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

Depending on the portfolio hierarchies defined, you can calculate scenario-dependent periodic interest results and valuation results affecting P+L on any aggregation level. By calculating valuation figures, the balance sheet-related depreciation risks, resulting from the market price risks of securities and derivatives in the non-trading area, are included in profit and loss calculation.

To be able to use the functions of the Asset/Liability Management (IS-B-SA-ALM) component, you need to have made the required system settings in Customizing under SAP Banking ® Strategic Enterprise Management (SEM) ® Risk Analysis ® Common Settings for Market Risk and ALM or SAP Banking ® Strategic Enterprise Management (SEM) ® Asset/Liability Management (ALM).

The ALM module covers the functions of gap analysis and flexible procedures for new transaction simulation. In order to highlight future developments in the balance sheet structure and in P+L, you have to make certain assumptions about future transactions and generate these in the R/3 System. The generated new business is stored separately in the data pool on the basis of single transactions. This enables you to plan new business volumes at the profit center level, and distribute these new transactions to a portfolio structure organized by 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. The user defines fictitious transactions. In addition to new transaction simulation, the scope of functions in the ALM component extends to calculating interest and currency-related depreciation risks for existing and planned security transactions and derivative instruments (P+L evaluations). For this purpose you can define what are known as write-down rules, and calculate, for example, according to a moderate or stringent lowest value principle.

The following functions are available in the ALM component:

• In addition to the evaluations contained in gap analysis, the system provides the interest result evaluation and P+L evaluations (in local and transaction currency). The following evaluations are available: