ALM

Increase the profitability of your treasury operations

With the module ALM (zeb/integrated.treasury-manager), zeb//control risk supports you in planning and controlling the key return elements of maturity and liquidity transformation. With this software, we offer you a reliable and well-proven tool for the targeted management of the balance-sheet structure and the related bank-wide interest rate and liquidity risks.

Many credit institutions face discrepancies between management information from present value and from period-oriented planning. However, plans based on period-oriented P&L view are only suitable to a limited extent for assessing decisions on assets/liabilities. We offer you an integrated management system that eliminates these deficiencies. Specifically, the module ALM supports you with the following functionalities and features:

Performance planning

In the module ALM, the starting point of planning and control is the overall balance-sheet structure of the bank in combination with the modelling of key target values of P&L results. The actual values recorded are used to forecast the future net interest received and the valuation result of interest-bearing financial instruments – in different currencies and in line with alternative accounting rules (e.g. German Commercial Code and IFRS). Diverse scenarios for the development of the capital markets can be taken into account just like a variety of planning assumptions for the development of the balance-sheet structure or possible interest-rate adjustments.

In the context of further period-oriented planning parameters (e.g. administrative expenses, commission results, etc.), performance can be simulated down to operating results or annual profits and equity development – taking account of different planning scenarios. The interest income can be broken down into condition contributions, contributions from interest maturity transformation and liquidity maturity transformation both for the current result and subsequent periods. The key USPs of the module ALM are the differentiated planning of structural contributions on the basis of target cash-flow profiles and the reconciliation of present value and period-oriented result parameters.

With regard to liquidity, the module ALM also allows you to calculate the new regulatory indicators "liquidity coverage ratio" (LCR) and "net stable funding ratio" (NSFR) that are currently still under discussion. The software can compute both the current values and, based on the bank's plans for the balance-sheet structure, the development of these two ratios for the entire planning horizon so that any necessary actions can be taken early on.

Risk management

Risk measurement and profit management for interest rate and liquidity positions is based on the representation and valuation of cash flows from "on balance sheet" and derivative transactions. Individual interest rate and liquidity cash flows can be valuated on the basis of different yield curves. The transactions can be freely grouped into different portfolios and analysed. Cash flows, present values as well as performance and risk indicators are displayed for all levels.

Several approaches can be used to measure the interest rate risk: the module ALM supports not only scenario-based methods, but also variance/co-variance approaches or full historical simulation. Finally, the integrated consideration of performance and risk permits the risk-adjusted valuation of the control portfolios.

For the liquidity risk, changes can be simulated with regard to the liquidity coverage potential and the prospective inflows and outflows based on stress scenarios defined. Building thereon, a present-value funding loss can be output as a risk parameter. For that purpose, the system calculates the present value of the loss that would be incurred by the bank – in terms of the funding volume required – if the ad-hoc funding cost would rise in line with the scenario defined.

In this context, user-definable benchmarks facilitate the interpretation of cash flows and RORAC results. This lays the foundation both for the profit-oriented control of maturity transformations and structural liquidity and creates the conditions for the representation of these risk areas in compliance with MaRisk.

Planning of actions

The planning and control functionalities are supplemented by comprehensive options for planning actions. Here, the module ALM supports the simulation and analysis of income effects generated by financial instruments in two ways: On the one hand, it is possible to create user-induced (individual) actions. On the other hand, the software can automatically generate actions for specified target risk levels. For both options, you can simulate and analyse present value, period-oriented and liquidity-related profit and risk effects. Within the framework of individually defined control actions, new instruments can be created and existing instruments can be closed. The software permits the examination and identification of continuous risk strategies across several periods.

Do you need further information or are you interested in using zeb//control risk in your bank? We would be pleased to arrange a meeting at your office to present all the functionalities of zeb//control risk and discuss its application in your bank.