THE FUNDAMENTALS OF ALM FOR SENIOR BANKERS

Transcription

1 A specialized workshop for the Leaders of Jordanian banks THE FUNDAMENTALS OF ALM FOR SENIOR BANKERS Oct. 9-11, 2018 Institute of Banking Studies - Jordan In cooperation with Batt-Consulting - UK ص.ب: 1378 عمان )11953( األردن * هاتف 9626( )+ * * فاكس 9626( ) ( )+ P.O. Box: 1378 Amman (11953) Jordan Tel: (+9626) Fax : (+9626) (+9626) training@ibs.edu.jo Web site:

2 THE FUNDAMENTALS OF ALM FOR SENIOR BANKERS 3 Days Reasons Why Top Bankers Want This Course This course provides a high level, strategic overview of ALM for senior bankers who are not ALM, Treasury or Finance specialists but who wish, or need, to know more about ALM. Many top bankers around the world have advised Batt-Consulting that this course is much needed, as evidenced by their frank concerns and perspectives on ALM, for example: The Chairman of a famous European Bank In our bank we make, approximately, 50% of our profits from ALM each year. Ten of us run the bank and only one of us understands ALM. And the other nine of us are not sure he does! At best, only 10% of the top team really understands how we make 50% of our profits. This is unacceptable! The Deputy Chairman of a leading Middle Eastern Bank It gives me no pleasure to say that I am the only person in our bank who really understands ALM. The top 50 executives need to know much more. We are training them. and fast. The CEO of a leading Asian Bank Yes, we do have an Asset & Liability Committee (ALCO). It sucks in a great amount of information but produces very few clear ALM policies. Actually, it s like a black hole in space! A lot goes in but little comes out! Few people know what ALCO does! Some suspect that it is a waste of time and money. It is certainly a mystery to many. The Governor of a Central Bank In many banks ALM is dominated by Treasury, Finance and Risk specialists who understand ALM well. However, these people do not have direct responsibility for the majority of their banks assets and liabilities. This responsibility is with the business divisions that control large balance sheets - divisions such as retail, corporate, international and, increasingly, specialized subsidiary companies. This is where more knowledge about, and involvement in ALM is needed so that their balance sheets can be managed in line with overall ALM strategy and policies. The CEO of a large International Bank, based in Europe We have a good understanding of the market risks we face as a result of our ALM decisions. However, we have no idea how much profit we make by taking these risks. Our transfer rate system does not measure ALM profits. These profits are certainly in the accounting profits but we cannot see them. It is unclear who should be accountable for them. This means that ALM profits are being attributed to people and units who do not generate them. This distorts our understanding of the true performance of our divisions. Not a good way to run ALM... or a bank! The President of a Turkish Bank Our bank s ROE is consistently high because we are good at ALM. All of our top team understands ALM. We exploit the opportunities. 2

3 Quite frankly, we are less good and more nervous about credit risks. There is less we can do to control credit portfolio quality. To us, lending money feels like speculation. The CEO of a US Bank We ve got two casinos in our bank: the credit casino and the ALM casino. At ALCO we decide regularly which casino is more attractive. Quite often we prefer the ALM casino because the market risks are more controllable than the credit risks. This is the most important decision taken by ALCO. The President of a progressive African Bank ALM has become a major preoccupation of our top team. It helps us integrate and understand all our divisional strategies, balance sheets, profits and risks. To us, ALM is now supremely important. All senior managers need to understand it. We make sure they do. A Rating Agency about a smaller but leading Arab Bank The bank has done well. Profitability has doubled and the bank s risk profile is now much safer. As a result, we have improved the bank s risk rating. This will help reduce funding costs and increase profitability further. Their secret has been big improvements to ALM. They deserve congratulations. Despite these top-level concerns and perspectives, most courses about ALM only focus on the management of market risks. Most importantly, they ignore the extra profits that worldclass ALM can generate safely, if done well. Primarily, they are designed for treasury and finance personnel, not for the bankers who actually manage a bank s major balance sheets. Often, they are too technical and of little appeal to busy top bankers. To redress these shortcomings, the Institute of Banking Studies and Batt-Consulting is pleased to offer this course which: Examines how leading banks run ALM as a business with risks - not just as risk management Focuses on the many ways that leading banks use ALM to boost profitability at acceptable risk Is designed for top bankers, especially those who are responsible for large balance sheets, including those responsible for retail, premium, private, SME, commercial, corporate, institutional, governmental and branch network balance sheets, as well as treasury activities Provides insight into the technical aspects of ALM without going into excessive detail Objectives of the Course This board and general management level course explores the world-class approaches of leading banks to ALM, and how delegates' banks could emulate them to boost ALM and bank profits at acceptable risk. It will help delegates to: Understand the strategic importance of ALM and its linkage to most other aspects of bank strategy Review the different approaches to ALM, including those that should be followed and those which are dangerous and to be avoided at all costs Examine world-class standards of ALM and how they are achieved by leading banks Explore how excellent ALM can boost bank profitability greatly at acceptable risk 3

