Learn about Asset Liability Management (ALM) and download the ALMP Sample Policy for free, which will make it easy to write your own.
What is Asset Liability Management (ALM)
Alms guides companies in maximizing returns, maximising shareholder value, and increasing equity. It also speaks on implementing strategies that serve its customers needs. Last, but certainly not least, it aims at protecting an organization from catastrophic financial consequences which can result from changes in interest rates.
The ALMP includes a broad range of management for various risks. These include liquidity risk and financing, managing credit risks, as well as market risks.
It also covers investing, interest rate management and modeling, as well as asset allocation strategies. It covers profitability and productivity, income taxes, dividends, and capital, among other major areas. Effective asset management is achievable only through employment of a policy that is so professionally framed.
Why is there Need for an ALMP
This is important to oversee by a Board of Directors. In short, this policy is designed to produce strong operational results by managing funds in a dynamic, smart manner. As such, it includes: (1) a description of ALMSs responsibilities and authorities; (2) an identification of various risks facing the enterprise; (3) guidance for complying with all applicable legislative and regulatory requirements; and (4) the coordination of the institutions financial position risk management functions. Your firm needs an ALMP to manage its financial risks in an intelligent manner.
The example document covers the company’s balance sheet management strategy. It is focused on attaining solvency, long-term growth, as well as profitability.
To do so, it includes a multiplicity of risk management responsibilities and activities. These include managing a variety of trade risks, covering interest rates, liquidity, markets, and operational risks. The setting of strategic goals and objectives over medium to long-terms is also a part of this planning.
The example provides an initial look at what such policies are actually like. It covers, in great detail, all areas that are managed by the Asset Liability Committee (ALCO). You can see that by looking at the topics covered in the sample.
Topics Covered in the ALM Policy Sample:
The significance of the Policy. The reasons for having this type of policy. The responsibility of the ALCO, including its meetings and reporting requirements. Primary objectives, including performance, solvency, and capital adequacy. Fund and liquidity management, including liquidity risks, changing demographics, liquidity exposure, financing, and investing.
Interest rate risk management, covering gaps management, modeling, and asset allocation strategies. Credit risk management, including credit policy objectives, lending processes, risk diversification, pricing for risk, and accounting for troubled loans. Market risk, covering trading risks and foreign currency risks. Preparation and revision of the annual budget. Application of cost-management strategies designed to produce desired performance.
Targeted profitability rates, including returns on assets, returns on capital, and net interest margins. Capital-to-risk-weighted balance sheet weightings for assets. Compliance with laws and regulations that govern businesses.
Download the free asset liability management policy sample
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