Asset Liability Management

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Asset Liability Management

The Asset Liability Management (ALM) process is used to manage business and financial objectives of a financial institution by assessing and evaluating portfolio assets and liabilities in an integrated manner.

Asset Liability Management or ALM for short tracks and evaluates changes in bank earnings and shareholder value due to changes in the interest rate environment. It uses a combination of frameworks, metrics and reports to quantify a bank’s exposure to interest rate shifts

It is a continuous process involving the formulation, implementation, review and subsequent revision (if needed) of asset liability management strategies to ensure that sensitivity to interest rate changes are within acceptable risk tolerance levels. ALM addresses interest rate mismatch and liquidity risks through tools such as duration and convexity metrics, maturity bucket gap management and value at risk based concepts such as Earnings at Risk and Market Value of Equity.

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