4 Set key performance targets (KPT s) for their banks ALM activities Choose the right transfer rate system for measuring ALM profits correctly Explore how leading banks balance ALM profitability against the market risks that arise from ALM Assess how the regulations that govern ALM risk-taking influence bank strategy and profitability Review the roles of main boards and ALCO s in banks with advanced ALM, and the support that these governing bodies require for them to function well Appreciate the skills, systems and technical methods that are essential for world-class ALM Assess their banks ALM against world-class standards to pinpoint development priorities The aim is for delegates to return to their banks with specific proposals to discuss with their colleagues. Main Themes of the Course The course is built around 4 main themes: - Theme 1: The Growing Strategic Importance of ALM Understanding Why ALM is a Crucial Element of Overall Strategy - Theme 2: Making More Money from ALM at Acceptable Risk Hunting for ALM Opportunities, and Balancing ALM Profitability & Risks - Theme 3: Organization, Skills & Systems for Progressive ALM Involving the Right People in the Right Way With the Right Systems - Theme 4: Priorities for Progress at Delegates Banks Deciding How Delegates' Banks Should Advance to World-Class ALM Who Should Attend? This course is for those who wish, or need, to know more about ALM: top bankers, senior managers who are expected to reach this level soon, and those who support directly the top management teams of their banks: Owners of banks, bank board members, chief executives, and members of top executive committees General managers, executive vice presidents, executive directors and managers responsible for "profit center" divisions and subsidiary companies with large balance sheets, typically: - Corporate bankers responsible for business with large companies - Commercial and SME bankers responsible for business with middle-sized companies and SME s - Retail, premium and private bankers who often manage large deposit volumes - Senior managers who direct and control branch networks at home and internationally - Treasury and ALM managers who wish to deepen their understanding of world-class ALM - Leaders of subsidiary companies with large balance sheets, such as leasing and insurance Senior executives responsible for support divisions, including those involved in: 4

5 - Strategic planning - Budgeting and financial control - Market and credit risk management - Marketing and sales support - Internal audit and compliance - Human resources and information technology management High-flyers with potential to rise to top positions will find the course instructive and broadening. Benefits of the Course: What Delegates Will Take Away The course aims to put delegates in a stronger position to discuss key ALM challenges with their colleagues when they return to their banks: Ensuring that ALM and other aspects of bank strategy are linked and fully compatible Deepening the strategies and policies produced by ALCO s, and the way these are communicated Strengthening the analytical and other support provided to ALCO s Implementing the most suitable transfer rate system for measuring ALM profits Installing advanced methods for measuring the risks that can arise from ALM decisions Building the additional ALM skills which may be needed at board, top executive and lower levels Procuring or building the IT systems required for advanced ALM Deciding how to adjust organization structure to facilitate ALM and avoid dangerous approaches Most importantly, the course allows delegates to examine how their banks could use ALM to increase net margin and overall bank profitability at acceptable risk by adopting world-class approaches to ALM. Methodology The course is intensive and participative. Various methods are used: Formal presentations with discussions, including many real case histories from across Europe, the Middle East, Africa and Asia-Pacific Question & Answer plenary discussions with the course leader Case studies that illustrate the application of the approaches examined Group work in which delegates discuss improvement priorities for their own banks 45% of time at the course is spent on case studies and group work so that delegates can learn by doing and share perspectives with delegates from other banks. Learning Level This is an advanced course for senior bankers who need to advance the strategies, policies, organization structure and management of their ALM activities with the aim of increasing ALM and bank profitability at acceptable risk. 5

