畢博上海銀行—SimeBankMarketRiskALMReport

1、sime bank berhadreport onmarket risk:asset and liability management21 october 1997prepared bykpmgasia pacific consulting1 / 74table of content1.executive summary.12.introduction .52.1format of this report .52.2m ethodology .62.3overview of alm process& environment at sime bank .73.principal alm risk

2、s and kpmg recommendations.103.1m ajor risks .103.2risk: alm strategy , risk tolerance level and accountability . 113.2.1recommendation: alm strategy workshop .113.2.2benefits .s&123.3risk: organisationframework .12tructure3.3.1recommendation: organisation structure and framework .133.3.2benefits .1

3、93.4risk: h uman resources.193.4.1recommendation: skill acquisition and knowledge transfer.203.4.2benefits .203.5risk: m anagementinformation systems (mis) .203.5.1recommendation: improved management information .213.5.2benefits .213.6risk: l iquidity risk .223.6.1recommendation: extended analysis a

4、nd monitoring .223.6.2benefits .243.7risk: structural interest rate m anagement .243.7.1recommendation: extended analysis and monitoring .243.7.2benefits .263.8risk: foreign exchange (fx) risk .263.8.1recommendations: establish a formal policy and fx exposure limits .263.8.2benefit .273.9risk: d ocu

5、mented policy and procedures .273.9.1recommendation: develop policy, procedures and limits appropriate to alm.273.9.2benefits .283.10risk : alm processes& it .283.10.1recommendation: automated processes and systems integration .283.10.2benefits .293.11risk : capital m anagement .293.11.1recommendati

6、on: implement a transfer pricing mechanism .303.11.2benefits .304.action plans .31appendix 1 - risk register.45appendix 2 - asset and liability management process diagram.57appendix 3 - comparison with international standards .58appendix 4 - sample management information reports .651 / 741. executiv

7、e summaryintroductionwe have produced two reports on market risk, focusing on “ treasury and” “ assetand liability management ” (alm). both reports highlight a number of key areas in which action is required to strengthen the bank s management of market risks.we have produced two separate reports to

8、 draw a distinction between the price risk arising from the trading activities of the bank and the asset and liability management function which is essentially concerned with the strategic balance sheet, income and funding risks. the issues in each of these reports are in many aspects different. how

9、ever, the action plans designed to address these issues are the same, because both treasury and alm ultimately pertain to the management of market risks. accordingly, we have produced one executive summary which is common for both reports. for the purpose of this summary, market risk includes all tr

10、easury risks (e.g. foreign exchange and money markets) as well as alm risks (e.g. liquidity and structural interest rate risks).findingsthe key findings of the assessment of market risk management are:- liquidity risk is significant,- there is limited understanding of market risk and alm and risk ma

11、nagement techniques,- there is inadequate information for controlling and planning purposes,- there is a lack of articulation of market risk strategy and risk tolerance,- existing practices fall short of international market and regulatory standards of best practice,- price risk is currently small b

12、ut there are plans to expand treasury operations; and- there is difficulty in implementing alco decisions.the implications of this assessment in the immediate period:- it is difficult to maintain liquidity in adverse market conditions,- there is potentially a higher cost of funds (retail and wholesa

13、le),- it is difficult to respond to changes in the business environment and economic climate; and- there is a limited range of tools to minimise market risk.1 / 74the implication of this risk assessment in the long run may be an uncompetitive response to banking sector liberalisation and deregulatio

14、n. kpmg therefore believes that a significant market risk enhancementprogramme is urgently required. the first priority should be reducing liquidity risk.liquidity risk is a pressing issue. there is limited forward planning for short term funding requirements or long term financing needs. furthermor

15、e, there is difficulty in attracting customer deposits and hence heavy reliance has been placed on interbank activity. consequently, many interbank lines are fully utilised.recommendationsthis report presents recommendations for the enhancement of risk management practices in each key risk area iden

16、tified. the key risks include: liquidity risk; market risk strategy and risk tolerance; organisational structure; management information; risk measurement; documented policy and limits; processes and it; and market related credit risk.our recommendations have been evaluated against regulatory and in

17、ternational standards of market practice which were discussed in the treasury and alm workshops. the following bullet points highlight our key recommendations.we recommend a series of market risk management workshops for staff to increase understanding of treasury products and risk management techni

18、ques. these should focus on managing liquidity and interest rate risk, hedging with various treasury instruments, employing various organisational models, using measurementtechniques and valuation methodologies.we recommend a series of focused market risk management workshops for senior management w

19、ith the aim of developing a market risk strategy including articulation of risk tolerance levels.management information systems (mis) need to be enhanced both in terms of users specifying their requirements and systems to deliver the capability in a timely manner. management and staff need to specif

20、y and identify the information they require for decision making. this is most urgent with respect to alm where information is required on the asset side (e.g. loan repricing profile, cashflow) and the liability side (e.g. deposit sources, specific hedges) of the balance sheet where data is currently

21、 unavailable.we recommend the establishment of an independent, dedicated group responsible for market risk management. we also recommend that the alm support unit is absorbed into this function.2 / 74skill upgrade within treasury by means of skills transfer from external resources can run in paralle

22、l with external recruitment to ensure the bank is immediately prepared to implement its market risk strategy and to achieve its business objectives.we have proposed a systems architecture for sime bank which provides the necessary business links for automation of manual processesand system integrati

23、on in treasury. the objective is to move toward implementation of a centralised database.we recommend the introduction of more sophisticated risk measurement techniques particularly with respect to interest rate management. for example, the use of time buckets, sensitivity analysis and gap analysis.

