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ALM
Assett
Liability
Asset Management
Liability Management
2
LIQUIDITY
The ability of a bank to fulfill its obligations, and after doing so having enough cash left to do its normal daily banking business.
SAFETY
The ability of a banks Share Holders Equity (SHI) to absorb the future possible losses that may arise and after doing so having enough SHI left to run the bank and to comply with the minimum Capital Requirements.
5
ALM DEVELPOMENT
1950s
ASSET MNG. LOAN PRODUCTS
1960s
LIABILITY MNG. DEPOSIT PRODUCTS
1970s
ASSET & LIABILITY MNG. LOAN & DEPOSIT BOTH
7
Internet
Personal Training Office Automation Computerization
Yesterday
Tomorrow
Arena
NEW DEVOPLEPMENTS
1. Deregulation of Interest Rates 2. Deregulation of Foreign Exchange Operations 3. Changes in Laws and Regulations 4. Increase in Deposit Interest Rates
10
NEW DEVELOPMENTS
5. Increase in Deposit Interest Rates 6. Change in Deposit Characteristics Increase in Term-Deposits Decrease in Demand-Deposits Increase in Short Terms
11
NEW DEVELOPMENTS
7. Increase in Personnel Expenses 8. Increase in Operating Expenses 9. Increase in Technology Investments 10. Frequent Changes in Interest Rates 11. Increase in Share Capital Requirements
12
NEW DEVELOPMENTS
12. Change in Asset Structure Increase in Government Bonds Increase in Treasury Bills Increase in Foreign Exch. Loans Increase in Short Term Loans Increase in Non-Performing Loans Increase in Consumer Loans
13
NEW DEVELOPMENTS
13. Decrease in S/H Equity Growth 14. Increase in Customer Expectations 15. New Service Points Small Branches ATM and POS Telephone and Internet Banking 16. 24 Hours 365 Days Banking
14
1950
SALES FORCE
1970
1980
RELATIONSHIP MANAGEMENT
1990
2000
BRANCH
CALL CENTER INBOUND
IN-STORE BRANCH CALL CENTER OUTBOUND DIRECT MAIL CREDIT CARD ATM TELEPHONE BANKING DEBT CARD KIOSK DATABASE MARKETING
SPACE SHARING
FRANCHISE BRANCHES
REMOTE RELATIONSHIP MANAGEMENT
SMART CARD INTERNET ATM SCREEN PHONES INTERNET BANKING INTERACTIVE 15 TV VIDEO KIOSK
Kaynak: A.T.Kearney
PC BANKING
FINANCIAL STATEMENTS
1. BALANCE SHEET 2. STATEMENT OF INCOME 3. STATEMENT OF SHAREHOLDERS EQUITY 4. SOURCES & USES OF FUNDS STATEMENT
16
Balance Sheet
Assets
Loans
Income Statement
Interest Income
Deposits
Liabilities
Interest
Earning Assests
Interest
Bearing Treasury Bills Liabiliti es
Interest Expences
Debt
Total Assets
Total Liabilities
17
Balance Sheet
Assets Loans
100
Interest Earning Assests
Income Statement
Interest Income Deposits
120
Liabilities
36
Interest Expence
Treasury Bills 80
Debt
%20
60
Interest Rate Liabiliti es =
9
Net Interest Income
Non35
Interest Bearing Liabiliti Share Holders Equity es
30 35
27
%5
18
Total Assets
Total Liabilities
19
ASSETS
100
= Equals
= 100
20
ASSET CLASSIFICATION
TOTAL ASSETS
NON INTEREST EARNING ASSETS INTEREST EARNING ASSETS
21
LIABILITY CLASSIFICATION
TOTAL LIABILITIES
INTEREST BEARING LIABILITIES NON INTEREST BEARING LIABILITIES
22
SHAREHOLDERS EQUITY
Share Capital Legal Reserves Retained Earnings Revaluation Surplus Share Premiums Net Income Total S/H Equity 100 30 50 20 10 40 250
25
26
27
NET PROFIT
NET PROFIT
TOTAL INCOME TOTAL EXPENSE
28
TOTAL INCOME
TOTAL INCOME
NET INTEREST INCOME NET NON-INTEREST INCOME
29
interest income
interest expense
time
31
32
STATEMENT OF INCOME
Interest Income Interest Expense Net I.Income Non Interest Income Operating Expenses Pre-Tax Profit Tax Provision Net Income 1000 (700) 300 220 (450) 70 (30) 40
34
ANALYSIS OF PROFIT
NET PROFIT
(NP)
PROFIT FROM BANKING OPERATIONS (NET OPERATING INCOME) (NOI) PROFIT FROM EXTRAORDINARY TRANSACTIONS (PEXT) PROFIT FROM SECURITY TRANNSACTIONS (PST)
