Bank Asset and Liability Management

The Hong Kong Institute of Bankers (The HKIB) has been serving the local banking community in the provision of education and training since 1963. In 1995, with the encouragement and support of the local banking community, the Institute declared its independence from its parent institute in UK. With an independent status, the Institute is able to better serve the training needs of the bankers in the region and to reflect the importance of Hong Kong as an international financial center. The continuous professional development program, which comprises of professional examinations and training courses, has helped bank employees to make advancements in their banking career, and is valued by most of them who are determined to strengthen their knowledge base. In view of the changing landscape of the banking industry in Hong Kong, the importance of continuous professional development and education in this competitive financial market has gained increasing attention. The professional examinations and training programs are offered for members or bank staffs to equip with the essential skills and knowledge to help them "fast-track" their management career.

FOREWORD (Bank endorsement)


PREFACE





Part 1: Asset and Liability Management


Chapter 1: Managing Bank Profitability


Learning Objectives


Introduction


1.1 Banking structure and regulation


1.1.1 Mandatory financial disclosure on banks





1.2 Bank financial statements


1.2.1 Income and profit


1.2.2 Off balance sheet items


1.2.3 Non–financial information





1.3 Evaluation of bank profits





1.4 Measuring bank profitability


1.4.1 Interest and non–interest revenues/expenses


1.4.2 Cost of funds, return on equity, return on assets and net interest margin


1.4.3 Different approaches to balance sheet management


1.4.4 Accounting profit vs. economic profit


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Chapter 2: Asset and Liability Management Committee


Learning Objectives


Introduction


2.1 The role and functions of Asset and Liability Management Committee (ALCO)


2.1.1 Asset and liability management


2.1.2 Liquidity and funding risk management





2.2 ALCO plan development





2.3 ALCO pack


2.3.1 Financial ratios


2.3.2 Influence for market strategy


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Chapter 3: Managing Bank Assets and Liabilities


Learning Objectives


Introduction


3.1 Managing bank assets


3.1.1 The loan portfolio


3.1.2 The investment portfolio


3.1.3 Securitization


3.1.4 Liquidity management – assets





3.2 Managing bank liabilities


3.2.1 Sources of funds


3.2.2 Deposit structure


3.2.3 Impact of interest rate changes on net interest spread


3.2.4 Liquidity management – liabilities


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Chapter 4: Banking Regulations


Learning Objectives


Introduction


4.1 Banking regulation and the role of the central monetary authority





4.2 Roles of HKMA


4.2.1 RTGS


4.2.2 Intra–day repo


4.2.3 Discount window


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Part 2: Managing Liquidity Risk and Interest Rate Risk


Chapter 5: Capital and Liquidity Management


Learning Objectives


Introduction


5.1 Definitition and functions of capital, standards of capital adequacy under Basel II/III


5.1.1 Measurement of capital adequacy


5.1.2 Tier 1 (Core) and Tier 2 (supplemental) capital requirements, capital planning





5.2 Determining a bank’s funding needs


5.2.1 Meeting legal reserve requirements


5.2.2 Loan and deposit trend forecasts


5.2.3 Liquidity gap estimation


5.2.4 Liquidity planning





5.3 Stress testing


5.3.1 Capital and liquidity management policies


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Chapter 6: Managing Interest Rate Risk


Learning Objectives


Introduction


6.1 Types of interest rate risk





6.2 GAP analysis





6.3 Duration analysis





6.4 Basis point value (BPV)





6.5 Hedging interest rate risk





6.6 Syndication capital management





6.7 Securitization


6.7.1 Liquidity management


6.7.2 Asset management


6.7.3 Capital management





6.8 Net interest income sensitivity analysis


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Chapter 7: Long Term Market Risk


Learning Objectives


Introduction


7.1 Long term risks


Summary


List of key terms


Study guide (five questions)


Further reading/websites





Glossary


Index