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ASSET & LIABILITY MANAGEMENT IN COMMERCIAL BANKS

ASSET & LIABILITY MANAGEMENT IN COMMERCIAL BANKS. Instructor……B ü lent Ş enver bsenver@superonline.com. ALM. Asse t t. Liability. Asset Management. Liability Management. ASSET & LIABILITY MANAGEMENT (ALM). DEFINITION

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ASSET & LIABILITY MANAGEMENT IN COMMERCIAL BANKS

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  1. ASSET & LIABILITY MANAGEMENT IN COMMERCIAL BANKS Instructor……Bülent Şenver bsenver@superonline.com ALM bsenver@superonline.com

  2. ALM Assett Liability Asset Management Liability Management ALM bsenver@superonline.com

  3. ASSET & LIABILITY MANAGEMENT (ALM) • DEFINITION • ALM is continuously arranging and rearranging the assets and liabilities of the bank without infringing the liquidity and safety of the bank and with the purpose of maximizing the bank’s profits. ALM bsenver@superonline.com

  4. LIQUIDITY • The ability of a bank to fulfill its obligations, and after doing so having enough cash left to do its normal daily banking business. ALM bsenver@superonline.com

  5. SAFETY • The ability of a bank’s “Share Holder’s Equity” (SHI) to absorb the future possible losses that may arise and after doing so having enough SHI left to run the bank and to comply with the minimum “Capital Requirements”. ALM bsenver@superonline.com

  6. Capital protects your bank in rainy days!.. ALM bsenver@superonline.com

  7. ALM DEVELPOMENT ALM bsenver@superonline.com

  8. STILL MORE TO CLIMB Internet PersonalTraining Office Automation Computerization Management Reorganization GAAP SC of Accounts Deregulations ALM bsenver@superonline.com

  9. Yesterday Tomorrow Arena Services Organization & Reporting Data ALM bsenver@superonline.com

  10. NEW DEVOPLEPMENTS • 1. Deregulation of Interest Rates • 2. Deregulation of Foreign Exchange Operations • 3. Changes in Laws and Regulations • 4. Increase in Deposit Interest Rates ALM bsenver@superonline.com

  11. NEW DEVELOPMENTS • 5. Increase in Deposit Interest Rates • 6. Change in Deposit Characteristics • Increase in Term-Deposits • Decrease in Demand-Deposits • Increase in Short Terms ALM bsenver@superonline.com

  12. NEW DEVELOPMENTS • 7. Increase in Personnel Expenses • 8. Increase in Operating Expenses • 9. Increase in Technology Investments • 10. Frequent Changes in Interest Rates • 11. Increase in Share Capital Requirements ALM bsenver@superonline.com

  13. NEW DEVELOPMENTS • 12. Change in Asset Structure • Increase in Government Bonds • Increase in Treasury Bills • Increase in Foreign Exch. Loans • Increase in Short Term Loans • Increase in Non-Performing Loans • Increase in Consumer Loans ALM bsenver@superonline.com

  14. NEW DEVELOPMENTS • 13. Decrease in S/H Equity Growth • 14. Increase in Customer Expectations • 15. New Service Points • Small Branches • ATM and POS • Telephone and Internet Banking • 16. 24 Hours 365 Days Banking ALM bsenver@superonline.com

  15. Evolution of Channels in Banking 1950 1970 1980 1990 2000 SALES FORCE RELATIONSHIP MANAGEMENT SPACE SHARING BRANCH IN-STORE BRANCH FRANCHISE BRANCHES CALL CENTER INBOUND CALL CENTER OUTBOUND REMOTE RELATIONSHIP MANAGEMENT DATABASE MARKETING MAIL DIRECT MAIL SMART CARD CREDIT CARD DEBİT CARD VIDEO KIOSK INTERNET ATM ATM KIOSK TELEPHONE BANKING SCREEN PHONES PC BANKING INTERNET BANKING INTERACTIVE TV ALM bsenver@superonline.com Kaynak: A.T.Kearney

  16. FINANCIAL STATEMENTS • 1. BALANCE SHEET • 2. STATEMENT OF INCOME • 3. STATEMENT OF SHAREHOLDER’S EQUITY • 4. SOURCES & USES OF FUNDS STATEMENT ALM bsenver@superonline.com

  17. Balance Sheet Income Statement Interest Income Liabilities Assets Deposits Loans Interest Bearing Liabilities Interest Expences Interest Earning Assests Debt Treasury Bills Net Interest Income Non-Interest Bearing Liabilities Non-Interest Earning Assests Share Holders’ Equity = Total Assets Total Liabilities ALM bsenver@superonline.com

