Management of Banks and Financial Institutions
Management of Banks and Financial Institutions
CIA-2
Asset Liability Management
Management of Assets and Liabilities by Banks
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Submitted By:
Paul George 0921420
Caroline 0921440
Poornima 0921449
Sonal 0921454
Anvin 0921459
Meaning of ALM
ALM is an attempt to match Assets and Liabilities, in terms of Maturities and Interest Rate Sensitivities, to minimize Interest Rate Risk and Liquidity Risk.
• ALM can be termed as a risk management technique designed to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities.
• It takes into consideration interest rates, earning power, and degree of willingness to take on debt and hence is also known as Surplus Management
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ALM and NIM
• ALM is all about efficient management of balance sheet dynamics with regard to its size, constituents and quality.
• It is the process of managing the Net Interest Margin (NIM) within the overall risk bearing ability of a bank
• ALM process depends on the understanding of the balance sheet; the availability, accuracy, adequacy and expediency of the data and the MIS system
DEFINITION OF ALM
• ALM is defined as, “the process of decision – making to control risks of existence, stability and growth of a system through the dynamic balances of its assets and liabilities.”
• The text book definition of ALM is “a risk management technique designed to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities. It takes into consideration interest rates, earning power and degree of willingness to take on debt. It is also called surplus- management”.
PURPOSE AND OBJECTIVES OF ALM
➢ Review the interest rate structure and compare the same to the interest/product pricing of both assets and liabilities.
➢ Examine the loan and investment portfolios in the light of
CIA-2
Asset Liability Management
Management of Assets and Liabilities by Banks
[pic]
Submitted By:
Paul George 0921420
Caroline 0921440
Poornima 0921449
Sonal 0921454
Anvin 0921459
Meaning of ALM
ALM is an attempt to match Assets and Liabilities, in terms of Maturities and Interest Rate Sensitivities, to minimize Interest Rate Risk and Liquidity Risk.
• ALM can be termed as a risk management technique designed to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities.
• It takes into consideration interest rates, earning power, and degree of willingness to take on debt and hence is also known as Surplus Management
[pic]
[pic]
[pic]
[pic]
ALM and NIM
• ALM is all about efficient management of balance sheet dynamics with regard to its size, constituents and quality.
• It is the process of managing the Net Interest Margin (NIM) within the overall risk bearing ability of a bank
• ALM process depends on the understanding of the balance sheet; the availability, accuracy, adequacy and expediency of the data and the MIS system
DEFINITION OF ALM
• ALM is defined as, “the process of decision – making to control risks of existence, stability and growth of a system through the dynamic balances of its assets and liabilities.”
• The text book definition of ALM is “a risk management technique designed to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities. It takes into consideration interest rates, earning power and degree of willingness to take on debt. It is also called surplus- management”.
PURPOSE AND OBJECTIVES OF ALM
➢ Review the interest rate structure and compare the same to the interest/product pricing of both assets and liabilities.
➢ Examine the loan and investment portfolios in the light of