Asset Liability Management (AML) is the most important aspect to maintain the bank’s image and soundness. It manages the Balance Sheet Risk, especially for managing of liquidity risk and interest rate risk.
A bank would have managed a major portion of its risks by having in place a proper ALM policy attending to its interest rate risk and liquidity risk. These two risks when managed properly lead to enhanced profitability and adequate liquidity. It should be used strategically for deciding the pricing and structure of assets and liabilities in such a way that profitability, liquidity and credit exposure is maintained. Hence one cannot neglect credit risk in the ALM process.
So, it is essential to form “Asset Liability Management Committee (ALCO)”with the senior management to
control
the crises
to jeopardize the
bank’s image
and soundness.