Asset/Liability Management

Purpose

The purpose of the balance sheet simulations in the component Asset/Liability Management (IS-B-SA-ALM) is to examine, from a strategic point of view, how profitability is affected by various business developments, and interest, currency and volatility scenarios.

Based on the portfolio hierarchies you set up in the system, you can use scenarios to determine the net interest income per period, and at any aggregation level.

Implementation Considerations

To be able to use the functions of the Asset/Liability Management (IS-B-SA-ALM) component, you need to have made the required settings in Customizing under Start of the navigation path SAP Banking Next navigation step SEM Banking Next navigation step Common Settings for Market Risk and ALM End of the navigation path or Start of the navigation path SAP Banking Next navigation step SEM Banking Next navigation step Asset/Liability Management (ALM) End of the navigation path .

Features

The ALM module includes functions for gap analysis, and flexible methods for simulating new business. In order to analyze how the structure of your balance sheet may look in the future, you have to make certain assumptions about future business, and reflect these assumptions in the SAP system. The generated new business is stored separately in the data pool as single transactions. This enables you to plan new business volumes at profit center level, and distribute these new transactions to a portfolio structure, which is subdivided into balance sheet items. The ALM architecture allows you to integrate decentralized planning into balance sheet-based overall bank controlling. The following simulations are supported:

Simulated transactions are transactions that the system generates automatically based on system settings. Fictitious transactions are defined by the user.

The following functions are available in the ALM component:

  • In addition to gap analysis, the system also contains other evaluations for analyzing currency liquidity, and net interest income. These are:

  • The system displays the results using the SAP List View (ALV) . This presentation tool for lists with generic functions enables you to create display variants flexibly.

  • In ALM simulation, you can use multiple scenarios and scenario progressions as the basis of the valuation. You can also switch between the relevant scenarios/scenario progressions within ALM simulation.

  • You can display the results of ALM simulation either in the overview screen (selected key figures for all scenarios and scenario progressions) or in the detail screen (key figures for a scenario or scenario progression).

  • You can also split the net interest income into the net interest margin, and the profit/loss from the mismatch spread.

  • Application of implicit and explicit due date scenarios. Using implicit due date scenarios, you can define fictitious maturities for products without fixed terms. You use explicit due date scenarios in gap analysis and ALM simulation to enable you to take into account early repayments, for example.

  • Flexible procedures for simulating new business, such as the fast entry of fictitious financial transactions, following ALM simulation. The effects of the new business can be seen immediately.

  • The simulated and fictitious transactions can be saved, and later evaluated using NPV analysis, value-at-risk analysis, and gap analysis.

  • You can extract the saved results of ALM simulation to the SAP Business Information Warehouse (BW) and use them in BW analyses.

  • You can also balance your balance sheet, and take non-interest profit and loss items into account.

Process Diagram