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Business Case for ALM Diagnostic


The uncertainty caused by global macroeconomic headwinds, combined with on-going pressure triggered by the failure of Silicon Valley Bank require lenders to be more cautious and strategic about how they safeguard and grow their balance sheets. No matter what the likely evolution of the business environment, we anticipate the following scenarios for banks over the next 12 months:

  • Upside case: Long drawn-out downward cycle predicated on gradual drop in inflation with downward movement of key interest rates likely to begin in the second half of 2024.
  • Downside case: Deteriorating defaults and their knock-on effect on institutional cost of borrowing leading to higher cost of borrowing and/or likely credit freeze for corporates and individuals. Declining disposable income can lead to competition for deposits amongst banks, which can exacerbate the volatility attributed to tenor mismatch. As competition to mobilize deposits increases, so will payments to customers, effectively reducing the banks’ income, leading to a ‘basis risk event’ and hence liquidity shortfall.
  • Stress case: Increased cost of borrowing can lead to higher foreclosures and increased specific and general loan losses. Combined with deteriorating macroeconomic conditions and loss of consumer confidence, the default rate is likely to increase in commercial and residential real estate sectors, leading to higher than expected loan losses.

Clearly, the banking model has come under pressure with diminishing profit pools. Even global systemically important banks have become vulnerable to interest rate volatility as was evidenced by Credit Suisse. The burning question is how were the red flags missed in the presence of sophisticated ALM systems.

By getting an unbiased expert opinion on balance sheet and ALM risks, banks can realign strategy, if necessary, diminish any doubts and instill confidence. BankingBook Analytics (BBA), a Canadian data and analytics fintech firm, is offering to back-test ALM model and its proprietary software-facilitated independent diagnostic providing powerful insights.

BB-ALM™ is an outcome of three decades of expert modelling and quantitative finance research, application and financial partners. Using macroeconomic scenarios, its powerful analytics eco-system is developed to safeguard and protect the balance sheet from the challenges of current and emerging risks.

Specifically, BBA’s ALM engine can help global financial institutions measure and build value by robust revaluation of assets and liabilities based on par and spot rates using organically derived cost of funds. Robust ALM risk measurement metrics, e.g., economic value of equity, interest income-at-risk and net interest margin, ensure banks’ Treasury and ALCO deploy tactical and strategic opportunistic plays for loss mitigation and profit maximization.

This objective evidence based expert diagnostic will ensure our clients are able to advance their digital transformation in the key strategic area of ALCO reporting, significantly reducing labour intensive data reporting, transmission and aggregation errors, increasing productivity and redeploying excess capacity to value-add activities. This will also enable our clients to safeguard their balance sheets and income statements from liquidity, interest and market risks; and position them for achieving growth objectives based on natural immunization from market rates volatility.

For more information, contact BBA Marketing

+1 (905) 499-3618

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