Download a free asset liability management policy sample and use it as a guide to write yours easily.
About the ALMP
You company needs an ALMP for sound financial risk management. The sample presents a first-hand view of what this policy is really about. It covers in detail all the areas managed by the asset liability committee (ALCO). You will see this from the topics covered in the sample.
Topics Covered in the Sample:
(1) The meaning behind this policy.
(2) The reasons for such a policy.
(3) Responsibilities of ALCO, including its meetings and reporting requirements.
(4) Primary objectives, including productivity, solvency and capital adequacy.
(5) Funds management and liquidity, including liquidity risk, changing demographics, liquidity exposure, funding and investments.
(6) Interest rate risk management, covering gap management, simulation and asset allocation strategies.
(7) Management of credit risk, including credit policy objectives, credit process, risk diversification, pricing for risk, and accounting for problem loans.
(8) Market risk, covering trading risk and foreign exchange risk.
(9) Preparation and review of the annual budget.
(10) Application of cost management strategies designed to achieve desired productivity.
(11) Targeted profitability ratios, including return on assets, return on equity, and net interest margin.
(12) Income taxes.
(13) Payment of dividends.
(14) Capital and risk weighting of assets.
(15) Compliance with business laws and regulations.
(16) Policy considerations.
Why is there Need for an ALCO Policy?
The sample covers strategic management of the company’s balance sheet. It focuses on achieving solvency, long-term growth and profitability. To this end, it includes a multiplicity of responsibilities and activities. These include the management of various business risks, covering interest rate, liquidity, market and operational risks. The formulation of strategic goals and objectives for the medium and long-term also form part of such planning. This is important for oversight be the board of directors.
The ALMP guides management on how to enhance profitability, maximize shareholder value and increase capital. It also speaks to the implementation of strategies to meet the needs of its customers. Last but not least, it seeks to protect the entity from disastrous financial consequences that may arise from interest rate changes.
In a capsule, this policy seeks to achieve solid operating results through dynamic and sound funds management. As such, it includes: (1) An outline of the responsibilities and scope of ALCO; (2) A definition of the various risks facing the business; (3) Guidelines to meet all applicable statutes and regulatory rules; (4) Coordinated risk management functions of the institution’s financial position.
More About this ALMP
The alco policy includes extensive management of various risks. These include liquidity risk and funding, credit risk management and market risk. The policy also covers investment, interest rate management and simulation, and asset allocation strategies. It addresses profitability and productivity, income tax, dividends and capital, and other important areas. Effective asset management can only be achieved with the employment of such a professionally formatted policy.