assets and liablities management in indian bank
TRANSCRIPT
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A PROJECT REPORT ON
Assets and liabilities management
In
Comparison between two textile companies
CHENNAI
Submitted to
*************** UNIVERSITY
In partial fulfillment of the requirements for the award of the degree of
Master of Business Administration
Submitted by
************
************** COLLEGE
********
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CERTIFICATE
This is to certify that the project report of Assets and liablities management in,
CHENNAI is a bonafide project work done by ****** a full-time student of the
Department Of Management Studies, *******, in partial fulfillment of the
requirements for the award of the degree of Master of Business Administration
during the year **********
Faculty, Guide HOD,
Dept. of Dept. of
Management Studies Management Studies
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ACKNOWLEDGEMENT
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DECLARATION
I hereby declare that the Project entitled Assets and liablities management in
comparision between two textile companies submitted to the
Anna University for the award of the degree of Master of Business Administration
is a record of work done by me. I also declare that this project has not been
previously submitted for the award of any certificate, diploma, and associate ship
or any other similar title.
PLACE: ****
DATE:
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ABSTRACT
This project report deals with asset and liability management followed or handled
by Textile companies. It has been found Textile companies as a major
nationalized textile companies needs to tone up their assets and liability
management to such an extent that their assets always exceeds their liability on
hand.
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INTRODUCTION
Asset-Liability Management matching an individual's level of debt and amount of
assets. Someone who is planning to buy a new car, for instance, would have to
decide whether to pay cash, thus lowering assets, or to take out a loan, thereby
increasing debts (or liabilities). Such decisions should be based on interest rates,
on earning power, and on the comfort level with debt. Financial institutions carry
out assetliability management when they match the maturity of their deposits with
the length of their loan commitments to keep from being adversely affected by
rapid changes in interest rates.
Asset-Liability Management active management of a textile companies's balance
sheet to maintain a mix of loans and deposits consistent with its goals for long-
term growth and risk management. Textile companiess, in the normal course of
business, assume financial risk by making loans at interest rates that differ from
rates paid on deposits. Deposits often have shorter maturities than loans and
adjust to current market rates faster than loans. The result is a balance sheet
mismatch between assets (loans) and liabilities (deposits).
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The function of asset-liability management is to measure and control three levels
of financial risk: interest rate risk (the pricing difference between loans and
deposits), credit risk (the probability of default), and liquidity risk (occurring when
loans and deposits have different maturities).
A primary objective in asset-liability management is managing Net Interest
Margin (NIM) , that is, the net difference between interest earning assets (loans)
and interest paying liabilities (deposits) to produce consistent growth in the loan
portfolio and shareholder earnings, regardless of short-term movement in interest
rates. The dollar difference between assets (loans) maturing or repricing and
liabilities (deposits) is known as the rate sensitivity gap (or maturity gap). Textile
companiess attempt to manage this asset-liability gap by pricing some of their
loans at variable interest rates.
Amore precise measure of interest rate risk is duration , which measures the
impact of changes in interest rates on the expected maturities of both assets and
liabilities. In essence, duration takes the gap report data and converts that
information into present-value worth of deposits and loans, which is more
meaningful in estimating maturities and the probability that either assets or
liabilities will reprice during the period under review. Besides financial institutions,
nonfinancial companies also employ asset-liability management, mainly through
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the use of derivative contracts to minimize their exposures on the liability side of
the balance sheet.
Asset-liability management (ALM) is a term whose meaning has evolved. It is
used in slightly different ways in different contexts. ALM was pioneered by
financial institutions, but corporations now also apply ALM techniques. This
article describes ALM as a general concept, starting with more traditional usage.
Traditionally, textile companiess and insurance companies used accrual
accounting for essentially all their assets and liabilities. They would take on
liabilities, such as deposits, life insurance policies or annuities. They would invest
the proceeds from these liabilities in assets such as loans, bonds or real estate.
All assets and liabilities were held at book value. Doing so disguised possible
risks arising from how the assets and liabilities were structured.
Consider a textile companies that borrows USD 100MM at 3.00% for a year and
lends the same money at 3.20% to a highly-rated borrower for 5 years. For
simplicity, assume interest rates are annually compounded and all interest
accumulates to the maturity of the respective obligations. The net transaction
appears profitablethe textile companies is earning a 20 basis point spread
but it entails considerable risk. At the end of a year, the textile companies will
http://www.riskglossary.com/articles/corporation.htmhttp://www.riskglossary.com/articles/eurodollar_deposit.htmhttp://www.riskglossary.com/articles/coupon_bond.htmhttp://www.riskglossary.com/articles/valuation.htmhttp://www.riskglossary.com/articles/currency_codes.htmhttp://www.riskglossary.com/articles/mm.htmhttp://www.riskglossary.com/articles/compounding.htmhttp://www.riskglossary.com/articles/corporation.htmhttp://www.riskglossary.com/articles/eurodollar_deposit.htmhttp://www.riskglossary.com/articles/coupon_bond.htmhttp://www.riskglossary.com/articles/valuation.htmhttp://www.riskglossary.com/articles/currency_codes.htmhttp://www.riskglossary.com/articles/mm.htmhttp://www.riskglossary.com/articles/compounding.htm -
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have to find new financing for the loan, which will have 4 more years before it
matures. If interest rates have risen, the textile companies may have to pay a
higher rate of interest on the new financing than the fixed 3.20 it is earning on its
loan.
INDUSTRY PROFILE
Industry profile helps to gain an insight into the evolution of the industry and
competitive dynamics prevalent in the market. It discusses the significant
developments in the industry and analyzes the key trends and issues. The profile
provides inputs in strategic business planning of industry professionals.
This profile is of immense help to management consultants, analysts, market
research organizations and corporate advisors.
The objective and scope of various sections of our industry profile has been
discussed below.
Industry Snapshot
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This section gives a holistic overview of the industry. It starts with defining the
market and goes on to give historical and current market size figures. It also
clearly illustrates the major segments of the market which would be discussed
later on in the report.
Industry Analysis
It involves a comprehensive analysis of the industry and its market segments.
This section discusses the key developments that have taken place in the
industry. It also identifies and analyzes the driving factors and challenges of the
industry. A description of the regulatory structure tells us about the major
regulatory bodies, laws and government policies.
Country Analysis
This section presents the key facts & figures of the country. It also discusses the
political environment and the macroeconomic indicators. It analyzes government
stability and economic growth of the country.
Competitor Assessment
This section compares the major competitors in the industry. The Competitors At-
a-Glance is aimed at giving an overview of the competitive landscape in the
industry.
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Scope:
We worked on Ashraf textile mills ltd. & Saiham textilemills ltdfor our report.
Source of Data:
For our report we collect data for finding &analysis. Atfirst we collected the annual report & take financial
statements of two companies. We also collected somedata from the internet.
