Asset and Liability Management Introduction Egyptian Banking Institute

In this course, participants will learn the basic elements of bank financial statement analysis and the role and impact of asset/liability management in executing bank strategies and enhancing bank profitability. This course will also cover the time value of money, the risk-return trade-off, liquidity risk, and interest rate risk, as well as the regulatory framework with regard to capital adequacy and Basel II.

Course Description:

In this course, participants will learn the basic elements of bank financial statement analysis and the role and impact of asset/liability management in executing bank strategies and enhancing bank profitability. This course will also cover the time value of money, the risk-return trade-off, liquidity risk, and interest rate risk, as well as the regulatory framework with regard to capital adequacy and Basel II.

Course Objectives:

  • Identify the main characteristics of bank financial statements and describe key bank financial performance ratios
  • Explain Asset/Liability Management (ALM) and its relationship to strategic planning, profit planning, daily bank financial activities and the functions and tasks of the Asset/Liability Committee (ALCO)
  • Explain the basic concepts of time value of money (TVM), risk-return trade-off (RRT) and the valuation of common financial instruments
  • Describe the basic elements of liquidity risk management
  • Explain the basic elements of interest rate risk management
  • Identify the new regulatory environment with regard to capital adequacy and Basel II

Course Outline:

Module 1: The Main Characteristics of Bank Financial Statements

  • The fundamental issues of bank accounting
  • The purpose of financial statement analysis and its limitations
  • Different financial analysis techniques
  • The primary bank financial performance ratios

Module 2: ALM Strategy and Profit Planning

  • The typical organization structure of commercial banks
  • The Asset /Liability Management (ALM) concept and its relationship to the bank’s strategic and profit planning processes
  • The different types of ALM strategies
  • The main role of the Asset/Liability Committee (ALCO) in managing the bank risks
  • The role of ALM in profit maximization,
  • ALCO Frame work

Module 3: The Time Value of Money

  • The relationship of Time Value of Money (TVM) to banking products and activities
  • The Present Value (PV), Future Value (FV), and Discounted Cash Flow (DCF) formulas
  • The PV formula for bond valuation and the effect of interest rate movements on the bond price
  • The basic relationship between risk and return

Module 4: Managing Liquidity Risk

  • The trade-off between maintaining excess amounts of liquidity and lower earnings vs. lower liquidity and higher earnings
  • The link between a liquidity crisis and events that can lead to a bank failure
  • The importance of forecasting the sources and uses of bank funds
  • Balance sheet projections and the estimates of a standard liquidity gap report

Module 5: The Basics of Interest Rate Risk Management

  • Using the GAP analysis process to evaluate bank exposure to interest rate risk
  • The value of having a dynamic versus a static GAP analysis in determining the amount at risk due to interest rate mismatching
  • How bankers forecast and plan for interest rate movements

Module 6: The Regulatory Framework

  • Capital adequacy requirements per Basel II
  • Cost of capital vs. risk
  • Central bank role and monetary policy
  • Central Bank of Egypt liquidity requirements
  • Explain how to prepare the following:
  • Asset and liability maturity ladder report
  • Interest GAP report
  • Controlling ratios (one week, one month)

Assessment Strategy:

  • Participants will be informally assessed on their interaction during sessions and their participation in exercises.

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