Chapter Three: Balance Sheet Structure and Management

3.1 Composition of the Balance Sheet Asset-Liability Management (ALM): comprises strategic

planning and implementation and control processes that affect the volume, mix, maturity, interest rate sensitivity, quality, and liquidity of a bank’s assets and liabilities.

Primary goal of ALM to produce a high-quality, stable, large and growing flow net interest income.

Goal accomplished by achieving the optimum combination and level of assets, liabilities, and financial risk.

3.2 Asset Structure

Assets (%)Cash and balance with the Central Bank 3.37

Investment Securities 12.61

Proprietary securities at market value 4.48

Placements with banks and credit inst’s 9.28

Loans and advances to customers 63.28

Other investments – Subsidiaries, etc. 0.00

Fixed assets net of depreciation 6.96

Other assets 0.02

Total 100.00

3.3 Liability Structure

Liabilities (%)Due to other banks and credit inst’s 44.12

Funding for trading (investment) portfolio - repurchased securities

2.45

Due to other customers / depositors 25.44

Certificates of deposit 4.23

Other liabilities 4.06

Amounts owed to government inst’s 0.03

Due to international lending agencies 3.04

Subordinated debt 3.04

Shareholders’ equity 13.58

Total 100.00

3.4 Managing Risk Effectively

Key components of effective risk management:

An established line function at highest level of bank management hierarchy, specifically responsible for risk management.

An established, explicit, and clear risk management strategy and a related set of policies with corresponding operational target.

Appropriate formalization and coordination of strategic decision-making in relation to risk management process.

Bank business and portfolio decisions should be based on rigorous quantitative and qualitative analyses within applicable risk parameters.

Systematic gathering of complete, timely, and consistent data relevant for risk management, and provision of adequate data storage and manipulation capacity.

Development of quantitative modeling tools to enable the simulation and/or analysis of the effects of changes in economic, business, and market environments on a bank’s risk profile and the related impact on its liquidity, profitability, and net worth.