Methodology:As a rule, we had to follow a particular methodfor collecting data to complete the reportaccurately. At first we make Income Statement,
Balance Sheet & Cash Flow on a excel sheet.Than we analysis the Income Statement & theBalance Sheet using the common sizing &indexing method.
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COMPANIES PROFILE
Introduction:
In our country textile companies are doing very well
business. So many competitors are in this sector. Lotsof new companies entered this market. From all ofthem we choose two cement companies for our report.We collect their financial statement & analyze themwithin three methods & we identify their comparativeadvantage.
Saiham Textile Ltd.Late Syed Sayeed Uddin Ahmed & Begum Hamida Banu, inremembranceof whom, Saiham Textile Mills Limited has derived the name of thecompanies; would have been proud toknow how well their offspring have managed and extendedthe organization. Saiham Textile Mills was set up inNoyapara, Hobiganj district in the year 1982 with an annualcapacity of 7.5 m yards of finished cloth. It was equipped withmodern and sophisticated machineries from Japan. Initially itwas a weaving, dyeing printing and finishing plant. SaihamTextile claims to be the pioneer in introducing the concept ofmodern fabrics inBangladesh.They were one of the first textile mills to start international standard polyester fabric, TC fabric, synthetic andGeorgette sarees with cross border. The mother companies of
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the present conglomerate is now comprised of differentindustrial concerns. The entrepreneurship of Saiham consistsof five directors, all from the same family. Although a companies run andmanaged by relatives, the standard and efficiency
of the management does not compromise on its quality.
Ashraf Textile mills Ltd. Ashraf textile mills ltd is oneof the another companies which is run and managed byrelatives, the standard and efficiency of the managementdoes not compromise on its quality
Findings & Analysis:
According to our report subject our main objective is identifying thedifference between two companies financial statement.
Also we want tofindout which companies is more stable & which is not stable.From the financial statement we can find out our requirements.In below we give our finding & analysis in basis of
companiess financial statement.
Analyze of Income Statement, Balance Sheetbetween two companies:
In below we are going to discuss about the twocompanies balance sheet, Income Statement & Cashflow comparison in a briefly :
Balance Sheet Comparison:Assets:
From the balance sheet of the both companies we canidentify that Ashraf textile had504,741,251
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tk total assets in 2005 but on the other hand Saihamtextile had only425,320,371
that total asset in 2003-2004. Next year Ashraf TextileCompaniess total asset was decreased and Saihamtextile companiess total assets increase and in 2007
Ashraf textile reached in167,726,578that whereas in 2005-2006 Saiham textiles total asset436,650,516tk. For the total asset volume we can say that Saiham
textile has more powerful rather than Ashraf textile.
Liability:The total liability we saw that Ashraf textile had623,823,012liabilities in 2005 & Saiham textile had
152,581,718
only in 2003-2004.Bothcompanies liabilities were alsoincreased in next year. But clearly we can comments thatAshraf textile had least liability than the Saiham textile.However Saiham textile had the more Net asset than theAshraf textile.Share holders equitywe can easily understand that Saiham textile had themore equity and it was
818,663,635tk for 2004-06 & Ashraf textile had-1,123,244,182
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. So we can say that Saiham textile had the moreinvestment in the market
Income Statement Comparison:From our income statement we can identify thatSaiham textile has a profit 74, 932,529
in 2008&52,001,246tk in 2009 &
57,295,427tk in 2010. From this we can say that the profit isdecreasing by next two years. And this shows that salefor Saiham textile decreasing during the next two year.On the other hand Ashraf textile is in a loss of-62,609,854 that in 2005 & -122,738,787tk in 20010 &
-14,064,257tk in 20011. They continue their business in loss whereSaiham textile doing their business with profitability.
Analyzing Common Sizing & Indexing:
In common size analysis we express the variouscomponents of a balance sheet as percentage
of the total assets of the companies .In additionthis can be done for the income statement, buthere items are related to net sales .In Ashraftextile balance sheets over the three year spanthe percentage
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of current assets increased.On the other hand Saiham textile current assetsfluctuated. We seethat Ashraf textile account receivable showed a
relative decreased from 2005 to 2007.Saihamtextile account receivable fluctuated from 2003-04 to 2005-2006.On the liability & equity portionof the balance sheets, Ashraf textile total debt ofthe companies decline on a relative basis from2005 to 2007.but Saiham textile total debtdecreased in 2004-2005 &increased in 2005-2006.The common size income statementshow the gross profit/loss margin from year toyear. We see that Ashraf textile operatingexpenses increase year to year & in 2007increases sharply .where as Saiham textileoperating expensesdiccreased in 2004-
2005 & increase again in 2005-2006.In 2005-2007Ashraf textiles net profit had negativepercentage, whereas Saiham textiles net profitincreased. In indexes analysis all financialstatement items are 100%. In 2006& 2007Ashraf textile current assets indexed is91.53 & 9.95 whereas Saiham textile current
assets s indexed is 116.26 & 100.93 in 2004-2005 & 2005-2006.The indexed incomestatements give much the same picture as thecommonsize income statements namely, fluctuating be
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havior. InAshraf textileincome statement total gross loss indexed are 100, 196.037491 &22.46332822 in
2009 , 2010 & 2011.Whereas Saiham textilesgross profit are 100, 69.3974 & 76.4626 in 2007-08, 2008-09 & 2009-2010.
Conclusion:
We examine the analysis of Ashraf textile & Saiham textile
mills ltd. We see that the liquidity position is nit good bothof the companies. Comparatively Saiham textile better than
Ashraf textile mills ltd. Ashraf textile mills ltd should
change the credit policy & proper use of its assets. The
profitability ratio of Ashraf textile mills ltd. Good than
the Saiham textile mills ltd. The companies should avoid
the use of debt; otherwise companies would be fall into
textile companies bankruptcy
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OBJECTIVES
PRIMARY OBJECTIVES
o To analyze and understand the asset and liability management of
two textile companies
SECONDARY OBJECTIVES
o To identify the existing falls in the current system related to asset
and liabilities management of Textile Companies.
o To suggest the remedial measures that will help in greater assets
and lesser liability in the system of Textile Companies.
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LIMITATION
1. The sample size is small.
2. The period of 4 months is limited to conduct the study.
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Asset - Liability Management System in textile Guidelines
Over the last few years the Indian financial markets have witnessed wide ranging
changes at fast pace. Intense competition for business involving both the assets
and liabilities, together with increasing volatility in the domestic interest rates as
well as foreign exchange rates, has brought pressure on the management of
textile companiess to maintain a good balance among spreads, profitability and
long-term viability. These pressures call for structured and comprehensive
measures and not just ad hoc action. The Management of textile companies has
to base their business decisions on a dynamic and integrated risk management
system and process, driven by corporate strategy. Textile companiess are
exposed to several major risks in the course of their business - credit risk,
interest rate risk, foreign exchange risk, equity / commodity price risk, liquidity
risk and operational risks.
