Asset-Liability

Management
In Commercial Banks

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 ALM - Introduction

Balance Sheet of a Bank

Liabilities Assets

Capital Cash and Balances at RBI

Reserves and Surplus Balance with banks and money
Deposits at call and short notice
Borrowings Investments
Other Liabilities and Provisions Advances
Contingent Liabilities Fixed Assets
Other Assets
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 WHAT IS ALM?
• An attempt to match:
Assets and Liabilities

• In terms of:
Maturities and Interest Rates Sensitivities

• To minimize:
Interest Rate Risk and Liquidity Risk

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 Asset Liability Management

Asset Liability
Management Management

How Liquid are the How easily can

assets of the Bank the Bank generate
loans from market

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 Asset Liability Management
• ALM is an integral part of the financial management
process of any bank.
• ALM is concerned with strategic balance sheet
management involving risks caused by changes in the
interest rates, exchange rates and the liquidity
position of the bank.

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 Asset Liability Management
• 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

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 Objectives of ALM
• To control the volatility of net interest income
and the net economic value of a bank.
• To control volatility in all targets accounts.
• To control liquidity risk, and
• To ensure an acceptable balance between
profitability and growth rate.

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 Functions of ALM
• Basic function is to guide the management in
establishing optimal match between the
assets and liabilities of the bank in such a way
as to maximize its net income and minimize
the market risk.

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THANK YOU