Asset-Liability

Management
Presented By, Guided By,
Snehal A. Wadile Dr. Sonali Kale
What is Asset Liability Management?

• Asset/liability management is the process of managing the use of assets and cash flows to
reduce the firm’s risk of loss from not paying a liability on time. Well-managed assets and
liabilities increase business profits.
• The asset/liability management process is typically applied to bank loan portfolios and
pension plans. It also involves the economic value of equity.
Functions of Asset Liability Management

• To evaluate the interest rate structure and compare it with the interest/product pricing of assets
and liabilities
• To scrutinize the loan and investment portfolios which may involve foreign exchange risk and
liquidity risk
• To examine the credit risk and contingency risk which may be created due to
interest/exchange rate fluctuations, the quality of assets and others
• To assess and compare the actual performance with their estimations and to analyze the
reasons for its effect if any on spreads
• To maintain the stability of the short-term profits, long-term earnings and long-term substance
of the bank
Objectives of Asset Liability Management Service

• To coordinate the bank’s portfolios

• To manage the risk of Interest Rate Risk and Currency Risks
• To facilitate bank in maximizing profitability
• To increase the stockholders’ returns in the long run i.e. wealth maximization of shareholders
• To maintain the liquidity of the bank fund Asset-Liability Management Service provides
proper planning to meet liquidity needs and to reduce interest rate risk on the maturities of
assets and liabilities.
Steps of Asset Liability Management Process

The steps of the asset-liability management process:

1.Assess the Entity Risk Objectives

2.Identify Risks

3.Quantify the Level of Risk Exposure

4.Formulate and Implement Strategies to Modify Existing Risk

5.Monitor Risk Exposures and Revise Alm Strategies as Appropriate

Conclusion

• ALM technique aims to manage the volume mix, maturity, rate sensitivity, quality and
liquidity of assets and liabilities as a whole to attain a predetermined acceptable risk .
• In short, ALM helps in enhancing the asset quality, quantifying the risk associated with
assets and liabilities and controlling them. So a proper ALM system must be implemented
in every banks for the effective functioning of a bank which reduces the exposure of risk
chances in banks.