2. This note lays down broad guidelines in respect of interest rate and liquidity
risks management systems in textile companies which form part of the Asset-
Liability Management (ALM) function. The initial focus of the ALM function would
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be to enforce the risk management discipline viz. managing business after
assessing the risks involved. The objective of good risk management
programmers should be that these programmers will evolve into a strategic tool
for textile companies management.
3. The ALM process rests on three pillars:
ALM information systems
=> Management Information System
=> Information availability, accuracy, adequacy and expediency
ALM organization
=> Structure and responsibilities
=> Level of top management involvement
ALM process
=> Risk parameters
=> Risk identification
=> Risk measurement
=> Risk management
=> Risk policies and tolerance levels.
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The Statistical Cost Accounting (SCA) method is used to test whether assets and
liabilities of a textile companies can in fact help forecast its profits. Gup and
Brooks (1993) argued that "asset and liability management in textile companiess
is defined as the simultaneous planning of all asset and liability positions on the
textile companies's balance sheet under consideration of the different textile
companies management objectives and legal, managerial and market
constraints, for the purpose of mitigating interest rate risk, providing liquidity and
enhancing the value of the textile companies."
Due to the competition in the financial markets, textile companies seek out
greater efficiency in the management of their assets and liabilities. The core
issue of Asset-Liability Management (ALM) is the textile companies's balance
sheet and the main question is: Given a certain level of risk, government
regulation, globalization, competitors, alternative choices of investment, liquidity
and interest rate changes in the market, what should be the composition of a
textile companies's assets and liabilities in order to maximize the textile
companies's profit? What should be the optimal combination of ALM? These are
the two questions raised by Kosmidou et al (2004) who argued that the optimal
balance between these factors cannot be found without considering important
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interactions that exist between the structure of a textile companies's liability and
capital and the compositions of its assets.
Accurately evaluating and measuring the performance of commercial textile
companies is not an easy task. Textile companies differ in their sizes and this will
have an effect on responsibilities of management, liquidity, debt level and
profitability. A textile companies assets and liabilities will affect its valuation in
the market, its ability to acquire other textile companies or to be acquired at a
good price. Therefore, a complete picture of the textile companies, in the form of
its financial position, i.e. its balance sheet, should be studied and evaluated to be
able to acceptably predict its future performance. Profits generated by listed
textile companies always give positive signals to the stock market, and hence
help to achieve the main goal of textile companies, which is maximizing its wealth
for shareholders. The main source of profits generated by a textile companies is
the balance sheet portfolio: the assets, liabilities, and capital which are
considered important components in determining profits.
The aim of this study is to develop models for assets-liability management as a
risk-return management of the textile companiesing industry in Kuwait. In another
words, the operating profit will be examined to see how it is determined together
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with determining what factors from the balance sheet create the profits of the
textile companies and what factors deteriorate it. Since the balance sheet is
composed of assets and liabilities, this means that we are talking about rate of
return on assets and cost of borrowing on liabilities. Therefore, the risk and return
concept is also significant at this stage because textile companies are tested to
see whether they are a "risk machine" or not. This means that a textile
companies is expected to take risk and transform it to services, products and
then profits.
The study investigates risk factors such as liquidity, credit and capital risk that
mostly derive profits (these are explained in the next section). The risk-return
relationship in the textile companiesing industry will affect its valuation in the
market. Fraser and Fraser (1991) argued that decisions, which increase the
profitability of the textile companies without increasing its risk, would obviously
make the textile companies more valuable to its shareholders. Similarly,
decisions which reduce the risk of the textile companies without reducing its
profitability will also increase the value of the shareholder wealth. Therefore, all
decisions made by management have an effect on risk and returns.
Fraser and Fraser (1991) argued that the financial performance of commercial
textile companies is better if its profit is high and its risk is low. But since,
generally, investors are assumed to be risk averse, high profit to them means
accepting high risk. Therefore, management should have a good trade-off
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between risk and return. Management should always ask questions about the
level of returns generated compared to the level of risk taken. The most common
ratios that measure the level of risk in the textile companies industry ate
categorized into: Credit risk, Capital risk and Liquidity risk. A brief explanation for
each level of risk is given below.
The total international assets and liabilities of textile companies in India
increased by Rs 11,191 crore ($4.664 billion) and Rs 20,237 crore ($8.662
billion) respectively in 2003-04.
The increase in assets was mainly due to an increase in foreign currency loans
to residents. The international liabilities rose sharply due an increase in foreign
currency borrowings from abroad, Foreign Currency Non-Resident (B) (FCNR-
(B)) deposits and American/Global Depository Receipts (ADRs/ GDRs).
As of March-end 2004, the outstanding international assets and liabilities of
textile companies in India stood at Rs 1,15,765 crore (Rs 1,04,574 crore as of
March 31, 2003) and Rs 2,20,730 crore (Rs 2,00,493 crore) respectively,
according to the Reserve Textile companies of Indias latest monthly bulletin.
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A break-up of the international liabilities shows that as of March-end 2004, the
outstanding FCNR (B) deposits amounted to $10.46 billion ($9.261 billion); Non-
Resident External Rupee accounts : $17.501 billion ($11.184 billion); foreign
currency borrowings : $7.743 billion ($3.876 billion); and bonds (including
Resurgent India Bonds and India Millennium Bonds) : $6.389 billion ($9.281
billion).
Among others, non-repairable deposits deposits were down to $2.680 billion
($4.013 billion), non-debt credits, including ADRs/GDRs and equities of textile
companies held by NRIs were at $3.230 billion ($2.205 billion) and foreign
currency liabilities to residents stood at $1.985 billion ($1.668 billion).
The NRE rupee deposits had the maximum share of 34.4% in total international
liabilities as on March 31, 2004 as compared with 26.5% a year ago. The RBI
said the continuous increase in outstanding amount for NRE deposits could be
attributable to the crediting of maturity proceeds under NR(NR)RD accounts to
the account holders NRE rupee deposit accounts. The currency composition of
international assets as of March 31, 2004 showed that the assets held in dollar
continued to account for the maximum share at 79.4% (77.2%) in the total
international assets of textile companies. Next comes the pound sterling at 5.6%
(7.5%).
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As regards currency liabilities, the dollar held the maximum share at 47.4%
(51.3%), followed by rupee liabilities at 44% (40.6%).
The consolidated international claims of textile companies, in rupee terms,
declined continuously from Rs 91,061 crore as at March-end 2003 to Rs 78,124
crore as of March-end 2004. However, in dollar terms, these claims amounted to
$18.005 billion as at March-end 2004 as compared to $19.171 billion as at
March-end 2003.
The Textile companies international liabilities and assets have increased. And
the international liabilities of textile companies have almost doubled than that of
their international assets. The latest data published by the Reserve Textile
companies of India (RBI) which compiles figures of all authorized dealers (AD)
branches of 87 commercial and co-operative textile companies has shown that
while the international liabilities of textile companies increased by 10.6%,
international assets went up by 5% as of September-end 2005, as against the
position in the previous quarter.