6 Course Timetable: The Fundamentals of ALM for Senior Bankers (3 days) DAY SESSION SUBJECT 1 Presentation Introduction to the Course THEME 1: THE GROWING STRATEGIC IMPORTANCE OF ALM Understanding Why ALM is a Crucial Element of Overall Strategy 2 Group Work A Quick Look at ALM - "Gold Mine" or "Mine Field" for Banks? 3 Presentation The Impact of ALM on Nearly All Aspects of Bank Strategy 4 Presentation World-Class Standards & Examples of ALM - Centralized-Active ALM 5 Case Study Understanding How ALM Can Boost Bank Profitability Greatly 6 Case Answer Understanding How ALM Can Boost Bank Profitability Greatly THEME 2: MAKING MORE MONEY FROM ALM AT ACCEPTABLE RISK Hunting for ALM Opportunities, and Balancing ALM Profitability & Risks How Progressive ALM Drives Up Bank Return on Equity - Choosing KPT's for 7 Presentation ALM 8 Presentation Impact of Basel III on Bank Strategy, Profitability and Market Risk Management 9 Presentation Overview of Technical ALM Methods Used by Leading Banks 10 Group Work Initial Assessment of ALM Opportunities for Delegates' Banks 11 Case Study Calculating ALM Profits and Separating Them from Customer Profits 12 Case Answer Calculating ALM Profits and Separating Them from Customer Profits 13 Group Work Strengthening ALM Risk Management at Delegates' Banks THEME 3: ORGANIZATION, SKILLS & SYSTEMS FOR PROGRESSIVE ALM Involving the Right People in the Right Way With the Right Systems 14 Presentation The Roles of Boards and ALCO's in Banks With Advanced ALM 15 Presentation Providing Essential ALM Support to ALCO s Analysis, Communications, Education 16 Group Work Upgrading ALM Support Provided to the Top Teams of Delegates' Banks 17 Presentation ALM Skills & Systems Needed by Senior Bankers Involved in ALM 18 Group Work Upgrading ALM Skills & Systems at Delegates' Banks THEME 4: PRIORITIES FOR PROGRESS AT DELEGATES BANKS Deciding How Delegates Banks Should Advance to World-Class ALM 19 Presentation Methodology for Assessing Banks' ALM Against World-Class Standards - PALM 20 Group Work Priorities for Advancing ALM at Delegates Banks to World-Class Standards 21 Presentation Summary of the Course Evaluation of the Course Presentation of Certificates 6

7 DAY 1 DETAILED COURSE AGENDA 1. Presentation: Introduction to the Course Course Overview: Themes, Topics and Timetable Introduction of Delegates and the Course Leader THEME 1: THE GROWING STRATEGIC IMPORTANCE OF ALM Understanding Why ALM is a Crucial Element of Overall Strategy 2. Presentation: A Quick Look ALM - Gold Mine or Mine Field for Banks? The Nature of ALM Profits and Risks The Simple Reason Why Increased ALM Profits Can Boost Bank Profits Greatly The Importance of Separating ALM Profits from Customer Profits Different Transfer Rate Systems Used by Banks to Measure Profitability Initial Discussion About Choosing the Correct Transfer Rate System for Delegates Banks 3. Presentation: The Impact of ALM on Nearly All Aspects of Bank Strategy The Pressures Encouraging Banks to Become Good at ALM: - Increasing customer sophistication - Need to offset declining credit margins - Opportunities to reduce regulatory capital - Improving IT and communications systems - Growing ALM skills The Important Linkages Between ALM and: - Allocation of bank capital - Marketing strategy - Credit policies - Treasury strategy, organization and operations - Organization structure - Human resources strategy - Planning, control and management information systems - Information technology strategy 4. Presentation: World-Class Standards & Examples of ALM Centralized-Active ALM The Focus of ALM in World-Class Banks The Increasing Importance of ALM Phases in the Evolution of ALM The Safe and Dangerous Ways to Evolve Increasing & Smoothing Income from ALM 5. Case Study: Understanding How ALM Can Boost Bank Profitability Greatly Sensitivity of Banks Profitability to Small Changes in Net Interest Margin Introduction to the Case Study Bank s Balance Sheet and Profit & Loss Account Assessment of Alternative Asset & Liability Structure Strategies for the Bank Estimating the Impact on Bank Profitability of the Alternative A&L Strategies 7

