An ALCO paper, covering all the prescribed issues,
must be presented in every meeting of ALCO. The Treasury Management Department
will be to present the paper incorporating all necessary information, analysis
and suggestions from the related departments including its own opinion, if
necessary, on the related issues. A separate observation from RMD regarding
market and liquidity risk shall also be included in the ALCO paper. The
decision taken against each issue should be carefully noted and preserved for a
reasonable time (Not less than 3 years).
The Asset Liability Committee (ALCO) paper typically includes a range of information related to the management of a financial institution’s balance sheet, with a focus on managing risks related to interest rate risk and liquidity risk. The specific contents of an ALCO paper may vary depending on the institution’s specific circumstances and priorities, but it may include the following:
· Confirmation of Minutes of last meeting that contains formal confirmation of the last ALCO meeting minutes.
· Review of the action items of the previous meeting contains detailed discussion on the progress of the action items and review deadlines if appropriate.
· Review of economy items that may be included are GDP growth, inflation, credit growth, govt borrowing, export, import, remittance, FX Reserve and current account balance and markets items that may be included are: movement of interbank market liquidity, call money rates, term money rates, govt. securities yield. Also, a comparison of interest rates offered by comparable banks can be important.
· Review of Balance Sheet limits utilization- AD ratio, Commitments, LCR, NSFR, Loan and Deposit Concentrations (If applicable), etc. Items which are not at acceptable levels are reviewed further in details and corrective actions proposed.
· Review the various regulatory liquidity requirements (CRR, SLR, Capital Adequacy, etc.) and compliance with those, i.e. Top 10 Depositors and Borrowers list etc.
· An analysis of the institution’s liquidity risk profile an discussion of the strategies and tools used to manage that risk, such as maintaining adequate levels of liquid assets, establishing lines of credit, and monitoring cash flows.
The ALCO should closely monitor the developments around various liquidity issues in every meeting. It is also mandatory for the Treasury Department to inform the board (ALCO in case of foreign bank) regarding various liquidity issues (e.g. CRR/SLR, SLP, LCR, NSFR, ADR and IDR) in every board/ALCO meeting of the bank.