A plausible explanation for the mismatch of international assets and liabilities for
textile companies in India could be deployment of the funds mobilized abroad in
the domestic market in the domestic currency, the RBI said. The international
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liabilities of textile companies rose by Rs 27,745 crore due to an increase in
foreign currency borrowings, NRE deposits, ADRs/GDRs and equities of textile
companies held by non-residents. The rise in international liabilities over the year
was Rs 60,841 crore (26.7 %). The liabilities denominated in foreign currencies
accounted for 57.5 % of the total international liabilities by September-end 2005,
registering an increase over the share of 56.1% in the previous year.
The international assets jumped by Rs 6,426 crore during the reporting period.
The increase was mainly because of considerable increase in outstanding export
bills drawn on non-residents and foreign currency loans to the residents. The
assets denominated in foreign currencies accounted for 96.8% of total
international assets as of September-end 2005, increasing marginally from
96.4% as against the previous quarter. The currency composition of international
liabilities as of September 2005 showed that the liabilities in US dollar chipped in
with the maximum share(47.3%), followed by liabilities in Indian rupee (42.5 %)
and Pound sterling (5.2%).
Major component-wise international liabilities of textile companies in India shows
Deposits and loans accounted for the highest share at 78.5% of total
international liabilities of textile companies which declined by 1.2 and 3.3
percentage points over the share in the previous quarter and a year ago,
respectively. The share of own issues of debt securities, including IMDs,
showed a decline over the position in the previous quarter as well as a year ago.
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The share of other liabilities in total international liabilities of textile companies in
India at September-end 2005 increased by 2.2 percentage points as compared to
its share in the previous quarter and 5 percentage points as against its share a
year ago.
ALM information systems
Information is the key to the ALM process. Considering the large network of
branches and the lack of an adequate system to collect information required for
ALM which analyses information on the basis of residual maturity and behavioral
pattern it will take time for textile companies in the present state to get the
requisite information. The problem of ALM needs to be addressed by following an
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ABC approach i.e. analyzing the behavior of asset and liability products in the top
branches accounting for significant business and then making rational
assumptions about the way in which assets and liabilities would behave in other
branches. In respect of foreign exchange, investment portfolio and money market
operations, in view of the centralized nature of the functions, it would be much
easier to collect reliable information. The data and assumptions can then be
refined over time as the textile companys management gain experience of
conducting business within an ALM framework.
The spread of computerization will also help textile companies in accessing data.
ALM organization
a) The Board should have overall responsibility for management of risks and
should decide the risk management policy of the textile companies and set limits
for liquidity, interest rate, foreign exchange and equity price risks.
b) The Asset - Liability Committee (ALCO) consisting of the textile companie's
senior management including CEO should be responsible for ensuring
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adherence to the limits set by the Board as well as for deciding the business
strategy of the textile companies (on the assets and liabilities sides) in line with
the textile companie's budget and decided risk management objectives.
c) The ALM desk consisting of operating staff should be responsible for
analyzing, monitoring and reporting the risk profiles to the ALCO. The staff
should also prepare forecasts (simulations) showing the effects of various
possible changes in market conditions related to the balance sheet and
recommend the action needed to adhere to textile companies internal limits.
The ALCO is a decision making unit responsible for balance sheet planning from
risk - return perspective including the strategic management of interest rate and
liquidity risks. Each textile companies will have to decide on the role of its ALCO,
its responsibility as also the decisions to be taken by it. The business and risk
management strategy of the textile companies should ensure that the textile
companies operate within the limits / parameters set by the Board. The business
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issues that an ALCO would consider, inter alia, will include product pricing for
both deposits and advances, desired maturity profile of the incremental assets
and liabilities, etc. In addition to monitoring the risk levels of the textile
companies, the ALCO should review the results of and progress in
implementation of the decisions made in the previous meetings. The ALCO
would also articulate the current interest rate view of the textile companies and
base its decisions for future business strategy on this view. In respect of the
funding policy, for instance, its responsibility would be to decide on source and
mix of liabilities or sale of assets. Towards this end, it will have to develop a view
on future direction of interest rate movements and decide on a funding mix
between fixed vs. floating rate funds, wholesale vs. retail deposits, money market
vs. capital market funding, domestic vs foreign currency funding, etc.
Individual textile companies will have to decide the frequency for holding their
ALCO meetings.
Composition of ALCO
The size (number of members) of ALCO would depend on the size of each
institution, business mix and organizational complexity. To ensure commitment of
the Top Management, the CEO/CMD or ED should head the Committee. The
Chiefs of Investment, Credit, Funds Management / Treasury (forex and
domestic), International Textile companies and Economic Research can be
members of the Committee. In addition the Head of the Information Technology
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Division should also be an invitee for building up of MIS and related
computerization. Some textile companies may even have sub-committees.
Committee of Directors
Textile companies should also constitute a professional Managerial and
Supervisory Committee consisting of three to four directors which will oversee
the implementation of the system and review its functioning periodically.
ALM process:
The scope of ALM function can be described as follows:
Liquidity risk management
Management of market risks (including Interest Rate Risk)
Funding and capital planning
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buckets given the Statutory Reserve cycle of 14 days may be distributed as
under:
i) 1 to 14 days
ii) 15 to 28 days
iii) 29 days and upto 3 months
iv) Over 3 months and upto 6 months
v) Over 6 months and upto 12 months
vi) Over 1 year and upto 2 years
vii) Over 2 years and upto 5 years
viii) Over 5 years
Within each time bucket there could be mismatches depending on cash inflows
and outflows. While the mismatches upto one year would be relevant since these
provide early warning signals of impending liquidity problems, the main focus
should be on the short-term mismatches viz., 1-14 days and 15-28 days. Textile
companiess, however, are expected to monitor their cumulative mismatches
(running total) across all time buckets by establishing internal prudential
limits with the approval of the Board / Management Committee. The mismatch
during 1-14 days and 15-28 days should not in any case exceed 20% of the cash
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outflows in each time bucket. If a textile companies in view of its asset -liability
profile needs higher tolerance level, it could operate with higher limit sanctioned
by its Board / Management Committee giving reasons on the need for such
higher
limit. A copy of the note approved by Board / Management Committee may be
forwarded to the Department of Textile companiesing Supervision, RBI. The
discretion to allow a higher tolerance level is intended for a temporary period, till
the system stabilises and the textile companies is able to restructure its asset
-liability pattern.
The Statement of Structural Liquidity ( Annexure I ) may be prepared by
placing all cash inflows and outflows in the maturity ladder according to the
expected timing of cash flows. A maturing liability will be a cash outflow while a
maturing asset will be a cash inflow. It would be necessary to take into account
the rupee inflows and outflows on account of forex operations including the
readily available forex resources ( FCNR (B) funds, etc) which can be deployed
for augmenting rupee resources.