24、it is important for the bank to develop a comprehensive, written policy, procedures and limits manual. this should include:- establish clear roles and responsibilities,- set objectives for alm policy,- establish a clear chain of command for limit monitoring, breaches, stop-losses, profit excess, cri

25、sis management,- specify limits and guidelines for measurement and control,- tier limits and include management action triggers and detailed response; and- clarify valuation methodology and procedures.international banking needs to co-ordinate and work together with the credit division to establish

26、a mechanism to measure, monitor, aggregate and control market related credit risk.steps should be taken to reduce settlement risk including completion of reconciliations on an up-to-date basis. further, formalisation of confirmation requirements prior to settlement is required particularly with resp

27、ect to corporate clients.the bank is keen to expand its international banking activities and would like to become involved in derivative products. therefore the process of moving towards meetinginternational and bank negara malaysia s (bnm) minimum standards is important. we encourage the bank to wo

28、rk towards attaining such regulatory approval with the beliefthat it will enable the bank to compete more effectively, particularly on two fronts:- hedging the balance sheet by using derivative products to alter the risk profile of the alm portfolio; and- providing competitive services to satisfy in

29、creasingly demanding and mobile customers.3 / 74the corporate desk should conduct more complete analysis of customer activity and co-ordinate its activity in foreign exchange, money markets, trade finance, etc. once bnm approval for derivatives is granted, the corporate desk should expand its produc

30、t range to include instruments such as swaps and options.we have developed a set of prioritised action plans as the output of our review. our suggestion in relation to prioritisation and timing is set out in the following diagram.implementation of change -prioritisation and timingimmediate0 - 3 mont

31、hsshort term developmentmedium term development3 - 9 months9 months plus? provide market risk training? implement market risk? document policies, proceduresto stafforganisationand limits? appoint head of market? conduct senior management? implement staff appraisal/riskworkshopsremuneration? users to

32、 specify mis? formalise strategy andrecommendationsrequirements re interestarticulate risk tolerance? enhance systems integrationrate/fx/liquidity risk? introduce more sophisticated? establish mechanism to? ascertain infinity capabilitiesinterest rate risk measurementaggregate all credit risksand pr

33、ovide training to stafftechniques? expand corporate desk? specify alm mis? develop additional mis to meetservicesrequirementsuser requirements? develop confirmation? formalise follow up of alco? extend liquidity gap report andmatching (domestic)decisions/actionsenhance liquidity analysis? centralisa

34、tion of database? set liquidity limits? develop liquidity contingency? establish transfer pricing? nostro reconciliationsplansystem linked to capitalautomated? develop confirmation matchingallocationsystem (international counterparties)4 / 742. introductionthe purpose of this report is to summarise

35、kpmgs findings from our evaluation of sime banks asset and liability management systems. these findings are based on extensive interview of front office, back office and senior management, review of relevant documentation (including minutes from asset and liability committee meetings) and discussion

36、 of issues identified at the asset and liability management risk workshop.this report addresses all areas of alm (liquidity, price risk, i.e., including foreign exchange& interest rate, balance sheet structure, risk and reward ratio), except for market risk arising from treasury operations, which is

37、 the subject of a separate report.in this report, we have outlined the steps which we see are fundamental to achieve robust and effective asset and liability management proficiency. the outcome should be the development of the expertise and framework within which detailed risk management policies an

38、d procedures can be developed for identifying, monitoring and reporting on alm for the organisation. this approach will support the broader sime bank focus on improved risk management practices.the analysis was carried out in august through october 1997. we have discussed the key issues in this repo

39、rt with senior officers prior to reaching our final conclusions.2.1format of this reportthis report is divided into the following sections:1. executive summary.2. introduction .in this section we describe the format of this report, our methodology for the review and provide an overview of the alm pr

40、ocess and risk environment of sime bank.3. principal alm risks .this section is the core of the report. in each sub-section, we identify a principal alm related risk and discuss potential problems with current practices at sime bank. we then provide recommendations to reduce the risk and highlight t

41、he associated benefits.5 / 744. action plans.in this section we have specified the actions required to implement the recommendations set out in section 3, indicated our assessment of the priority for each action and made a suggestion regarding responsibility for completion and the major components o

42、f each enhancement.5. appendices.appendix 1 - risk register.this appendix provides details of the major risk issues identified during our asset and liability management workshop.appendix 2 - asset and liability management process diagram.this appendix provides a proposed alm process map which highlights issues arising in relation to system integration and business links.appendix 3 - comparison with international standards.this appendix offers a composite checklist of sime bank practice compared with international standards (ie. resul