This document discusses asset liability management (ALM) in banks. It begins with definitions of ALM and describes the objectives of ALM as including efficient capital allocation, product pricing, and profitability and risk management. It outlines the components of an ALM framework including strategic, organizational, operational, and other elements. It also describes the ALM process in banks including data collection, analysis, decision making, and monitoring. Key aspects covered include the ALM committee, models used like gap analysis and duration analysis, the role of ALM under Basel standards, and ALM software options.
This presentations chalks out in detail information about ALM in Indian Bank. It starts with the basics of Balance sheet; applicability of ALM in real life; Evolution and then starts with main topics of ALM like structured statement; Liquidity risk, its management; currency risk and finally ends with Interest Risk management.
Links to Video’s in the ppt
Balance Sheet
http://www.investopedia.com/terms/b/balancesheet.asp
NII/NIM
http://www.investopedia.com/terms/n/netinterestmargin.asp
www.abhijeetdeshmukh.com
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
This presentations chalks out in detail information about ALM in Indian Bank. It starts with the basics of Balance sheet; applicability of ALM in real life; Evolution and then starts with main topics of ALM like structured statement; Liquidity risk, its management; currency risk and finally ends with Interest Risk management.
Links to Video’s in the ppt
Balance Sheet
http://www.investopedia.com/terms/b/balancesheet.asp
NII/NIM
http://www.investopedia.com/terms/n/netinterestmargin.asp
www.abhijeetdeshmukh.com
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
In this article how risk management in banks is an important concept, what type of risks banks faces and how they curb it through risk management model is described
MODULE 3:
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This presentation provides a highlight of the key issues in the management of Market Risk. It touches briefly some of the elements of the Basel 2 Accord with respect to Market Risk
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
Applications and Service Offering - BrochureSohail_farooq
BankingBook Analytics (BBA) specializes in design and development of best practice risk and capital management applications using Machine Learning and advanced statistical techniques.
Our clients include: banks, specialized lending institutions, credit unions, insurance companies and asset managers.
In this article how risk management in banks is an important concept, what type of risks banks faces and how they curb it through risk management model is described
MODULE 3:
Credit Risks Credit Risk Management models - Introduction, Motivation, Funtionality of good credit. Risk Management models- Review of Markowitz’s Portfolio selection theory –Credit Risk Pricing Model – Capital and Rgulation. Risk management of Credit Derivatives.
This presentation provides a highlight of the key issues in the management of Market Risk. It touches briefly some of the elements of the Basel 2 Accord with respect to Market Risk
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
Applications and Service Offering - BrochureSohail_farooq
BankingBook Analytics (BBA) specializes in design and development of best practice risk and capital management applications using Machine Learning and advanced statistical techniques.
Our clients include: banks, specialized lending institutions, credit unions, insurance companies and asset managers.
Risk Dynamics offers a wide range of topics for both quantitative and qualitative profiles in banking and insurance, including topics on modelling in Credit, Market and Operational Risks, as well as Insurance Risks, Risk Appetite and Model Risk Management.
Front-to-back Architectural Re-design for a Global Universal BankCognizant
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Basel II norms are compliance requirements that are followed by banking institutions and Investment management firms. Under these norms, banks are encouraged to identify future risks and maintain a minimum capital. This kind of risk assessment stipulates a comprehensive measure and minimum standard for capital adequacy.
FINANCIAL & CORPORATE COLLATERAL > portfolio // Linda C. ModicaLinda Modica
This short visual presentation contains the design work of Linda C. Modica, a NYC-Metro area art director & graphic designer. Selected published works for GSMI, IMN (Information Management Network) and Black Swan Consulting Group.