While determining the likely cash inflows / outflows, textile companiess have to
make a number of assumptions according to their asset - liability profiles. For
instance, Textile companiess with large branch network can (on the stability of
their deposit base as most deposits are renewed) afford to have larger tolerance
levels in mismatches if their term deposit base is quite high. While determining
the tolerance levels the textile companiess may take into account all relevant
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factors based on their asset-liability base, nature of business, future strategy etc.
The RBI is interested in ensuring that the tolerance levels are determined
keeping all necessary factors in view and further refined with experience gained
in Liquidity Management.
In order to enable the textile companiess to monitor their short-
term liquidity on a dynamic basis over a time horizon spanning from 1-90 days,
textile companiess may estimate their short-term liquidity profiles on the basis of
business projections and other commitments.
Currency Risk
Floating exchange rate arrangement has brought in its wake
pronounced volatility adding a new dimension to the risk profile of textile
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companiess' balance sheets. The increased capital flows across free economies
following deregulation have contributed to increase in the volume of transactions.
Large cross border flows together with the volatility has rendered the textile
companiess' balance sheets vulnerable to exchange rate movements.
Dealing in different currencies brings opportunities as also risks. If
the liabilities in one currency exceed the level of assets in the same currency,
then the currency mismatch can add value or erode value depending upon the
currency movements. The simplest way to avoid currency risk is to ensure that
mismatches, if any, are reduced to zero or near zero. Textile companiess
undertake operations in foreign exchange like accepting deposits, making loans
and advances and quoting prices for foreign exchange transactions. Irrespective
of the strategies adopted, it may not be possible to eliminate currency
mismatches altogether. Besides, some of the institutions may take proprietary
trading positions as a conscious business strategy.
Managing Currency Risk is one more dimension of Asset- Liability
Management. Mismatched currency position besides exposing the balance sheet
to movements in exchange rate also exposes it to country risk and settlement
risk. Ever since the RBI (Exchange Control Department) introduced the concept
of end of the day near square position in 1978, textile companiess have been
setting up overnight limits and selectively undertaking active day time trading.
Following the
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introduction of "Guidelines for Internal Control over Foreign Exchange Business"
in 1981, maturity mismatches (gaps) are also subject to control. Following the
recommendations of Expert Group on Foreign Exchange Markets in India
(Sodhani Committee) the calculation of exchange position has been redefined
and textile companiess have been given the discretion to set up overnight limits
linked to maintenance of additional Tier I capital to the extent of 5 per cent of
open position limit.
Presently, the textile companiess are also free to set gap limits with
RBI's approval but are required to adopt Value at Risk (VaR) approach to
measure the risk associated with forward exposures. Thus the open position
limits together with the gap limits form the risk management approach to forex
operations. For monitoring such risks textile companiess should follow the
instructions contained in Circular A.D (M. A. Series) No.52 dated December 27,
1997 issued by the Exchange Control Department.
Interest Rate Risk (IRR)
8.1 The phased deregulation of interest rates and the operational flexibility given
to textile companiess in pricing most of the assets and liabilities have exposed
the textile companiesing system to Interest Rate Risk. Interest rate risk is the risk
where changes in market interest rates might adversely affect a textile
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companies's financial condition. Changes in interest rates affect both the current
earnings (earnings perspective) as also the net worth of the textile companies
(economic value perspective). The risk from the earnings' perspective can be
measured as changes in the Net Interest Income (Nil) or Net Interest Margin
(NIM). In the context of poor MIS, slow pace of computerisation in textile
companiess and the absence of total deregulation, the traditional Gap analysis is
considered as a suitable method to measure the Interest Rate Risk. It is the
intention of RBI to move over to modern techniques of Interest Rate Risk
measurement like Duration Gap Analysis, Simulation and Value at Risk at a
later date when textile companiess acquire sufficient expertise and sophistication
in MIS. The Gap or Mismatch risk can be measured by calculating Gaps over
different time intervals as at a given date. Gap analysis measures mismatches
between rate sensitive liabilities and rate sensitive assets (including off-balance
sheet positions). An asset or liability is normally classified as rate sensitive
if:
i) within the time interval under consideration, there is a cash flow;
ii) the interest rate resets/reprices contractually during the interval;
iii) RBI changes the interest rates (i.e. interest rates on Savings Textile
companies Deposits, advances upto Rs.2 lakhs, DRI advances, Export credit,
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Refinance, CRR balance, etc.) in cases where interest rates are administered ;
and
iv) it is contractually pre-payable or withdrawable before the stated maturities.
The Gap Report should be generated by grouping rate sensitive
liabilities, assets and offbalance sheet positions into time buckets according to
residual maturity or next repricing period, whichever is earlier. The difficult task in
Gap analysis is determining rate sensitivity. All investments, advances, deposits,
borrowings, purchased funds etc. that mature/reprice within a specified
timeframe are interest rate sensitive. Similarly, any principal repayment of loan is
also rate sensitive if the textile companies expects to receive it within the time
horizon. This includes final principal payment and interim instalments. Certain
assets and liabilities receive/pay rates that vary with a reference rate. These
assets and liabilities are repriced at pre-determined intervals and are rate
sensitive at the time of repricing. While the interest rates on term deposits are
fixed during their currency, the advances portfolio of the textile companiesing
system is basically floating. The interest rates on advances could be repriced any
number of occasions, corresponding to the changes in PLR.
The Gaps may be identified in the following time buckets:
i) upto 1 month
ii) Over one month and upto 3 months
iii) Over 3 months and upto 6 months
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iv) Over 6 months and upto 12 months
v) Over 1 year and upto 3 years
vi) Over 3 years and upto 5 years
vii) Over 5 years
viii) Non-sensitive
The various items of rate sensitive assets and liabilities in the Balance Sheet
may be classified as explained in Appendix - II and the Reporting Format for
interest rate sensitive assets and liabilities is given in Annexure II.
The Gap is the difference between Rate Sensitive Assets (RSA) and Rate
Sensitive Liabilities (RSL) for each time bucket. The positive Gap indicates that it
has more RSAs than RSLs whereas the negative Gap indicates that it has more
RSLs. The Gap reports indicate whether the institution is in a position to benefit
from rising interest rates by having a positive Gap (RSA > RSL) or whether it is in
a position to benefit from declining interest rates by a negative Gap (RSL > RSA).
The Gap can, therefore, be used as a measure of interest rate sensitivity.
Each textile companies should set prudential limits on individual Gaps with the
approval of the Board/Management Committee. The prudential limits should have
a bearing on the total assets, earning assets or equity. The textile companiess
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may work out earnings at risk, based on their views on interest rate movements
and fix a prudent level with the approval of the Board/Management Committee.
RBI will also introduce capital adequacy for market risks in due course.
The classification of various components of assets and liabilities into
different time buckets for preparation of Gap reports (Liquidity and Interest Rate
Sensitivity) as indicated in Appendices I & II is the benchmark. Textile
companiess which are better equipped to reasonably estimate the behavioural
pattern, embedded options, rolls-in and rolls-out, etc of various components of
assets and
liabilities on the basis of past data / empirical studies could classify them in the
appropriate time buckets, subject to approval from the ALCO / Board. A copy of
the note approved by the ALCO / Board may be sent to the Department of Textile
companiesing Supervision.
