Asset and Liability Management Introduction

Course details

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.