毕博上海银行咨询Sime Bank Market Risk ALM Report.doc

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1、SIME BANK BERHADReport onMarket Risk:Asset and Liability Management21 October 1997Prepared bykpmgAsia Pacific ConsultingTable of Content1.EXECUTIVE SUMMARY12.INTRODUCTION22.1Format of this report22.2Methodology22.3Overview of ALM process & environment at Sime Bank23.PRINCIPAL ALM RISKS AND KPMG RECO

2、MMENDATIONS23.1Major risks23.2Risk: ALM strategy, risk tolerance level and accountability23.2.1Recommendation: ALM strategy workshop23.2.2Benefits23.3Risk: Organisation Structure & framework23.3.1Recommendation: Organisation structure and framework23.3.2Benefits23.4Risk: Human Resources23.4.1Recomme

3、ndation: skill acquisition and knowledge transfer23.4.2Benefits23.5Risk: Management Information Systems (MIS)23.5.1Recommendation: improved management information23.5.2Benefits23.6Risk: Liquidity Risk23.6.1Recommendation: extended analysis and monitoring23.6.2Benefits23.7Risk: Structural Interest Ra

4、te Management23.7.1Recommendation: extended analysis and monitoring23.7.2Benefits23.8Risk: Foreign Exchange (FX) Risk23.8.1Recommendations: establish a formal policy and FX exposure limits23.8.2Benefit23.9Risk: Documented Policy and Procedures23.9.1Recommendation: develop policy, procedures and limi

5、ts appropriate to ALM23.9.2Benefits23.10Risk: ALM Processes & IT23.10.1Recommendation: automated processes and systems integration23.10.2Benefits23.11Risk: Capital Management23.11.1Recommendation: implement a transfer pricing mechanism23.11.2Benefits24.ACTION PLANS2APPENDIX 1 - RISK REGISTER2APPENDI

6、X 2 - ASSET AND LIABILITY MANAGEMENT PROCESS DIAGRAM2APPENDIX 3 - COMPARISON WITH INTERNATIONAL STANDARDS2APPENDIX 4 - SAMPLE MANAGEMENT INFORMATION REPORTS21.Executive SummaryINTRODUCTIONWe have produced two reports on market risk, focusing on “Treasury” and “Asset and Liability Management” (ALM).

7、Both reports highlight a number of key areas in which action is required to strengthen the Banks management of market risks.We have produced two separate reports to draw a distinction between the price risk arising from the trading activities of the Bank and the asset and liability management functi

8、on 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. However, the action plans designed to address these issues are the same, because both Treasury and ALM ultimately pertain to the management

9、 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 Treasury risks (e.g. foreign exchange and money markets) as well as ALM risks (e.g. liquidity and structural interest rate risks).FINDINGS

10、 The 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 management techniques,- there is inadequate information for controlling and planning purposes,- there is a lack of articulation of market

11、 risk strategy and risk tolerance,- existing practices fall short of international market and regulatory standards of best practice,- price risk is currently small but there are plans to expand Treasury operations; and- there is difficulty in implementing ALCO decisions. The implications of this ass

12、essment in the immediate period:- it is difficult to maintain liquidity in adverse market conditions,- there is potentially a higher cost of funds (retail and wholesale),- it is difficult to respond to changes in the business environment and economic climate; and - there is a limited range of tools

13、to minimise market risk. The implication of this risk assessment in the long run may be an uncompetitive response to banking sector liberalisation and deregulation. KPMG therefore believes that a significant market risk enhancement programme is urgently required. The first priority should be reducin

14、g liquidity risk. Liquidity risk is a pressing issue. There is limited forward planning for short term funding requirements or long term financing needs. Furthermore, there is difficulty in attracting customer deposits and hence heavy reliance has been placed on interbank activity. Consequently, man

15、y interbank lines are fully utilised.RECOMMENDATIONSThis report presents recommendations for the enhancement of risk management practices in each key risk area identified. The key risks include: liquidity risk; market risk strategy and risk tolerance; organisational structure; management information

16、; risk measurement; documented policy and limits; processes and IT; and market related credit risk.Our recommendations have been evaluated against regulatory and international standards of market practice which were discussed in the Treasury and ALM workshops. The following bullet points highlight o

17、ur key recommendations. We recommend a series of market risk management workshops for staff to increase understanding of Treasury products and risk management techniques. These should focus on managing liquidity and interest rate risk, hedging with various Treasury instruments, employing various org

18、anisational models, using measurement techniques and valuation methodologies. We recommend a series of focused market risk management workshops for senior management with the aim of developing a market risk strategy including articulation of risk tolerance levels. Management Information Systems (MIS

19、) 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 specify and identify the information they require for decision making. This is most urgent with respect to ALM where information is requir

20、ed 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 unavailable. We recommend the establishment of an independent, dedicated group responsible for Market Risk Management. We also reco

21、mmend that the ALM Support unit is absorbed into this function. Skill upgrade within Treasury by means of skills transfer from external resources can run in parallel with external recruitment to ensure the bank is immediately prepared to implement its market risk strategy and to achieve its business

22、 objectives. We have proposed a systems architecture for Sime Bank which provides the necessary business links for automation of manual processes and system integration in Treasury. The objective is to move toward implementation of a centralised database. We recommend the introduction of more sophis