Basis of Asset-Liability Management
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Traditionally, textile companiess and insurance companies used accrual system
of accounting for all their assets and liabilities. They would take on liabilities -
such as deposits, life insurance policies or annuities. They would then invest the
proceeds from these liabilities in assets such as loans, bonds or real estate. All
these assets and liabilities were held at book value. Doing so disguised possible
risks arising from how the assets and liabilities were structured.
Consider a textile companies that borrows 1 Crore (100 Lakhs) at 6 % for a year
and lends the same money at 7 % to a highly rated borrower for 5 years. The net
transaction appears profitable-the textile companies is earning a 100 basis point
spread - but it entails considerable risk. At the end of a year, the textile
companies will have to find new financing for the loan, which will have 4 more
years before it matures. If interest rates have risen, the textile companies may
have to pay a higher rate of interest on the new financing than the fixed 7 % it is
earning on its loan.
Suppose, at the end of a year, an applicable 4-year interest rate is 8 %. The
textile companies is in serious trouble. It is going to earn 7 % on its loan but
would have to pay 8 % on its financing. Accrual accounting does not recognize
this problem. Based upon accrual accounting, the textile companies would earn
Rs 100,000 in the first year although in the preceding years it is going to incur a
loss.
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The Asset Liability Management (ALM) team is responsible for allocating funding
to various lending products, and for ensuring that the currency, interest rate and
maturity sensitivity characteristics of the Textile companiess assets and liabilities
are within prescribed risk parameters. To achieve this, ALM makes extensive use
of derivative instruments including currency swaps, interest rate swaps and other
interest rate management products.
The ALM team develops new products and innovative market solutions tailored
to meet clients individual hedging needs. As part of this, they collaborate with
other units to provide technical training to borrowers on pricing, market execution
and credit aspects of hedging products and participates in negotiations on Master
Derivatives Agreements (MDAs) with borrowers. The ALM team works closely
with clients to develop hedging strategies and market tools to achieve their
specific debt management objectives.
The actual concept of ALM is however much wider, and of greater importance to
textile companiess' performance. Historically, ALM has evolved from the early
practice of managing liquidity on the textile companies's asset side, to a later shift
to the liability side, termed liability management, to a still later realisation of using
both the assets as well as liabilities sides of the balance sheet to achieve
optimum resources management. But that was till the 1970s. In the 1980s,
volatility of interest rates in USA and Europe caused the focus to broaden to
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include the issue of interest rate risk. ALM began to extend beyond the textile
companies treasury to cover the loan and deposit functions. The induction of
credit risk into the issue of determining adequacy of textile companies capital
further enlarged the scope of ALM in later 1980s. In the current decade, earning
a proper returnof textile companies equity and hence maximisation of its market
value has meant that ALM covers the management of the entire balance sheet of
a textile companies. This implies that the textile companies managements are
now expected to target required profit levels and ensure minimisation of risks to
acceptable levels to retain the interest of investors in their textile companiess.
This also implies that costing and pricing policies have become of paramount
importance in textile companiess.
In the regulated textile companiesing environment in India prior to the 1990s, the
equation of ALM to liquidity management by textile companiesers could be
understood. There was no interest rate risk as the interest rates were regulated
and prescribed by the RBI. Spreads between the deposit and lending rates were
very wide (these still are considerable); also, these spreads were more or less
uniform among the commercial textile companiess and were changed only by
RBI. If a textile companies suffered significant losses in managing its textile
companiesing assets, the same were absorbed by the comfortably wide spreads.
Clearly, the textile companies balance sheetwas not being managed by textile
companiess themselves; it was being `managed' through prescriptions of the
regulatory authority and the government. This situation has now changed.
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The textile companiess have been given a large amount of freedom to manage
their balance sheets. But the knowledge, new systems and organisational
changes that are called for to manage it, particularly the new textile
companiesing risks, are still lagging. The turmoil in domestic and international
markets during the last few months and impending changes in the country's
financial system are a grim warning to our textile companies managements to
gear up their balance sheet management in a single heave. To begin with, as the
RBI's monetary and credit policy of October 1997 recommends, an adequate
system of ALM to incorporate comprehensive risk management should be
introduced in the PSBs. It is suggested that the PSBs should introduce ALM
which would focus on liquidity management , interest rate risk management and
spread management. Broadly, there are 3 requirements to implement ALMin
these textile companiess, in the stated order: (a) developing a better
understanding of ALM concepts, (b) introducing an ALM information system, and,
(c) setting up ALM decision-making processes (ALM Committee/ALCO). The
above requirements are already met by the new private sector textile
companiess, for example. These textile companiess have their balance sheets
available at the close of every day. Repeated changes in interest rates by them
during the last 3 months to manage interest rate risk and their maturity
mismatches are based on data provided by their MIS. In contrast, loan and
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deposit pricing by PSBs is based partly on hunches, partly on estimates of
internal macro data, and partly on their competitors' rates.
Description of Textile companies Asset and Liability Management
Textile companiess are a vital part of the global economy, and the essence of
textile companiesing is asset liability management (ALM). This book is a
comprehensive treatment of an important financial market discipline. A reference
text for all those involved in textile companiesing and the debt capital markets, it
describes the techniques, products and art of ALM. Subjects covered include
textile companies capital, money market trading, risk management, regulatory
capital and yield curve analysis.Highlights of the book include detailed coverage
of: liquidity, gap and funding risk management; hedging using interest rate
derivatives and credit derivatives; impact of Basel II; securitisation and balance
sheet management; structured finance products including asset backed
commercial paper, mortgage backed securities, collateralised debt obligations
and structured investment vehicles, and their role in ALM; and treasury
operations and group transfer pricing. Concepts and techniques are illustrated
with case studies and worked examples. Written in accessible style, this book is
essential reading for market practitioners, textile companies regulators and
graduate students in textile companiesing and finance.
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It includes free CD-ROM that contains software on applications described in the
book, including a yield curve model, cubic spline spreadsheet calculator and
CDO waterfall model.
Assets and Liabilities in Textile companies
The money a textile companies receives as deposits from both individuals and
large companies becomes a textile companiess liability. The textile companies
receives assets in the form of the interest it charges on loans made to
governments, businesses, and private individuals. The chart shown here depicts
how this process works.
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Assets and liabilities are both affected by interest rate changes, so measuring
and managing interest rate risk is the key to making sure your asset and liability
mix performs at its peak. Proper management of the total exposure, maturity
schedules, and nominal rates on both side of the equation can dramatically
reduce damages and increase net profits. To acquire and maintain these skills in
the face of new instruments and volatile environments, A/L managers and staff
need effective, affordable, ongoing training.
