CASE STUDY QUESTION [100 MARKS]Asset and liability management (ALM) is a practice used by financial institutions to mitigate financial risks resulting from a mismatch of assets and liabilities. The practice of ALM can include many factors, including strategic allocation of assets, risk mitigation, and adjustment of regulatory and capital frameworks. By successfully matching assets against liabilities, financial institutions are left with a surplus that can be actively managed to maximize their investment returns and increase profitability.
A full ALM framework focuses on long-term stability and profitability by maintaining liquidity requirements, managing credit quality, and ensuring enough operating capital. Unlike other risk management practices, ALM is a coordinated process that uses frameworks to oversee an organization’s entire balance sheet. it ensures that assets are invested most optimally, and liabilities are mitigated over the long-term. Traditionally, financial institutions managed risks separately based on the type of risk involved. Yet, with the evolution of the financial landscape, it is now seen as an outdated approach.
ALM practices focus on asset management and risk mitigation on a macro level, addressing areas such as market, liquidity, and credit risks. Unlike traditional risk management practices, ALM is an ongoing process that continuously monitors risks to ensure that an organization is within its risk tolerance and adhering to regulatory frameworks. The adoption of ALM practices extends across the financial landscape and can be found in organizations, such as banks, pension funds, asset managers, and insurance companies.
As a strategic finance analyst, provide an evaluation report of the financial sector, based on the on-balance sheet activities (i.e., ALM) of selected homogenous financial institutions in the financial sector, within the past decade in Ghana.
Hint: Choose at least 6 financial institutions under any of the listed categories below, over the last 6-year period in recent times:
1. Banking Sector
2. Pension Sector
3. Insurance Sector
4. Microfinance Sector
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