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1、SIME BANK BERHAD Report on Market Risk: Asset and Liability Management 21 October 1997 Prepared by kpmgAsia Pacific Consulting Table of Content 1.EXECUTIVE SUMMARY1 2.INTRODUCTION2 2.1FORMAT OF THIS REPORT2 2.2METHODOLOGY2 2.3OVERVIEW OF ALM PROCESS and -there is difficulty in implementing ALCO deci
2、sions. 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 wholesale), -it is difficult to respond to changes in the business environment and economic climate; and -
3、there is a limited range of tools to minimise market risk. kpmg Asset and liability management ReportPage 2 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 ri
4、sk enhancement programme 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. Furthermore, there is difficulty in attracting customer deposit
5、s and hence heavy reliance has been placed on interbank activity. Consequently, many interbank lines are fully utilised. RECOMMENDATIONS This report presents recommendations for the enhancement of risk management practices in each key risk area identified. The key risks include: liquidity risk; mark
6、et 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 international standards of market practice which wer
7、e 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 techniques. These should focus on managing liquidity an
8、d interest rate risk, hedging with various Treasury instruments, employing various organisational 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 strateg
9、y 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 specify and identify the information they require fo
10、r 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 unavailable. We recommend the establishment o
11、f an independent, dedicated group responsible for Market Risk Management. We also recommend that the ALM Support unit is absorbed into this function. kpmg Asset and liability management ReportPage 3 Skill upgrade within Treasury by means of skills transfer from external resources can run in parallel
12、 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 processes and system integrat
13、ion 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 analysi
14、s. 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,
15、crisis 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 establ
16、ish 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 respect 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 t