Sheshunoff provides just such training in the Asset/Liability Management
Computer-Based Training program. This self-paced program covers all areas of
A/L management so there are no gaps. The CD goes from the basics of
measuring and managing interest rate risk to specific management tactics and
more complex A/L management concepts and tools. The program adapts the
level of training to fit the level of the student, so beginners can master the basics
and more experienced A/L managers can advance their skills.
Self-paced format allows users to absorb information at their own pace and retain
more.
Program adapts to the user's level so it works for both beginners and more
experienced A/L managers.
Coverage includes all areas of A/L management, including measuring and
managing interest rate risk, specific tactics, liquidity, portfolio management,
derivatives, and more.
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Textile companiess are a vital part of the global economy, and the essence of
textile companiesing is asset-liability management (ALM). This book is a
comprehensive treatment of an important financial market discipline. A reference
text for all those involved in textile companiesing and the debt capital markets, it
describes the techniques, products and art of ALM. Subjects covered include
textile companies capital, money market trading, risk management, regulatory
capital and yield curve analysis.
Highlights of the book include detailed coverage of:
liquidity, gap and funding risk management
hedging using interest-rate derivatives and credit derivatives
impact of Basel II
securitisation and balance sheet management
structured finance products including asset-backed commercial paper,
mortgage-backed securities, collateralised debt obligations and structured
investment vehicles, and their role in ALM
treasury operations and group transfer pricing.
What are these words, and what do they share in common? Well, as we begin to
understand the financial terms used each day, and how they interrelate to each
other, these three words are going to be key players. Almost every possession
we ever acquire, personal or business, will consist of an asset value, a liability
value, and the equity we have in the possession.
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The term asset refers to something that is of value to use. Our education is an
asset, albeit and intangible one, it is an asset. Our cars are assets, and this
would be a tangible asset that we can actually see and touch. Do we owe for our
car? If so, the loan associated with our car is a liability. The difference between
the asset value and the liability value of the loan is our equity in the car. This is
as brief a summation of these terms, however these terms do need some further
explanation and exploration.
An asset. So many things that come into our lives will be classified as assets.
Our homes, our cars, our education, our possessions, they will all constitute our
assets. We dont often think of them in these terms. Quite honestly, assets and
liabilities are generally used only by business people and accountants. In reality
however, we should really have a grasp on what our assets are, and what they
can mean to us, financially.
For instance, your education is an asset. It is known as an intangible asset,
because you cant actually see your education. It is an asset nonetheless
because it gives you increased knowledge of a specific subject. You are able to
turn this education into a greater income than the individual without an education.
What is the term liability going to refer to? Liability is a debt we owe, we incur, or
are otherwise responsible for repaying. Why do we have liabilities? If you
borrow money to purchase a car, the loan is a liability. If you borrow money to go
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to school and get a higher education, the student loan is a liability. We incur
these debts because we want things we cannot afford to pay for in full when we
need to purchase the asset.
What if, when you borrow the money to buy a car, the amount you borrow is less
than the value of the car? Then you have established equity in the car. When
you assess the monetary value of an asset, you consider the difference between
the monetary value and the amount owed against the asset as equity. The more
equity you can establish with your assets, the more comfortable your life
becomes. This is why we strive for adequate cash assets when we begin to
reach retirement age.
Often we allow our wants and desires to overtake our financial ability to repay,
and we discover we must declare textile companiesruptcy, or we cannot repay
our obligations. The best way to avoid this situation is to have a clear, rationale
picture of your finances at all times.
An analysis of Textile companiesing sector including Growth in advances and
deposits, Market share, NPAs, CAR, Exposure norms, Retail Textile
companiesing Initiatives and Major Players.
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Basic indicators of the textile companiesing sector
This set of tables containing basic aggregate data on the Czech textile
companiesing sector includes information on all textile companiess licensed to
operate in the Czech Republic as of the most recent given date unless stipulated
otherwise. Also included are data on the branches of these textile companiess
operating abroad. The Czech National Textile companies is not included in the
data. In the case of mergers of textile companiess, the data for the respective
textile companiess are always summed for the entire time series.
The data in each table are updated quarterly within two months of the end of the
relevant quarter or within three months of the end of the relevant year.
In 2008, no fundamental methodological changes have been made in data
publishing. Starting from 1 January 2008, in connection with the implementation
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of Basel 2, textile companiess may use only the new approaches to the
calculation of the capital requirement for the investment portfolio credit risk and
operational risk. Thus, since 2008, the data are reported for all textile
companiess (in 2007 H2, the textile companiess that continued implementing
Basel 1 did not report the capital requirement for operational risk).
The tables correspond to the indicators that textile companiess are required to
disclose pursuant to Decree No. 123/2007 Coll., on prudential rules for textile
companiess, credit unions and investment firms, as amended. The content of
most of the indicators in the tables is clear from their names. The text below
provides methodological notes on the individual tables. In addition, information is
given to clarify any ambiguity or to explain the content of specific indicators, in
particular those characterising the prudential operation of textile companiess.
The figures as of 31 December 2007 are gradually being revised due to audits
and may therefore differ from data published later.
In some tables, the textile companiess are classed into groups based on the
amount of their total assets and on aspects of their organisation and
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specialisation. This group breakdown is updated at the beginning of each
calendar year. Compared to 30 September 2008, Raiffeisentextile companies
stavebn spoitelna and Hypo stavebn spoitelna merged. The branch of
Straumur-Burdaras Investment Textile companies has already started its activity
and is therefore included in the aggregate data as of the end of the year. By
contrast, Textile companiesa mezinrodn spoluprce is only included in the
number of textile companiess
Number of textile companiess by ownership
This table gives the number of textile companiess which opened for business
either in the given year or earlier, and not the number of textile companiess
which acquired a textile companiesing licence in that year.
The textile companiess are classed according to whether they are predominantly
Czech-owned or predominantly foreign-owned, with a further, more detailed
breakdown into individual groups:
state financial institutions textile companiess established as state financial
institutions (Konsolidan textile companiesa until 2001; until 1992, this group
also included the textile companiess which had been operating prior to 1989,
before their transformation into joint stock companies);
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state-owned textile companiess textile companiess in which the state has a
share of more than 50% of the equity capital or is a controlling shareholder; state
ownership means ownership at all levels, i.e. state and local, and including the
National Property Fund;
Czech-controlled textile companiess textile companiess in which Czech entities
have a share of more than 50% of the equity capital, excluding any state-owned
share;
textile companiess under conservatorship textile companiess which have been
put into conservatorship under Article 27 of the Act on Textile companiess;
foreign-controlled textile companiess textile companiess in which foreign
entities have a share of more than 50% of the equity capital;
foreign textile companies branches organisational units of foreign textile
companiess operating in the Czech Republic on the basis of a single licence or
licensed to operate in the Czech Republic;
unlicensed textile companiess textile companiess whose textile companiesing
licences have been revoked owing to failure to adhere to the prudential rules,
poor financial condition or merger with another textile companies, or at the textile
companiess own request owing to discontinuation of textile companiesing
activity.
