By the end of this programme, participants will:
- Gain a clear understanding of the role of Asset and Liability Management (ALM).
- Learn how to assess the liquidity risk associated with bank liabilities.
- Explore the regulations that govern ALM practices.
- Understand how ALM strategies can enhance the bank’s Return on Equity (ROE).
- Develop effective strategies to manage ALM-related risks.
DAY 1
Introduction to ALM
- The distinctive characteristics of the banking industry
- Understanding the structure of a bank’s balance sheet
- How banks generate income
- The various risks banks face
- Regulatory capital and its importance
- Net interest margin (NIM) and its significance
- Evaluating bank performance through return on risk-adjusted capital (RAROC) and economic value added (EVA)
- The behavioral maturity of bank liabilities
- Key regulatory requirements, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
DAY 2
Market Risk in Banking Sector
- Differences between accrual accounting and mark-to-market accounting
- Understanding the trading book vs. the banking book
- Overview of interest rate swaps, FRAs, and cross-currency swaps
- The concept and process of marking to market
- Valuation adjustments: Credit Valuation Adjustment (CVA), Debit Valuation Adjustment (DVA), and Funding Valuation Adjustment (FVA)
- Key measures of price sensitivity: modified duration and basis point value
- Assessing market risk in portfolios using value-at-risk (VaR) and expected shortfall
DAY 3
Interest Rate Risk in the Banking Book (IRRBB)
- Risks to net interest margin
- Gap analysis
Treatment of equity, non-maturity deposits and free funds
- Structural hedging
- Income measures and economic value measures of interest rate risk
- Economic value of equity (EVE) vs Earnings at risk (EAR)
- Basel III IRRBB regulations (Apr/16)
- EBA IRRBB guidelines (Jul/18);Â PRA rules and guidance (Dec/21)
- Implementing the structural hedge
