Paper
Development Best Practices in Credit Union Supervision: Examination Process -Asset, Liability Management Review
An operational guide for an asset liability management review in a credit union
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6 pages
The paper presents the significance of an Asset Liability Management (ALM) review in a credit union and the operational guidelines to conduct the review.It illustrates how the review process would help the union to:
- Maintain reasonable profitability;
- Minimize interest rate risk;
- Provide adequate liquidity.
The paper proposes the following steps for the review process:
- Step 1: Review the union's ALM policy document;
- Step 2: Perform ALM qualitative analysis:
- Focus on exposure of the union to market changes and the management's awareness, ability and willingness to make adjustments.
- Step 3: Perform ALM quantitative analysis:
- Focus on ratios and trends that judge the ALM position of the union.
- Step 4: Perform GAP analysis:
- Analyze the match between Rate Sensitive Assets (RSAs) and Rate Sensitive Liabilities (RSLs);
- Consider opportunities for re-pricing assets and liabilities that could be reinvested.
Finally, the paper also discusses the:
- Limitations of the GAP analysis;
- Questions to assess the quality of the GAP analysis report;
- Signs of warning that indicate potential problems;
- Responsibilities of the examiner in reporting the identified ALM deficiencies.
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