Asset Liability Management

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                      The Management of banks must base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. The initial focus of the ALM function would be to enforce the risk management discipline viz. managing the business after assessing the risks involved.  The size (number of members) of ALCO would depend on the size of each institution, business mix, and organizational complexity. To ensure the commitment of the Top Management, the CEO/CMD or ED should head the Committee. The Chiefs of Investment, Credit, Funds Management / Treasury (forex and domestic), International Banking, and Economic Research can be members of the Committee. 


                    The scope of the ALM function can be described as follows: · 

Liquidity risk management · 

Management of market risks (including Interest Rate Risk) ·

 Funding and capital planning · 

Profit planning and growth projection · 

Trading risk management 

The guidelines given in this note mainly address Liquidity and Interest Rate risks.   

        

                   In many banks, the brackets determined for the ALM are mainly based on the fixed deposits durations. The mismatch during 1-14 days and 15-28 days should not in any case exceed 20% of the cash outflows in each time bucket. The strategies used for the liquid risk in the organization are maintained or overcome through the Issue of instruments, deposits, and others. The best strategy an organization will come up with is through proprietary trading of the company. Through trading, the company can increase its assets through the increase of investments.


Sources

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