8 6. Case Answer: Understanding How ALM Can Boost Bank Profitability Greatly Delegates answers the Case Study in Session 5 Presentation of the Model Answers Discussion About Opportunities to Increase ALM Profits at Delegates Banks Summary of Day 1 DAY 2 THEME 2: MAKING MORE MONEY FROM ALM AT ACCEPTABLE RISK Hunting for ALM Opportunities, and Balancing ALM Profitability & Risks 7. Presentation: How Progressive ALM Drives Up Bank Return on Equity - Choosing KPT's for ALM Identifying Those ALM KPT s That Are Correlated Most Strongly With Bank ROE Choosing the Most Important KPT s for Focusing ALM Strategy Execution Using ALM KPT s to Set More Challenging Yet Realistic Longer Term Objectives for Banks Cascading Board-Level and Top Executive KPT s Down to Lower Levels of Management 8. Presentation: Impact of Basel III on Bank Strategy, Profitability and Market Risk Management Overview of Basel III and Other Regulations Impact of Regulations on Banks Strategies, Profitability and Risk Management Major Challenges for Banks Arising from Basel III Strategic Changes Being Made by Banks to Reflect Regulatory Changes 9. Presentation: Overview of Technical ALM Methods Used by Leading Banks Measuring & Managing Risks: - Interest Rate Risk and Liquidity Risk - Currency Risk and Market Price Risk - Settlement and Credit Risks Formulation ALM Strategies and Policies, for example: - Rate Forecasting and Stress Testing - Value-at-Risk Models - Monte Carlo Simulations 10. Group Work: Initial Assessment of ALM Opportunities for Delegates Banks Assessing the Current Stage of Development of: - Money & capital markets in delegates countries - The ALM businesses of delegates banks - Current approaches to ALM at delegates banks Discussion About ALM Opportunities for Delegates Banks, For Example: Cutting Funding Costs, Advancing Credit at Higher Rates, Reducing Excessive Liquidity, Reducing Excessive Fixed Assets, Investing in Higher Yielding Investments, Reducing Intra-Group Funding Costs and Gearing-Up Capital 11. Case Study: Calculating ALM Profits and Separating Them from Customer Profits Introduction to the Case Study Bank s Balance Sheet and Income Statement 8

9 Calculating the Profits and Losses from the Bank s ALM Decisions and Customer Business Calculating the Profitability of an Illustrative Key Corporate Customer Deciding What Action to Take: - To adjust the bank s asset & liability structure - To increase the profitability of the illustrative key corporate customer More Discussion About Choosing the Correct Transfer Rate System 12. Case Answer: Calculating ALM Profits and Separating Them from Customer Profits Delegates Answers to the Case Study in Session 11 Presentation of the Model Answers Discussion About How to Strengthen ALM Profitability Measurement at Delegates Banks 13. Group Work: Strengthening ALM Risk Management at Delegates' Banks Identification of Main ALM Risks Faced by Delegates Banks Assessing the Strengths & Weaknesses of ALM Risk Management by Delegates Banks Identifying How Delegates Banks Should Upgrade ALM Risk Management and Culture Summary of Day 2 DAY 3 THEME 3: ORGANIZATION, SKILLS & SYSTEMS FOR PROGRESSIVE ALM Involving the Right People in the Right Way With the Right Systems 14. Presentation: The Roles of Boards and ALCO's in Banks With Advanced ALM Roles of Board Committees in Setting Market Risk Appetite and Governing ALM Terms of Reference and Memberships of ALCO s in Progressive Banks 15. Presentation: Providing Essential ALM Support to Bank Leaders - Analysis, Communications and Education Main Strategies, Policies and Other Guidelines Produced by Advanced ALCO s Providing ALM Business Policy Information Needed by ALCO Providing ALM Support Policy Information Needed by ALCO Communicating ALM Policies from ALCO to Units Across the Bank Case History: The Vision of ALM in the Years Ahead at a Progressive Bank 16. Group Work: Upgrading ALM Support Provided to Top Teams of Delegates' Banks Defining the ALM Support Required by the Top Teams of Delegates Banks Assessing the Quality of ALM Support Currently Provided by Delegates Banks Identifying Ways that Delegates Banks Should Improve ALM Support to Their Top Teams 17. Presentation: ALM Skills Needed by Senior Bankers Involved in ALM Bank Board Members, Members of ALCO s, and Members of ALCO Support Groups Members of Treasury Committees, Treasury Sales & Trading, Operations and IT Personnel Financial Controllers. Internal Auditors and Compliance Officers 18. Group Work: Upgrading ALM Skills & Systems at Delegates' Banks ALM Policy Formulation and Sales & Trading Strategy Formulation 9