35
BANKING RISKS
36
BANKING RISKS
C AMEL
A M E L
37
CAMEL
Capital
Adequacy
38
AMEL
Asset
Quality
39
CA
MEL
Management Quality
40
CAM
EL
Earnings
Efficiency
41
CAME
Liquidity
Risk
42
CAMEL RISKS
Capital Adequacy Asset Quality Management Earnings Liquidity
43
BANKING RISKS
1.2.3.4.5.CAMEL 6. Credit Risk 7. Interest Rate Risk 8. Interest Rate Sensitivity Risk 9. Foreign Exchange Availability Risk 10. F/X Position Risk
44
BANKING RISKS
11. Accounting & Reporting Risk 12. Computer Risk 13. Capital Market Operations Risk 14. Money Market Operations Risk 15. Country (Sovereign) Risk 16. Pricing Risk 17. Market Risk
45
BANKING RISKS
18. Theft Risk 19. Fraud & Defalcations Risk 20. Natural Disasters 21. Strategic Risk 22. Fiduciary Risk 23. Transaction Risk 24. Regulatory/Compliance
46
BANKING RISKS
25. Reputation Risk 26. Large Loans/Deposits Risk 27. Concentration Risk
47
RATIO ANALYSIS
Numerator ______________________ Denominator
48
RATIO ANALYSIS
49
RATIO ANALYSIS
What is the
What is the
LEVEL ?
TREND ?
50
RATIO ANALYSIS
1. Capital Adequacy 2. Asset Quality 3. Management 4. Earnings & Efficiency 5. Liquidity
51
52
The ability of the present Capital to support the further growth of Assets
53
54
57
59
61
63
64
65
66
67
71
Total Expenses - Non Interest Income --------------------------------------------------- Total Average Interest Earning Assets
77
78
80
81
82
83
84
85
87
Indicates the extend to which earning assets are funded by those deposits considered stable and not subject to interest rate disintermediation.
88
Measures the extent to which a bank is funding assets with high-priced and volatile brokered deposits.
89
MATURITY ANALISIS
Days Cash Loans 0-10 100 200 300 Deposit 400 Borrow 150 550 10-30 200 500 700 300 200 500 30-60 300 200 500 800 200 1000 60-90 50 100 150 20 30 50
90
MATURITY ANALYSIS
Days Asset Liab 0-10 100 300 10-30 500 200 30-60 1000 1500 -500 +300 1300
91
I manage
Assets!
% rates, due dates...
RISKS
I manage
Liabilities
% rates, due dates...
94
95
A & L Match
Amounts Currency Due Dates Interest Rates Interest Sensitivity Volatility
96
Short Position
NO YES
98
99
VARIABLE RATES
FIXED RATES
100
YES
NO
NO
YES
102
INTEREST MARGIN
INCREASING THE
INTEREST MARGIN %
103
104
$ interest income
+
time
105
INCREASE SIZE
106
Increase Size
107
108
EXPAND ASSETS
REPERCUSSION 1.Increase operating Expenses 2.Need for Capital 3.F/A Regulations 4.Decrease Capital Ratio 5.Reduce ROA IMPLEMENTATION 1.Offer new Products and Services 2.New Loans/Deposits 3.Open new Branches 4.Expand Promotion Budget 5.Reduce Interest Spread
111
IMPLEMENTATION 1.Reduce Dividend pay out 2.Offer Dividend reinvestment 3.Sell Stock 4.Establish Employee Stock Ownership PL
112
IMPLEMENTATION 1.Increase rates on Loans 2.Compound return more frequently 3.Reduce rates on Deposits 4.Compound cost less frequently
114
REPRICE PORTFOLIO
REPERCUSSIONS 1.Lose business Loan quality decrease 2.Increase operations Client dissatisfaction 3.Lose business Liquidity problem 4.Increase operations Client dissatisfaction IMPLEMENTATION 1.Increase rates on Loans 2.Compound return more frequently 3.Reduce rates on Deposits 4.Compound cost less frequently
115
REDUCE LIQUIDITY
REPERCUSSION
1.Liquidity Risk 2.Lose correspondent 3.Incur book losses
IMPLEMENTATION
1.Minimize cash 2.Minimize due from 3.Sell Securities & Bonds 4.Increase short term Deposits
117
118
INCREASE AGGRESSIVENESS
REPERCUSSION 1.Increase need for capital 2.Increase loan losses
3.Increase security losses
IMPLEMENTATION 1.Increase loan/deposit ratio 2.Increase highest yielding loans 3.Increase highest yielding securities
119
120
121
122
123