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SpringOne Platform 2016
Speaker: Andre Langevin; Consultant, CIBC
In this talk, I will discuss how Geode forms the core of many Wall Street derivative risk solutions. By externalizing risk from trading systems, Geode-based solutions provide cross-product risk management at speeds suitable for automated hedging, while simultaneously eliminating the back office costs associated with traditional trading system based solutions.
everis Marcus Evans FRTB Conference 23Feb17Jonathan Philp
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This was a timely opportunity to catch up with banks and solution partners as we move into the implementation phase of Fundamental Review of the Trading Book (FRTB) programmes. We heard views and case studies across a range of topics including market risk methodology, operating model definition and data and systems architecture design.
Our presentation at the conference focused on the architectural challenges posed by FRTB.
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2. Banking Technology – M.Tech (IT)
Agenda
• ALM basics and objectives
• ALCO and its components
• ALM Models
• ALM and Basel
• ALM processes in banks
3. Banking Technology – M.Tech (IT)
Introduction
Definitions
Asset Liability Management is the process of decision making
to control risks of a system through the dynamic balancing of
assets and liabilities in order to sustain its existence, stability,
and growth .
A risk management technique designed to earn an adequate
return while maintaining a comfortable surplus of assets
beyond liabilities.
4. Banking Technology – M.Tech (IT)
Cycle of flow of Assets and
Liabilities of a bank
Depositors Borrowers/EntitiesBANKDeposit Investment/
Lending
Repayment to the bank(Asset)
Repayment by the bank(Liability)
5. Banking Technology – M.Tech (IT)
Objectives of ALM
• Formulation of critical business processes
• Efficient allocation of Capital
• Developing new products with appropriate pricing
• To maximize profitability
• To maximize Net Interest Income (NII)
• To maximize Net Interest Margin (NIM)
• To maximize Market Value of Equity (MVE)
• To minimize physical cash holding
• To maximize business per employee (BPE)
• To manage the volume, mix, maturity, rate sensitivity, quality and
liquidity of assets and liabilities
7. Banking Technology – M.Tech (IT)
Asset Liability Management Committee
(ALCO)
First step in ALM process is to constitute Asset Liability
Committee (ALCO)
ALCO should have atleast 4 members and a maximum of 8
members consisting of the bank’s senior management from
various departments and the CMD.
ALCO should be responsible for ensuring adherence to the limits
set by the Board as well as for deciding the business strategy of
the bank
8. Banking Technology – M.Tech (IT)
Structure of ALCO
Asset Liability Committee
Chairman/CMD
Asset/Liability
Treasury Department
Credit Department
Planning Department
IT Department
9. Banking Technology – M.Tech (IT)
Functions of ALCO
• Review economic scenario
• Articulate the interest rate view
• Price assets and Liabilities
• Establish investment policy guidelines
• Examine loan portfolio
• Measure liquidity risk, interest rate risk and FOREX risk
• Review performance of the bank
• Involve in budgeting/planning
• Discuss on new products
• Report developments at regular intervals to the MD,
Management Committee and to the Board
10. Banking Technology – M.Tech (IT)
ALM Models
• Gap Analysis Model
• Duration Gap Analysis Model
• Stochastic Programming Models
Gap Analysis Model
GAP Model is useful for Liquidity & Interest Rate Risk Management
Methodology :
• The assets and liabilities are classified into different maturity
buckets.
• For assessing the liquidity of the bank, maturity gap for each
maturity bucket is assessed.
• For assessing the interest rate risk, forecasting of interest rate
fluctuations and classification of assets and liabilities into
sensitive and non-sensitive categories is done.
• Forecasting period depends on Govt. monetary policy, which is
6 months in India.
11. Banking Technology – M.Tech (IT)
ALM Models…
Duration Gap Analysis Model
Duration is a measure of the interest rate sensitivity of assets and
liabilities
Duration =The Weighted Average Maturity of Future Cash Flows -
Average time required to recover the funds committed to an
investment
DGAP is defined as :
D gap = DA-DL* TL
TA
DA
= weighted average duration of assets
DL
= weighted average duration of Liabilities
TL = total liabilities
TA = total assets
12. Banking Technology – M.Tech (IT)
ALM Models…
Duration Gap Analysis Model
Stochastic Programming (SP) Model is useful for supporting
decision making under uncertainty, while taking into account the
probability distributions of uncertain parameters.
