Asset Liability Management

Modern asset liability management (ALM) faces the challenges of increasing regulatory requirements and ongoing cost pressure. Digitalisation is not only a challenge, but also an opportunity to set up modern ALM solutions.

From our many years of intensive cooperation with the operational and strategic treasury and risk functions of German, European and international banks of all sizes, we bring in-depth ALM know-how. Our comprehensive solutions address both regulatory and economic requirements for managing liquidity, interest rate and structural currency positions.

Our project experience shows that, in addition to methodological competence, the technical know-how in implementation (“ALM architecture and IT landscape”) is decisive for success. Therefore, our solutions cover the full spectrum from conception to implementation. We place a special focus on processes and booking models that enable the efficient implementation of state-of-the-art models.

In the area of liquidity risk management, we work with our clients on efficient methods and processes for measuring, controlling and reporting liquidity positions. This applies to short- and medium-term liquidity positions as well as to structural liquidity positions. Over the last few years, we have further developed our solution approaches in many areas and have consistently focused on digitalisation to ensure efficiency and regulatory compliance for our customers. These areas of development include, for example: liquidity stress testing, deposit modelling, liquidity reserve calibration, funds transfer pricing, forecasting and projection of liquidity positions, liquidity contingency plans, LCR and NSFR reporting.

A particular focus in recent years has been on intraday liquidity. Our clients face a number of challenges in this field, which we successfully support them in overcoming. The questions from the perspective of intraday liquidity risk management range from the calculation and reporting of ratios to stress testing and the determination of risk tolerance and the corresponding limits. But exciting challenges also arise outside of risk controlling, in treasury or payment transactions. Here we have already supported various banks in the automation of processes and the further development of intraday forecasting as well as the intraday control of the various central bank and nostro accounts.

The management of interest rate risk in the banking book (IRRBB) is being significantly further developed at many banks due to the historically low interest rate environment and due to the increased regulatory (reporting) requirements. In this environment, we support banks in achieving appropriate IRRBB management and in mastering the supervisory challenges. We have established ourselves as the market leader in the field of IRRBB among medium-sized and large German banks. With the help of our practical benchmark knowledge, our clients’ IRRBB management is further developed in a targeted and efficient manner. In particular, we conduct cost-efficient IRRBB gap analyses for our clients, develop practical solutions for IRRBB calculation and control, deploy our own solutions on an event-driven basis in a targeted manner (e.g. for NII simulation and stress testing), provide support for make-or-buy decisions or vendor system selection, and implement complete IRRBB management approaches.

Structural currency risk (SFX) in the banking book has not been subject to equally intense regulatory pressure compared to other treasury topics such as liquidity and interest rate risks. However, the ongoing volatility in the FX markets has now drawn the regulators’ focus to this sub-sector as well. In this context, the EBA issued a Discussion Paper on 22 July 2017.

As part of the “Implementation of Best Practice and Streamlining of SFX Risk in the Bank Book”, KPMG makes internationally active clients confident in dealing with structural currency risks. The special focus is on the topics of capital and ratio management, which also includes dealing with corporate actions, as well as profit & loss sell-down. Within these areas, various aspects are highlighted, such as systems and processes, the design and implementation of the methodology, and the application of the instruments in accordance with the rules. Here, KPMG strives to serve the interface between the conception in accordance with the rules and the highest possible degree of automation of the processes required for this.

KPMG already carried out a benchmarking exercise on this topic last year and used this to show optimisation potential for several clients.

In the context of efficiency measures in the area of ALM, we have increasingly worked on the automation of processes and further developed our solutions during the last few years. Our approaches range from process automation to the use of intelligent algorithms for forecasting accounting and risk positions. In addition, we have developed efficient accounting management methods and the corresponding booking models together with our clients. We see the areas of processes and booking models as integral components of modern and efficient ALM.

Together with our customers, we develop the basis for a sustainable ALM architecture. IT in banks is confronted with an ever-increasing number of internal and external requirements in the area of ALM, while complexity is constantly rising. At the same time, it is important to keep other requirements in mind, for example, in the area of data quality and internal cost structures.

Our approach is to look at the requirements from both a business, process and IT perspective and jointly develop a customised customer solution. Here we offer our industry know-how in the field of technical solutions and implementation methods.

Have we piqued your interest in our services? Contact us – we’re happy to support your business entity.