Assets and liabilities of the textile companiesing sector
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All data are given at net book value, i.e. items designated at fair value are given
at this fair value and items measured at amortised cost or acquisition price are
given at the value adjusted for allowances and accumulated depreciation.
Data have been recalculated according to the 2007 methodology; the
comparability of the time series is limited in the following cases:
until 2006, receivables and liabilities (deposits) were not reported broken down
by portfolio and are given in aggregate form in the loans and receivables portfolio
for receivables and in the financial liabilities measured at amortised cost portfolio
for liabilities (deposits), debt securities and shares designated at fair value
through profit or loss were not monitored separately until 2006 and, if they
existed, could be included under the held-for-trading portfolio or the available-for-
sale portfolio or, in the case of debt securities, under the held-to-maturity
portfolio,
as from 2007, bonds accepted for refinancing are not monitored separately and
form part of the debt securities in the individual portfolios (except for the loans
and receivables portfolio),
until 2004, derivatives held for trading also included any hedge derivatives, which
have been monitored separately only since 2005.
The significant differences compared to the 2006 methodology and thus to the
data published earlier are as follows:
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receivables no longer include non-marketable securities, which are monitored
separately in the loans and receivables portfolio; by contrast, the volume of
receivables has been extended to include receivables not classified by sector,
which were previously reported under other assets (e.g. receivables from various
debtors, receivables from securities trading, margins of stock exchange
derivatives and assets for collection),
receivables from central textile companiess are monitored in aggregate form
under a single value and outside the individual portfolios; securities issued by
central textile companiess are monitored under debt securities within the
individual portfolios,
the terms available-for-sale assets, available-for-sale securities etc. are now
used for the trading portfolio,
the value of issued capital is not decreased by the value of own shares, which
are reported separately and therefore only diminish the value of total equity.
Off-balance sheet activities of the textile companiesing sector
Data are given at net book value; for derivatives transactions the nominal value
of the underlying instruments is given,
Values transferred or taken into custody, administration and deposit have been
monitored only since 2004.
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Profit and loss account of the textile companiesing sector
Data have been recalculated according to the 2007 methodology; the
comparability of the time series is limited in the following cases:
As interest income and interest expenses were not monitored separately by
portfolio until 2006, all interest income on receivables is included under the loans
and receivables portfolio and interest income on debt securities is included under
the held-to-maturity investments portfolio; interest expenses for deposits, loans
and other liabilities and for issued debt securities are included under the portfolio
of financial liabilities measured at amortised cost,
Some new items, such as realised gains and losses on financial assets and
liabilities not measured at fair value through profit or loss, realised gains and
losses from hedge accounting, gains or losses on derecognition of assets other
than held for sale, etc., could not be recalculated entirely accurately owing to a
lack of necessary data, hence their time series should be interpreted with caution
(partly because they are often affected by one-off transactions),
Gains or losses on financial assets designated at fair value through profit or loss
were not monitored separately until 2007 and up to 2006 are included under
gains or losses on financial assets held for trading.
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The significant differences compared to the 2006 methodology and thus to the
data published earlier are as follows:
The calculation of financial and operating income and expenses has been
extended to include other operating income and expenses and items
representing realised gains or losses (which in some cases were previously
included under net provisions and reserves,
Unrealised gains or losses are consistently included in the items concerning
impairment,
Exchange differences, which under the 2006 methodology were part of gains or
losses on financial assets held for trading are now monitored separately (and
thus do not offset gains or losses from currency derivatives under the aggregate
item of gains or losses on financial assets and liabilities held for trading).
Impairment only partly corresponds to the previously used net provisions and
reserves, since the realised losses are now part of financial and operating
income and expenses and net provisions are monitored separately,
Provisions are given at net value, i.e. adjusted for the release of unneeded
provisions and for the use of provisions.
Total interest income/interest earning assets means the ratio of interest income
from client operations to the total volume of relevant receivables; it basically
expresses the average annual interest rate on client credits,
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under the loans and receivables portfolio; compared to the 2006 methodology,
minor changes have been made to the calculation.
Cumulative net balance sheet position/assets means the difference between
assets and liabilities and equity capital falling due within three months as a
percentage of the total volume of assets; liabilities reflect the stability of demand
deposits (80% of demand deposits are transferred to maturities of over three
months).
The categorisation of receivables now follows the new prudential rules
implementing Basel 2:
categorisation applies to investment portfolio receivables, i.e. receivables from all
portfolios except financial assets held for trading and receivables from all
portfolios not classified by sector,
receivables are divided into default (standard and watch) and non-default
(substandard, doubtful and loss, i.e. non-performing receivables).
The volume of default receivables is given at the value before impairment, i.e.
receivables designated at fair value are given at the fair value gross of the
cumulative losses from impairment and items measured at amortised cost are
given at the gross book value, i.e. not adjusted for allowances.
Receivables from clients means receivables from general government and
other clients, i.e. legal and natural persons, except credit institutions, which are
monitored separately and comprise textile companiess, foreign textile companies
branches and credit unions.
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Selected indicators by textile companies group
The indicators included are selected from other tables and are further broken
down by textile companies group.
The part for textile companiess in total is given for clarity. However, most of the
data are the same as the data in other tables (except total receivables, which are
given at gross book value, i.e. items designated at fair value are given at this fair
value and items measured at amortised cost are given at the value not adjusted
for allowances and accumulated depreciation).
Data are given for the same defined textile companies group over the entire time
series according to the stock as of the last day of the reference period.
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SUGGESTIONS
1. Nationalized textile companiess should have a balanced view when it
comes to assets and liability management. Greater assets and lesser
liability will project on commercial enterprise rather than a image of
socially concisions organization.
2. Greater assets and lesser liability make society to pursue. Textile
companiess are meant for profit making and not for aids people. On other
hand higher assets and lesser liability results in textile companiess
becoming insolvent over a period of time and hence public department will
get lost in the sphere.
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Conclusions
The Textile companiesing industry is facing newer challenges in terms of
narrowing spreads, new textile companiesing products and players and
mergers and acquisitions. Adoption of risk management tools and new
information technology is now no more a choice but a business
compulsion. Technology product innovation, sophisticated risk
management systems, generation of new income streams, Building
business volumes and cost efficiency will be the key to success of the
textile companiess in the new era. In the present environment where
change is invisible, it is not enough if textile companies change with the
change, but they have to change before the change. They should
perceive what customer want and accordingly structure their product
and services.
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BIBILIOGRAPHY
Hand book of ASSETS AND LIABILITY MANAGEMENT
- FRANJ FABOZZI
Assets and liability management - ATUSO KONISHI
Textile companiess Assets and liability Management
- MOORADCHOUDHRY
Websites
www.slideshare.net
www.smart-trade.net
www.woccu.org
http://www.slideshare.net/http://www.smart-trade.net/http://www.woccu.org/http://www.slideshare.net/http://www.smart-trade.net/http://www.woccu.org/