and ensures that any concerns that might impact the stability of these deposits are addressed effectively. . capital is maintained on the basis of the local regulator's requirements. capital and liquidity. which is responsible for managing the country balance sheet.‡ At country level.

it will have to develop a view on future direction of interest rate movements and decide on a funding mix between fixed vs floating rate funds. the ALCO should review the results of and progress in implementation of the decisions made in the previous meetings. Towards this end. desired maturity profile of the incremental assets and liabilities. wholesale vs retail deposits. ‡ The business and risk management strategy of the bank should ensure that the bank operates within the limits / parameters set by the Board. money market vs capital market funding. its responsibility would be to decide on source and mix of liabilities or sale of assets. domestic vs foreign currency funding. ‡ In addition to monitoring the risk levels of the bank. etc . for instance. The business issues that an ALCO would consider. etc. In respect of the funding policy.ALCO ‡ The ALCO is a decision making unit responsible for balance sheet planning from risk -return perspective including the strategic management of interest rate and liquidity risks. ‡ The ALCO would also articulate the current interest rate view of the bank and base its decisions for future business strategy on this view. will include product pricing for both deposits and advances.

ii. x. 1 day 2 to 7 days iii. 29 days and up to 3 months vi. Over 3 months and up to 6 months vii. 15 to 28 days v. Over 6 months and up to 1 year viii. Over 1 year and up to 3 years ix. 8 to 14 days iv.Statement of Structural Liquidity All Assets & Liabilities to be reported as per their maturity profile into 8 maturity Buckets: i. Over 3 years and up to 5 years Over 5 years .

Time Maturity Bucket Used By SCB Three months and less Between three months and one year Between one year and five years More than five years .

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