Learning and Training Learning


Assets and Liabilities Management

It is the objective of this course to provide comprehensive understanding of the assets and liabilities management process, make an overview of various liquidity risk and interest rate risk evaluation models recommended by the Basel Committee on Banking Supervision, develop policies and procedures, create a system of basic assets and liabilities management reporting. 
 
At the training course, the participants will get acquainted with the DuPont model for the analysis of changes in interest rates on a bank’s profit; the VaR and RARORAC models of risk evaluation and aggregation based on the “capital at risk” approach will be considered; recommendations will be given together with examples of their practical implementation.


Module 1: 1 day

Process organization

Overview of Basel Committee’s recommendations Best liquidity risk and interest rate risk management practices 
 
Organization of the assets and liabilities management process 
  • Role and functions of the Supervisory Council and the Management Board 
  • Role and functions of the Assets and Liabilities Management Committee 
  • Role and functions of the Treasury and the dealing unit 
  • Role and functions of the middle and back offices 
Assets and liabilities management policies and procedures 
  • Assets and liabilities management strategy 
  • Interest-rate risk management strategy 
  • Major liquidity risk and interest-rate risk indicators 
  • Stress-testing 
  • Contingency plan 
Liquidity risk and interest rate risk management system 
  • Risk identification (risk classification and matrix) 
  • Process of bank products review for risk identification (Product Form) 
  • Risk evaluation models (overviews of VaR and RARORAC models) 
  • Risk monitoring and aggregation, setting limits for the capital at risk 
Market risks classification
  • Liquidity risk
  • Interest rate risk
  • Foreign exchange risk
  • Securities risk
  • Commodity risk
  • Structural risk of the balance sheet
​Bank product review process
  • Risks Committee (or Operational Committee)
  • Product Form
  • Review of existing products
  • Approval of new products
  • Risk matrix
System of limits 
  • Authority limits 
  • Open position limits 
  • Interest rate gaps and maturity gaps 
  • Limits on the use of models
  • Capital-at-risk limits


Module 2: 1 day

Managing structural gaps of the balance sheet

Financial structure of a bank as the basis for the Risk-based Performance Measurement (RBPM)
  • Financial structure of a bank
  • Profit center book structure and cost center book structure
  • Commercial books of a bank
  • ALCO books
  • Treasury trading books
Transfer pricing as a key element of the market-risk management system and RBPM
  • Review of various transfer pricing models
  • Specific features of choosing a transfer pricing model
  • Transfer pricing in a bank’s book structure
Risk-adjusted profitability assessment
  • Dividing the interest margin on the basis of transfer pricing
  • Provisions
  • Allocation of the capital at risk
  • Limits and capital at risk
System of limits 
  • Authority limits 
  • Open position limits 
  • Interest rate gaps and maturity gaps 
  • Limits on the use of models 
  • Capital-at-risk limits 
Bank profitability analysis using DuPont model 
  • Practical exercises in bank profitability analysis using DuPont model
  • Consideration of the impact of interest rates when planning a bank’s profit


Module 3: 1 day

Aggregated risk assessment model

Practice of using a RARORAC model for the aggregated risk assessment
  • Model history, GARP recommendations 
  • Need for the risk adjustment of the income 
  • Expected and unexpected losses 
  • Loss coverage rule, role of provisions and capital 
  • Aggregated and transactional methods of the RARORAC calculation 
  • Using model in case of absence of statistical data 
  • Process of the capital allocation in a bank 
  • Efficiency evaluation and personnel incentive system 
  • Calculation of the economic profit for specific units Examples and problems 
  • RARORAC model use experience of Ukrainian banks 
Market risk evaluation: VAR model 
  • Key advantages and strengths of the VAR methodology 
  • Areas of use of the VAR methodology 
  • Volatility indicator 
  • Backtesting and Basel’s “traffic light principle” 
  • Variational/covariational VAR methodology
  • Experience of using VAR for the foreign exchange risk evaluation
Management Information Systems (MIS)
  • Reports hierarchy in a bank
  • Reports for the Management Board/ALCO 
  • Mid management reports
  • Data Warehouse
  • Reporting system for the BI management ​
ALCO reports for the management of market risks and the liquidity risk
  • Funding needs assessment
  • Coverage plans
  • Liquidity limits monitoring
  • Liquidity gap report
  • Interest-rate gap report
  • Spread analysis
  • Currency position report
  • VAR reports for the foreign exchange risk assessment

It is the objective of this course to provide comprehensive understanding of the assets and liabilities management process, make an overview of various liquidity risk and interest rate risk evaluation models recommended by the Basel Committee on Banking Supervision, develop policies and procedures, create a system of basic assets and liabilities management reporting. 
 
