ALM

A company that has been serving the needs of the Turkish financial sector for years, Risk Software Technologies, has developed the Asset Liability Management (ALM) application as a tool to help banks manage the risks associated with their balance sheets. Through a user-friendly interface, Riskturk ALM Module presents the banks with an analysis and reporting framework that uses cash flow analyses, simulations and scenario analysis, which would let predict and asses their risks effectively.

 

Specifications:

  • Wide Financial Product Coverage
  • A Flexible Structure Suitable For Customization
  • Maturity Mismatch Analysis
  • Trend Analysis
  • Market Value of Equity Calculation
  • Sensitivity Analysis
  • GAP, Duration and Convexity Analyses
  • Monthly Cash Flow Analysis
  • Net Interest Rate Income Calculation
  • Stress Tests
  • Profitability Analysis
  • Income Segmentation
  • Simulations
  • Income Simulations
  • Stochastic Interest Rate and FX Rate Simulations
  • Balance-Sheet Simulations
  • Mark-to-Market and Mark-to-Model Techniques
  • Scenario Analysis

 

Wide Financial Product Coverage

RST offer valuation of assets and liabilities present on the bank’s balance sheet using advanced financial models. Different balance sheet items with different payment schedules is supported and moreover custom products manufactured by our customers are also easily incorporated in the ALM Module with its flexible structure.

Static and Dynamic Analyses

Riskturk offers both Static and Dynamic Analyses

 

Static Analyses

Cash Flow Analysis

Both the nominal value of all cash flows on their maturity date and their present values are offered in the module.

 

GAP and Duration Analyses

GAP analysis shows the mismatch in the cash flows at a given period

 

  1. Interest rate GAP analyzes the mismatch in the cash flows of interest rate sensitive instruments on their maturity or re-pricing period.

  2. Liquidity GAP measures the mismatch between products apart from fixed value products

     

    Riskturk ALM application reports the Liquidity and Interest Rate GAP at the desired level of detail using its “cash flow filter”.

    Duration is the period weighted average of cash flows. Interest Rate Elasticity (IRE) measures the interest rate sensitivity of the present value of cash flows. These two measures show how the market value of assets and liabilities would change, given a shift in interest rates.

     

    Market Value of Equity (MVE)

    MVE, is obtained by calculating the marked to market values of balance sheet items. In a sense, MVE shows the implied net economic value of the bank’s assets and liabilities.

     

    MVE sensitivity analysis recalculates the MVE under:

     

  1. Changes in the Maturity Date

  2. FX Rate Shock

  3. Interest Rate Shock

    Scenarios.

     

    Dynamic Analyses

    Net Interest Rate Income Simulations

    Our Simulations follow the procedures below:

  • Risk Factor Generation
  • FX (GBM)
  • Interest Rate (CIR, Vasicek, Longstaff & Schwartz)
  • Rolling the cash flows based on the generated risk factors and spreads
  • Calculating the sub-period interest rate income
  • Producing histogram of the net interest income and reporting the tail values at a given confidence level
  • Our ALM application allows for scenario creation, based on these simulated values:
  • Market Scenarios
  • User Defined Volatility and Level Shift Scenarios
  • Parametric and Non-Parametric Stochastic Scenarios
  • Strategic Management Scenarios
  • Scenarios Based on The Change in FX Based parts of assets and liabilities
  • Scenarios Based on Percentage Changes in Balance Sheet Items
  • Behavioral Scenarios
  • Early Withdrawal and Payment Scenarios
  • Rollover Scenarios
  • Spread Scenarios

 

Additional Tools:

Apart from the Static and Dynamic Analyses offered by the application, Balance Sheet scenarios and Funds Transfer Pricing are offered as additional support features.

 

Balance Sheet Scenarios:

The ALM Module allows for two types of balance sheet scenarios

  1. Ratio changes in balance sheet items

  2. Balance sheet growth.

 

Funds Transfer Pricing (FTP)

FTP is calculated in Riskturk’s ALM Module using Matched-Maturity Pricing. All operations in the bank are compared with the matched-maturity yield curve and profits are calculated. The application offers original maturity and days to maturity stock FTP and marginal FTP.

Using FTP Banks Can:

  1. Rank branches according to their performance

  2. Conduct RAROC analysis

  3. Perform Effective Credit Pricing