  18. Balance Sheet Income Statement Interest Income Liabilities Assets Loans 36 Deposits 100 120 Interest Rate Assets = %20 Interest Expence Interest Bearing Liabilities Interest Earning Assests Debt Treasury Bills 9 80 60 Interest Rate Liabilities = %5 Net Interest Income Non-Interest Earning Assests Non-Interest Bearing Liabilities 30 27 35 35 Share Holders’ Equity = Total Assets Total Liabilities ALM bsenver@superonline.com

  19. The Financial Position of a Bank As at a specific date. As of Dec. 31,1998 BALANCE SHEET SHOWS ALM bsenver@superonline.com

  20. 100 = ASSETS = Equals = 100 LIABILITIES + Plus SHAREHOLDER’SEQUITY BALANCE SHEETEQUATION ALM bsenver@superonline.com

  21. ASSET CLASSIFICATION ALM bsenver@superonline.com

  22. LIABILITY CLASSIFICATION ALM bsenver@superonline.com

  23. BALANCE SHEET Assets • Liquid Assets 150 • Loans 400 • Marketable Securities 200 • Investment Securities 50 • Fixed Assets 100 • Accrued Interest 70 • Other Assets 80 • Total Assets 1050 ALM bsenver@superonline.com

  24. BALANCE SHEET Liabilities • Deposits 400 • Bank Borrowings 150 • Accrued Expenses 100 • Other Liabilities 80 • Bonds Issued 70 • Shareholder’s Equity 250 • Total Liabilities & S/HE 1050 ALM bsenver@superonline.com

  25. SHAREHOLDER’S EQUITY • Share Capital 100 • Legal Reserves 30 • Retained Earnings 50 • Revaluation Surplus 20 • Share Premiums 10 • Net Income 40 • Total S/H Equity 250 ALM bsenver@superonline.com

  26. BALANCE SHEETDOES NOT SHOW • Interest Rates • Interest Sensitivity • Due Dates • Foreign Currencybreakdown • Collateral ALM bsenver@superonline.com

  27. The results of operations of a bank. For the period between two dates. For the year endedDec. 31 , 1998 STATEMENT OF INCOMESHOWS ALM bsenver@superonline.com

  28. NET PROFIT ALM bsenver@superonline.com

  29. TOTAL INCOME ALM bsenver@superonline.com

  30. NET INTEREST INCOME ALM bsenver@superonline.com

  31. + - $ interest income net interest income net interest income interestexpense time ALM bsenver@superonline.com

  32. NET INTEREST INCOME ALM bsenver@superonline.com

  33. NET NON-INTEREST INCOME ALM bsenver@superonline.com

  34. STATEMENT OF INCOME • Interest Income 1000 • Interest Expense (700) • Net I.Income 300 • Non Interest Income 220 • Operating Expenses (450) • Pre-Tax Profit 70 • Tax Provision (30) • Net Income 40 ALM bsenver@superonline.com

  35. ANALYSIS OF PROFIT ALM bsenver@superonline.com

  36. BANKING RISKS ALM bsenver@superonline.com

  37. BANKING RISKS • C AMEL • A • M • E • L ALM bsenver@superonline.com

  38. CAMEL • CapitalAdequacy ALM bsenver@superonline.com

  39. CAMEL • AssetQuality ALM bsenver@superonline.com

  40. CAMEL • ManagementQuality ALM bsenver@superonline.com

  41. CAMEL • EarningsEfficiency ALM bsenver@superonline.com

  42. CAMEL • LiquidityRisk ALM bsenver@superonline.com

  43. CAMEL RISKS • Capital Adequacy • Asset Quality • Management • Earnings • Liquidity ALM bsenver@superonline.com

  44. BANKING RISKS • 1.2.3.4.5.CAMEL • 6. Credit Risk • 7. Interest Rate Risk • 8. Interest Rate Sensitivity Risk • 9. Foreign Exchange Availability Risk • 10. F/X Position Risk ALM bsenver@superonline.com

  45. BANKING RISKS • 11. Accounting & Reporting Risk • 12. Computer Risk • 13. Capital Market Operations Risk • 14. Money Market Operations Risk • 15. Country (Sovereign) Risk • 16. Pricing Risk • 17. Market Risk ALM bsenver@superonline.com

  46. BANKING RISKS • 18. Theft Risk • 19. Fraud & Defalcations Risk • 20. Natural Disasters • 21. Strategic Risk • 22. Fiduciary Risk • 23. Transaction Risk • 24. Regulatory/Compliance ALM bsenver@superonline.com

  47. BANKING RISKS • 25. Reputation Risk • 26. Large Loans/Deposits Risk • 27. Concentration Risk ALM bsenver@superonline.com

  48. RATIO ANALYSIS Numerator ______________________ Denominator ALM bsenver@superonline.com

  49. Balance Sheet__________________Balance Sheet Income Statement________________Balance Sheet RATIO ANALYSIS ALM bsenver@superonline.com

  50. What is the LEVEL ? What is the TREND ? RATIO ANALYSIS ALM bsenver@superonline.com

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