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ICAAP Models, ALM, Interest Rate Simulations for ICAAP, Langkawi

ICAAP Models, ALM & Interest Rate Simulations

This advanced ICAAP modules workshop focuses on issues related to modelling using Interest Rate simulations, Interest Rate Mismatch and Liquidity Risk for Internal Capital Adequacy Assessment.

Starting with a balance sheet model, we quickly introduce tools and traditional models including gap analysis and earnings at risk, stress testing, scenario planning, policy making and simulations, followed by structured analysis required for ICAAP submissions, reporting and recommendations.

We will:

a)    Introduce the framework of ALM target accounts for ALCO, Liquidity, Capital Adequacy and risk reporting purposes

b)    Link the same target accounts with interest rate models

c)     Run the BancOne case to walk through how (a) and (b) work together

d)    Run the Live Kill the Bank simulation to see how decisions around Interest Rate Mismatch, Asset Allocation, Liquidity and Funding pan out over the next 12 months in stable, volatile, upward sloping and downward sloping interest rate environments.

The idea behind the live simulations is to help senior members of the ALCO, Treasury and Risk teams realize the impact of their decisions and choices in real time. Strategies reviewed and discussed during the live simulation include:

a)    Extending Gaps in stable rate environments

b)    Asset choices between treasury paper and commercial assets

c)     Managing Capital Adequacy and Bank P&L

d)    Tracking Liquidity and P&L

Finally the Kill the Bank simulation takes participants through the cycle of running out of capital using only interest rate risk as a tool and then rebuilding the bank and profitability using only Interest Rate Mismatch as a tool.
(All simulations are run on a proprietary Alchemy ALM Model that simulates interest rates, credit defaults, P&L, Balance Sheet, Liquidity and ALM Target Accounts).

ICAAP Models Workshop Learning objectives

At the end of this workshop, participants will be able to:

  1. Understand the capital charge calculation basis for capturing Interest Rate Mismatch Risk for ICAAP.
  2. Work with the primary tools required to measure and manage ALM risk profile of a financial institution.
  3. Measure liquidity and quantify the effectiveness of traditional measurement tools.
  4. Use scenario based methods, stress testing and simulations to highlight ALM and liquidity risk profile for ICAAP.
  5. Develop assumptions for testing Maturity mismatch and liquidity risk for Internal Capital Adequacy Assessment.

About ICAAP Models Workshop location and facilities

This enchanting 4-star picturesque resort is sprawled over 13 acres of land, fronting on one of Langkawi island’s finest beach, Pantai Tengah. Famed for its UNESCO geopark status, a holiday or business conference at Langkawi island promises a host of memorable adventures.

ICAAP Models Workshop Training Level:

Familiarity with basic liquidity concepts, local markets, portfolio management and the Basel II framework. All participants are requested to arrange Laptops with a functional version of Microsoft Excel.

ICAAP Models Workshop Course Outline:

Liquidity and ALM Models:
Overview and introduction.
Key terms and concepts.
The link between ALM and Liquidity.
Basic tools: Duration & Convexity
Basic Reports: Price and Maturity GAP, MVE and NPV analysis, Net Interest Income,
Earnings at risk, Cost to close and Liquidity.

Case Study A – CIR & ALM – Generating Rates and re-pricing products
Building a simple interest rate generator and linking it to the ALM model.
Revaluing loan book and collateral impairment.
Linking ALM inputs with model drivers.
Calibrating CIR for domestic interest rate data.

Introduction to Bank Simulation – ALM Case Study
The BancOne Case.
Case review and discussion.
Lessons Learnt

Bank Simulation I
Continuation of the ALM simulation with dynamic interest and credit environment.
Assessing effectiveness of target account.
Interpreting results and strategies.

Liquidity Management I
Liquidity ratios.
Projecting liquidity needs by product. The enterprise liquidity projection.
Structure, Policies, Tools, Stress tests, ICAAP and Scenario analysis for Liquidity.
Building the contingency funding plan.

ICAAP Applications
Bringing it together, ALM, liquidity & interest rate models for ICAAP.



Facilitator profile
Jawwad Farid is the founder and CEO of Alchemy Technologies, an enterprise risk practice that builds and deploys risk, treasury, ALM, ICAAP, market and credit risk platforms. He is a Fellow Society of Actuaries (Chicago), a MBA from Columbia Business School (New York City) and a computer science graduate. During the last 18 years, he has worked as a consultant in North America, Pakistan and the United Kingdom with a number of blue chip clients including Hartford Life, Aegon, American General, Goldman Sachs, ING, Manu Life, Safeco, Merrill Lynch, Met Life, Sun America, Nationwide, Phoenix Life, Sumitomo Mitsui Bank, Sun Life of Canada, Pacific Life, AllState, Fidelity Investments, Transamerica, Skandia, GE Financial Assurance, Lincoln National, Ohio National, AXA Equitable and Washington Mutual Bank.

Jawwad’s core areas of expertise include Asset/Risk Management, Investments, Product Development and the Financial Services Back Office. Jawwad blends a rare combination of risk management, information systems, international standards, business and product development skill set side by side with his actuarial expertise. His regional client list includes Asian Development Bank, First Gulf Bank, Riyad Bank, Dubai Islamic Bank, Noor Islamic Bank, Dubai Bonds, Deutsche Bank, State Bank of Pakistan, National Bank of Pakistan, Muslim Commercial Bank, Crescent Commercial, MyBank, Dawood Islamic Bank, KASB Bank, United Bank Limited, Pak-Kuwait Investment, Saudi Pak Commercial Bank, ABN AMRO, InvestBank, Invest Capital Markets, State Life Insurance, Dawood Family Takaful, Asia Health Care, Adamjee Insurance, Shell Pakistan, International General Insurance and Securities and Exchange Commission of Pakistan. Jawwad is also a regular contributor to the Learning Corporate Finance portal as well as on the SP Jain platform where he teaches courses on Entrepreneurship, Risk Management and Derivative pricing to executive MBA students in Dubai and Singapore.

Jawwad’s expertise includes:

  • Appointed actuary.
  • ALM, Liquidity Management and ICAAP.
  • Risk based capital, investment and portfolio optimization strategies.
  • Fixed Income, Foreign Exchange and Commodities (Oil) research.
  • Basel II market, credit and operational risk management framework.
  • Probability of Default modeling and Days Past Due analysis.
  • Centralized or distributed Middle & Back office design, review, integration, assessment and deployment for banks, brokerage, mutual funds, and insurance companies.
  • Derivative pricing, application and usage.
  • Valuation of contingent products, benefits and solutions in investments, portfolio management, life insurance, general insurance, finance and risk.
  • Development and conduction of individual and institutional skill development & capacity building programs.

For more details, pricing, registration and multi nomination discounts please contact:

M. Shakila – [email protected]

Leonard[email protected]

Jawwad Farid – [email protected]

623, Block B, Mentari Business Park
Jalan PJS 8/5, Bandar Sunway
46150 Petaling Jaya,
Selangor Darul Ehsan MALAYSIA.

One thought on “ICAAP Models, ALM, Interest Rate Simulations for ICAAP, Langkawi”

  1. Pingback: ICAAP Training Workshops – 3 days – Langkawi, Malaysia, March 2011 | Learning Corporate Finance
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