SlideShare utilise les cookies pour améliorer les fonctionnalités et les performances, et également pour vous montrer des publicités pertinentes. Si vous continuez à naviguer sur ce site, vous acceptez l’utilisation de cookies. Consultez nos Conditions d’utilisation et notre Politique de confidentialité.
SlideShare utilise les cookies pour améliorer les fonctionnalités et les performances, et également pour vous montrer des publicités pertinentes. Si vous continuez à naviguer sur ce site, vous acceptez l’utilisation de cookies. Consultez notre Politique de confidentialité et nos Conditions d’utilisation pour en savoir plus.
What is assets & liabilities management?
It is a mechanism to address the risk faced by a bank due to a mismatch
between assets & liabilities either due to liquidity or change in interest
Bank and other financial institutions provide services which expose them to
various kinds of risk like credit risk, interest risk and liquidity risk.
ALM Models enables institutions to measure and monitor risk & provide
suitable strategies for their management.
An effective Asset Liability Management Technique aims to manage the volume, mix, maturity,
rate sensitivity, quality and liquidity of assets and liabilities as a whole so as to attain a
predetermined acceptable risk/reward ratio.
It is aimed to stabilize short-term profits, long-term earnings and long- term substance of the
The parameters for stabilizing ALM system are:
1. Net Interest Income (NII)
2. Net Interest Margin (NIM)
3. Economic Equity Ratio
Globalization of financial markets
Deregulation of interest rates
Diversification of ALM products
Healthy competition in banking sector
Multi-currency Balance Sheet
Integration of markets
Narrowing of NIM/NII
Fixed Assets Capital
Investments Reserve and surplus
Cash & balances with RBI Borrowings
Balances with bank and money at call & short notice other liabilities
When a bank provides the long term loans from much shorter maturity funds, the situation is
called asset-liability mismatch. The consequences of such mismatches are as follows-
1. INTEREST RATE RISK-
Interest rate risk refers to volatility in Net Interest Income (NII) or variations in Net Interest Margin(NIM)
Interest Rate risk is the exposure of a bank’s financial conditions to adverse movements of interest rates
Though this is normal part of banking business, excessive interest rate risk can pose a significant threat to
a bank’s earnings and capital base.
Changes in interest rates also affect the underlying value of the bank’s assets, liabilities and off-balance-
2. LIQUIDITY RISK-
Liquidity risk arises from funding of long term assets by short term liabilities, thus making the liabilities
subject to refinancing
Funding risk arises due to unanticipated withdrawals of the deposits from wholesale or retail clients
Time risk arises when an asset turns into a NPA. So, the expected cash flows are no longer available to the
Call risk Due to crystallisation of contingent liabilities and unable to undertake profitable business
opportunities when available.
3. CURRENCY RISK
The increased capital flows from different nations following deregulation have contributed to increase in the
volume of transactions.
Dealing in different currencies brings opportunities as well as risk.
To prevent this banks have been setting up overnight limits and undertaking active day time trading.
GAP ANALYIS- Basically Assets and Liabilities both are rate sensitive in different degree. It is therefore necessary
to identify the rate sensitivity among different groups of assets and liabilities and match identical groups of
assets with liabilities. In the ALM process, Gap is generally used for quantifying the rate sensitive groups only (as
compared to rate insensitive groups of liabilities like current deposits, float funds etc.)
DURATION METHOD- Under this method, impact of changes in interest rate on the market value of assets and
liabilities is considered. Duration analysis is carried out with respect to cash flows and average maturity.
RISK MANAGEMENT- Under this process, the risk profiles of assets and liabilities are evaluated to ensure that
they are within the acceptable levels of risk. The availability of hedging mechanisms (e.g. derivative instruments)
would facilitate risk management.
VALUE-AT-RISK METHOD- This method is variant of the practice of ‘Market-to Market’ approved securities based
on Yield- to Maturity
ALM INFORMATION SYSTEM- Under the Information system banks are
required to ensure development of information procuring system for
measuring, monitoring, controlling and reporting the risks. The method is
used to analyse the behaviour of assets and liability products to assess in
which way the assets and liability would behave in the business of
ALM ORGANISATION- The ALM Organisation guidelines insist that each
bank at the top management level and Board of Directors should on the
ongoing basis review the situation to ensure appropriate policies and
procedures are adopted and implemented to timely arrest the
ALM PROCESS- The ALM process is meant to create parameters for
managing the risks like, identification of risk, measurement of risk,
management of risk, planning to mitigate the risk etc..
Interest rate movement and outlook,
Pricing of assets and liabilities,
Review of investment portfolio and credit risk management,
Review of investment of foreign exchange operations,
Management of liquidity Risk,
Management of NIM and of balance sheet ratios, and
Formulation of budgets and operational planning.
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 or reward ratio.
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.