What is ASSET LIABILITY MANAGEMENT ?

ALM is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earning from interest is maximised within the overall risk-preference (present and future) of the institutions.  The ALM functions extend to liquidly risk management, management of market risk, trading risk management, funding and capital planning and profit planning and growth projection.

Asset-liability management basically refers to the process by which an institution manages its balance sheet in order to allow for alternative interest rate and liquidity scenarios. Banks and other financial institutions provide services which expose them to various kinds of risks like credit risk, interest risk, and liquidity risk. Asset liability management is an approach that provides institutions with protection that makes such risk acceptable.

nitially pioneered by Anglo-Saxon financial institutions during the1970s as interest rates became increasingly volatile, asset and liability management (often abbreviated ALM) is the practice of managing risks that arise due to mismatches between the assets andliabilities.

Agreed with the answers to colleagues

Great answer

The administration of policies, procedures which addresses financial risks related to changing interest rates, foreign exchange rates, other factors which can affect a Organization's liquidity.

I fully agree with Mr Jetley. But I have a question. With a high proportion of NPA do Indian nationalised banks have any ALM policy. I do think private and foreign banks do follow the policy otherwise they cannot survive .

The ATM or the asset liability management is the administration of policies and procedures that attack financial risks associated with the changing interest rates, foreign exchange rates and other factors that can affect the liquidity of a company.

Agreed to Mr. Muhammad Shakeel.

1. It  can be viewed as a mechanism to control  the risk faced by a bank due to a mismatch between assets and liabilities either due to liquidity or changes in interest rates. This is fundamental for a good balance in the cashflow.