The funding and lending strategies recommended by the treasury department to the Asset and Liability Committee (ALCO) of a bank can vary during different phases of the banking business. Here are some general strategies that the treasury might suggest :
1. Stable Phase:
· Funding Strategy: During a stable phase, the treasury may recommend maintaining a well-balanced funding mix. This could involve attracting stable deposits from retail and corporate customers, as well as issuing medium to long-term debt securities to diversify funding sources.
· Lending Strategy: In a stable phase, the treasury might suggest focusing on prudent lending practices with a balanced approach. They may emphasize maintaining credit quality, ensuring appropriate risk management, and targeting sectors and borrowers with steady cash flows and low credit risk.
2. Growth Phase:
· Funding Strategy: In a growth phase, treasury may recommend strategies to support the bank's expansion plans. This could involve actively attracting new deposits, expanding the customer base, and exploring capital market options such as issuing equity or subordinated debt to strengthen capital ratios.
· Lending Strategy: During a growth phase, treasury might suggest a more aggressive lending strategy to capitalize on market opportunities. They may focus on sectors and borrowers with growth potential, while ensuring prudent risk assessment, credit monitoring, and risk diversification.
3. Recovery Phase:
· Funding Strategy: During the trough or recovery phase, treasury may recommend capitalizing on potential market opportunities. They might suggest selectively accessing the capital markets to issue debt or equity instruments when market conditions are favorable. Additionally, they may consider refinancing existing liabilities to take advantage of lower interest rates
· Lending Strategy: In this phase, the treasury might propose a more balanced lending strategy. They could evaluate opportunities to support the recovery by extending credit to viable businesses and sectors showing signs of improvement. The focus may be on stimulating economic activity while maintaining prudent risk management practices.
4. Restructuring Phase:
· Funding Strategy: In a restructuring phase, the treasury may emphasize liquidity management and capital preservation. They might suggest securing stable funding sources, such as core deposits, to enhance the bank's liquidity position and mitigate potential liquidity challenges.
· Lending Strategy: During a restructuring phase, the treasury might recommend a defensive lending strategy. They may focus on risk mitigation, including restructuring problem loans, managing credit concentrations, and implementing stricter underwriting standards. They might also assess loan portfolio quality and reduce non-performing assets.
It's important to note that these strategies are general guidelines, and the specific recommendations would depend on the bank's unique circumstances, market conditions, regulatory requirements, and risk appetite. The treasury department, in collaboration with the ALCO, would assess the bank's position, market dynamics, and strategic objectives to make informed decisions regarding funding and lending strategies at each phase of the banking business.