10 Organization of ALM Measuring and Managing ALM Profitability and Risks ALM Modelling Methods ALM-Related IT Systems THEME 6: PRIORITIES FOR PROGRESS AT DELEGATES BANKS Deciding How Delegates Banks Should Advance to World-Class ALM 19. Presentation: Methodology for Assessing Banks' ALM Against World- Class Standards - PALM Overview of the Progressive ALM Assessment Methodology PALM Main Elements of ALM Assessed by PALM Definition of Standards of the Elements and Sub-Elements of ALM Case Histories: PALM Assessments of Illustrative Banks and the Action They Took: - A Large Bank in the Middle East, Active in Several Foreign Countries - A Leading Bank in Eastern Europe - A Major European International Bank Active in Over 30 Countries 20. Group Work: Advancing ALM at Delegates Banks to World-Class Standards Deciding What Action to Take to Advance ALM to World-Class Standards Proposing Timetables for Moving Ahead 21. Presentation: Summary of the Course Evaluation of the Course Presentation of Certificates Closure of the Course 10

11 The workshops Trainer About the Course Leader Chris Batt is an acknowledged adviser to the owners, leaders and senior managers of banks about strategy, reorganization, best-practices and profit improvement. He is an experienced banker and bank strategist, and has served over 160 banks in more than 60 countries. He designs and leads workshops & seminars for the owners, boards and top executive teams of banks around the world. He has guided the leaders of numerous banks with the establishment of many best-practices relating to key businesses and management functions. Some of these banks are large, famous global banks. Others are leaders in their local markets. He was elected a Fellow of the UK s Chartered Institute of Bankers (FCIB) in recognition of his status in UK banking and training services to senior bankers. As a banker, he has held senior positions in the UK, Continental Europe, the USA, Middle East and Russia: Jordan: Jordan Ahli Bank, Chief Executive USA: Visa International, Member of Visa s top Executive Committee, Head of Global Strategy Russia: Large Commercial Bank, Chairman of the Group Credit Policy Committee Spain: Major Universal Bank, Strategy Adviser to the Chairman and to the Chief Executive UK: Grindlays Bank, Director of the Specialized Financial Services Division, GM of Group Planning UK: NatWest Bank, Group Planning Manager, Head of Management Sciences As a consultant to banks, he has worked for: Batt-Consulting: Chairman and Founder in 1990 A.T. Kearney: Partner, Head of the Global Banking Group Booz Allen & Hamilton: Partner, Head of the European Banking Group Mckinsey & Company: Senior Engagement Manager, European Banking Practice Spicers Consultants: CEO, United Kingdom, Hong Kong and Singapore Chris Batt has the following qualifications: A master s degree in the Natural Sciences from Cambridge University MA with Honours A master s degree in the Management Sciences from London University with special application to risk management in banking MSc with Distinction The Diploma of the Imperial College of Science & Technology in Operational Research & Advanced Systems Analysis DIC with Distinction Some Comments About Courses Led by the Course Leader "I would recommend this course to the top management of any bank" "The best strategy education I've had so far" "The course is brilliant. The contents are amazingly helpful" "A lot of interesting topics with great in-depth explanations" "The course content was comprehensive, very relevant and well delivered" "An excellent course" 11

12 This course needs no improvement. It s simply excellent Perfect! The course director was absolutely excellent "It was one of the most enriching courses I have ever attended The course will certainly help in challenging certain concepts and structures in our bank" "The key messages put across were so effective that I came out "traumatized" - so much so, that I even want to change jobs in my bank so that I can focus on income generation 12