SP Model uses Scenario analysis. A scenario is a description of a
possible state of an organization's future environment, considering
possible developments of relevant interdependent factors of the
environment.
13. Banking Technology – M.Tech (IT)
ALM and Basel
Basel Committee on Banking Supervision- Committee of banking
supervisory authorities, established by the Central Bank Governors of
the Group Ten countries
Established in 1975
Consists of senior representatives of bank supervisory authorities and
central banks from Belgium, Canada, France, Germany, Italy, Japan,
Luxembourg, Netherlands, Sweden, Switzerland, United Kingdom and
United States
Basel I prescribed uniform capital adequacy for credit risks – 8% of
commercial assets.
Basel II: capital based on estimated risk on each asset, or asset class,
calculated through “probability of default” and “loss given default”.
14. Banking Technology – M.Tech (IT)
ALM and Basel…
Three pillars of Basel II
• Minimum capital requirements- to address market, credit and
operational risks
• Supervisory review process- to ensure compliance with
regulations, transparency and accountability and address
interest rate risk
• Market discipline through meaningful disclosures
As per Basel II norms and subsequent RBI guidelines Indian Banks will
be required to have analytical systems, models and tools in place for
risk management, measurement and control
15. Banking Technology – M.Tech (IT)
ALM Process
• Data collection
• Consolidation
• Reporting
• Analysis
• Decision-making
• Reviewing
• Feedback
• Monitoring and control
16. Banking Technology – M.Tech (IT)
ALM Process
Br1
TBA
data
Br2
TBA
data
Br3
TBA
data
Br4
TBA
data
ALM
Specific
input
ALM
Specific
input
ALM
Specific
input
ALM
Specific
input
SSL
SIRS
SSDL
A
L
C
O
StatisticalAnalysis
Datawarehousing
ALMDataGeneration
Portfolio
re-alignment
SSL – Strategic Securities Lending
SIRS - Securities information retrieval service
SSDL – Store schema definition language
17. Banking Technology – M.Tech (IT)
ALM Software Models
Package Name: ALMS II
Vendor/Developer : Alltel Information Systems, Little Rock, AR (501) 220-5100
Package Name: BancWare Convergence
Vendor/Developer : SunGard Trading and Risk Systems
Website address: http://www.garp.com/servicesandsoftware/viewapp.asp
Package Name: BASIS for windows
Vendor/Developer : SunGard Trading and Risk Systems
Website address: http://www.cocc.com/news/DCG.htm
Package Name: Silver, Gold Monaco
Vendor/Developer : DollarMark Solutions, Inc. Birmingham, AL (205) 939-3674
Website address:http://www.cocc.com/news/DCG.htm
Package Name: OAP Manager
Vendor/Developer : DPSC Software Inc. Calabasas, CA (800) 825-DPSC
Website address:Not available
18. Banking Technology – M.Tech (IT)
ALM Software Models…
Package Name: ALM for Windows
Vendor/Developer : Financial Technology, Inc. Chicago, IL (800) 541-9537
Website address: http://www.rtg-online.com/company.cgi?cid=2285&from=list
Package Name: A/L Monitor
Vendor/Developer : GRA, Thompson, White & Co. Merriam, KA (913) 677-3383
Website address: Not available
Package Name: Asset Liability Budget Management
Vendor/Developer : Interactive Planning Systems
Website address: http://www.ips-sendero.com/solutions/al/album.htm
Package Name: Asset Liability Management & Advanced Portfolio Monitor
Vendor/Developer : James Baker & Associates
Website address: http://www.jamesbaker.com/software/apm.html
Package Name: PROFITSTAR Levels 1+2, 3
Vendor/Developer : Profitstar Inc.
Website address: http://www.profitstar.com/
