Managing Core Risks in Banking

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MANAGING CORE RISKS IN BANKING:

ASSET-LIABILITY MANAGEMENT (ALM)

BANGLADESH BANK

Asset Liability Management Policy Asset Liability Management (ALM) is an integral part of Bank Management; and so, it is essential to have a structured and systematic process for manage the Balance Sheet. Banks must have a committee comprising of the senior management of the bank to make important decisions related to the Balance Sheet of the Bank. The committee, typically called the Asset Liability Committee (ALCO), should meet atleast once every month to analysis, review and formulate strategy to manage the balance sheet. In every ALCO meeting, the key points of the discussion should be minuted and the action points should be highlighted to better position the bank’s balance sheet. In every ALCO meeting, action points taken in the past ALCO meeting should be reviewed to ensure implementation. Specific functions of ALCO are: 1. To receive and review reports on liquidity risk, market risk and capital management as covered in this report. 2. To identify balance sheet management issues like balance sheet gaps, interest rate gap/profiles etc. that are leading to under-performance. 3. To review deposit-pricing strategy for the local market. 4. Review liquidity contingency plan for the bank.

PART A EXECUTIVE SUMMARY. ....................................................................................................4 PURPOSE/METHODOLOGY/LIMITATIONS/DISCLAIMERS.....................................5 POLICY STATEMENT..........................................................................................................7 ORGANISATIONAL STRUCTURE.....................................................................................8 PROCESS .................................................................................................................................9 1. ALCO AND ALM ................................................................................................................9 2. THE COMMITTEE ..........................................................................................................10 3 KEY AGENDAS ...............................................................................................................10 4 ALCO PAPER ...................................................................................................................10 4.1 COMMENTARY......................................................................................................10 4.2 INTEREST RATE TREND OF THE MARKET .................................................11 4.3 BALANCE SHEET..................................................................................................11 4.4 INDICATORS ..........................................................................................................11 4.5 MATURITY PROFILE...........................................................................................14 4.6 LIQUIDITY TEST...................................................................................................15 4.7 INTEREST RATE PROFILE.................................................................................16 4.8 COMPLIANCE ........................................................................................................16 5. THE ALCO PROCESS ..................................................................................................17 6. ACTION POINTS ...........................................................................................................17 7. IMPLEMENTATION AND REVIEW OF STRATEGIES ........................................17 8. SPECIAL ALCO MEETING.........................................................................................18 9. MARKET RISK ..............................................................................................................18 KEY CONCEPTS...
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