At the training course, the participants will get acquainted with the DuPont model for the analysis of changes in interest rates on a bank’s profit; the VaR and RARORAC models of risk evaluation and aggregation based on the “capital at risk” approach will be considered; recommendations will be given together with examples of their practical implementation.


Module 1: 1 day

Process organization

Overview of Basel Committee’s recommendations Best liquidity risk and interest rate risk management practices 
 
Organization of the assets and liabilities management process 
  • Role and functions of the Supervisory Council and the Management Board 
  • Role and functions of the Assets and Liabilities Management Committee 
  • Role and functions of the Treasury and the dealing unit 
  • Role and functions of the middle and back offices 
Assets and liabilities management policies and procedures 
  • Assets and liabilities management strategy 
  • Interest-rate risk management strategy 
  • Major liquidity risk and interest-rate risk indicators 
  • Stress-testing 
  • Contingency plan 
Liquidity risk and interest rate risk management system 
  • Risk identification (risk classification and matrix) 
  • Process of bank products review for risk identification (Product Form) 
  • Risk evaluation models (overviews of VaR and RARORAC models) 
  • Risk monitoring and aggregation, setting limits for the capital at risk 
Market risks classification
  • Liquidity risk
  • Interest rate risk
  • Foreign exchange risk
  • Securities risk
  • Commodity risk
  • Structural risk of the balance sheet
​Bank product review process
  • Risks Committee (or Operational Committee)
  • Product Form
  • Review of existing products
  • Approval of new products
  • Risk matrix
System of limits 
  • Authority limits 
  • Open position limits 
  • Interest rate gaps and maturity gaps 
  • Limits on the use of models
  • Capital-at-risk limits


Module 2: 1 day

Managing structural gaps of the balance sheet

Financial structure of a bank as the basis for the Risk-based Performance Measurement (RBPM)
  • Financial structure of a bank
  • Profit center book structure and cost center book structure
  • Commercial books of a bank
  • ALCO books
  • Treasury trading books
Transfer pricing as a key element of the market-risk management system and RBPM
  • Review of various transfer pricing models
  • Specific features of choosing a transfer pricing model
  • Transfer pricing in a bank’s book structure
Risk-adjusted profitability assessment
  • Dividing the interest margin on the basis of transfer pricing
  • Provisions
  • Allocation of the capital at risk
  • Limits and capital at risk
System of limits 
  • Authority limits 
  • Open position limits 
  • Interest rate gaps and maturity gaps 
  • Limits on the use of models 
  • Capital-at-risk limits 
Bank profitability analysis using DuPont model 
  • Practical exercises in bank profitability analysis using DuPont model
  • Consideration of the impact of interest rates when planning a bank’s profit


Module 3: 1 day

Aggregated risk assessment model

Practice of using a RARORAC model for the aggregated risk assessment
  • Model history, GARP recommendations 
  • Need for the risk adjustment of the income 
  • Expected and unexpected losses 
  • Loss coverage rule, role of provisions and capital 
  • Aggregated and transactional methods of the RARORAC calculation 
  • Using model in case of absence of statistical data 
  • Process of the capital allocation in a bank 
  • Efficiency evaluation and personnel incentive system 
  • Calculation of the economic profit for specific units Examples and problems 
  • RARORAC model use experience of Ukrainian banks 
Market risk evaluation: VAR model 
  • Key advantages and strengths of the VAR methodology 
  • Areas of use of the VAR methodology 
  • Volatility indicator 
  • Backtesting and Basel’s “traffic light principle” 
  • Variational/covariational VAR methodology
  • Experience of using VAR for the foreign exchange risk evaluation
Management Information Systems (MIS)
  • Reports hierarchy in a bank
  • Reports for the Management Board/ALCO 
  • Mid management reports
  • Data Warehouse
  • Reporting system for the BI management ​
ALCO reports for the management of market risks and the liquidity risk
  • Funding needs assessment
  • Coverage plans
  • Liquidity limits monitoring
  • Liquidity gap report
  • Interest-rate gap report
  • Spread analysis
  • Currency position report
  • VAR reports for the foreign exchange risk assessment