23、ticated risk measurement techniques particularly with respect to interest rate management. For example, the use of time buckets, sensitivity analysis and Gap analysis. It is important for the Bank to develop a comprehensive, written policy, procedures and limits manual. This should include:- establi

24、sh clear roles and responsibilities,- set objectives for ALM policy,- establish a clear chain of command for limit monitoring, breaches, stop-losses, profit excess, crisis management,- specify limits and guidelines for measurement and control,- tier limits and include management action triggers and

25、detailed response; and- clarify valuation methodology and procedures. International Banking needs to co-ordinate and work together with the Credit division to establish a mechanism to measure, monitor, aggregate and control market related credit risk. Steps should be taken to reduce settlement risk

26、including completion of reconciliations on an up-to-date basis. Further, formalisation of confirmation requirements prior to settlement is required particularly with respect to corporate clients. The Bank is keen to expand its International Banking activities and would like to become involved in der

27、ivative products. Therefore the process of moving towards meeting international and Bank Negara Malaysias (BNM) minimum standards is important. We encourage the Bank to work towards attaining such regulatory approval with the belief that it will enable the Bank to compete more effectively, particula

28、rly 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 increasingly demanding and mobile customers. The corporate desk should conduct more complete analysis of customer activity and co-

29、ordinate its activity in foreign exchange, money markets, trade finance, etc. Once BNM approval for derivatives is granted, the corporate desk should expand its product range to include instruments such as swaps and options. We have developed a set of prioritised action plans as the output of our re

30、view. Our suggestion in relation to prioritisation and timing is set out in the following diagram.2.IntroductionThe purpose of this report is to summarise KPMGs findings from our evaluation of Sime Banks asset and liability management systems. These findings are based on extensive interview of front

31、 office, back office and senior management, review of relevant documentation (including minutes from Asset and Liability Committee meetings) and discussion of issues identified at the asset and liability management risk workshop. This report addresses all areas of ALM (liquidity, price risk, i.e., i

32、ncluding foreign exchange & interest rate, balance sheet structure, risk and reward ratio), except for market risk arising from Treasury operations, which is 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

33、 and liability management proficiency. The outcome should be the development of the expertise and framework within which detailed risk management policies and procedures can be developed for identifying, monitoring and reporting on ALM for the organisation. This approach will support the broader Sim

34、e 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 report with senior officers prior to reaching our final conclusions.2.1Format of this reportThis report is divided into the following sections:1.Ex

35、ecutive 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 process 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

36、 ALM related risk and discuss potential problems with current practices at Sime Bank. We then provide recommendations to reduce the risk and highlight the associated benefits.4.Action plans.In this section we have specified the actions required to implement the recommendations set out in section 3,

37、indicated our assessment of the priority for each action and made a suggestion regarding responsibility for completion and the major components of each enhancement.5.Appendices.Appendix 1 - Risk register.This appendix provides details of the major risk issues identified during our asset and liabilit

38、y 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 composi

39、te checklist of Sime Bank practice compared with international standards (ie. results of the benchmarking exercise).Appendix 4 Sample Management Information Reports.This appendix provides sample reports for ALM.2.2MethodologyOur review and assessments focus on the key elements of asset and liability

40、 management by: understanding the existing structure and policies of ALM including how it has evolved and the perceived limitations of current practice; identifying major risks arising in relation to asset and liability management, assessing current ALM processes and practices and evaluating the abi

41、lity to support the Banks growth strategy (i.e. by financing the growth and containing the risks); comparing Sime Bank practices with international market and regulatory standards; and proposing action steps and priorities to meet objectives and to mitigate the asset and liability management risk.We

42、 have conducted the following steps in performing the review and assessment of the asset and liability management systems in Sime Bank.1.We interviewed key personnel involved in the asset and liability management processes within Sime Bank. They included ALM support, Group Finance and Treasury.This

43、was the diagnostic phase. It provided us with a high level understanding of the Banks asset and liability management systems and enabled us to determine the major focus of our review. The results of this diagnostic phase and our preliminary observations were presented to the project steering committ

44、ee.2.We reviewed existing processes, technology, minutes of Asset and Liability Committee (ALCO) meetings, policy documentation and samples of management reports utilised by the Bank in conducting their ALM activities. We re-interviewed staff to gain a more detailed understanding of the Banks ALM pr

45、ocesses.Based on such reviews we mapped out a process diagram of the ALM process (refer to Appendix 2). During this phase we developed our initial assessment of the roles and the strength of the ALM process within the Bank.3.KPMG benchmarked Sime Bank practices against international standards. In co

46、nducting this benchmarking exercise we used a framework for ALM which we developed based on regulatory requirements (i.e. specified by BIS, Group of Thirty and the Bank of England) and our experience in banks in the region and overseas. 4.We conducted an ALM workshop with senior staff in Internation

47、al Banking, ALM support, Economic and Research and Group Finance divisions.The focus of the workshop was to provide an overview of asset and liability management, ensure all risks have been identified, evaluate the impact of the risks identified, perform a comparison with minimum standards and devel

48、op preliminary action steps.Appendices 1 and 3 to this report (Risk Register and Comparison with international standards) were developed based on the workshop and distributed to workshop participants for comments.5.Based on the outcomes and findings from the above steps we have compiled this report for senior management.6.Prior to issui