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MANAGEMENT POLICY
TABLE OF CONTENTS:
1.0 ASSET AND LIABILITY MANAGEMENT POLICY......................................... 3 1.1 PURPOSE ......................................................................................................... 3 1.2 OBJECTIVE ...................................................................................................... 3 1.3 RESPONSIBILITIES AND AUTHORITIES ................................................. 3 2.0 ASSET AND LIABILITY MANAGEMNT COMMITTEE (ALCO) ................... 4 2.1 Specific Roles ................................................................................................. 4 2.2 Membership ..................................................................................................... 4 2.3 Frequency of Meeting .................................................................................. 5 2.4 Quorum of the Meeting ................................................................................. 5 2.5 Agenda of the Meeting.................................................................................. 5 2.6 Preparation and Coordination of the Meetings...................................... 5 2.7 ALCO Reports ................................................................................................. 5 3.0 LIQUIDITY RISK MANAGEMENT .................................................................... 5 4.0 INTEREST RATE RISK MANAGEMENT .......................................................... 6 5.0 FOREIGN EXCHANGE RATE RISK MANAGEMENT. .................................... 6 6.0 CAPITAL ADEQUACY ....................................................................................... 6 7.0 NEW PRODUCTS.................................................................................................. 6 8.0 INVESTMENT POLICY........................................................................................ 7 9.0 TRADING POLICY ............................................................................................... 7 9.1 Dealing authority ............................................................................................ 7 9.2 Trading and Customer limits ...................................................................... 7 9.3 Mark to market ................................................................................................ 7 10.0 CONTINGENCY FUNDING POLICY ................................................................. 8 10.1 Contingency Funding Plan Team:-............................................................ 8 10.2 Contingency Plan Activation ...................................................................... 9 10.3 Actions to be taken during the crisis ....................................................... 9 10.4 Deactivation of plan ........................................................................................ 9 11.0 ALCO TARGETS & LIMITS ................................................................................ 9 12.0 IMPLEMENTATION OF THE POLICY ............................................................ 10 12.1 Control and Compliance ............................................................................ 10 12.2 Exceptions to the Policy ............................................................................ 10 12.3 Reporting........................................................................................................ 11 13.0 POLICY REVIEW AND APPROVAL ................................................................ 11 APPENDIX I: ALCO AGENDA...................................................................................... 12
Confidential
6/7/2010
The purpose of the Assets and Liabilities Management Policy is to guide the Bank on proper and continual management of its Assets and Liabilities to ensure robust balance sheet and profitability growth and sustainability through proper risk management. 1.2 OBJECTIVE
This policy intends to achieve the followings: Manage risks i.e. Interest rate risk, Exchange rate risk and Liquidity risk, in line with both Internal and Regulatory requirements. The aim is to achieve sustainable and stable profits within acceptable level of risks. Establish appropriate pricing levels and rates to ensure maximization of both interest rate and exchange rate margins. Maintenance of the Optimum Assets and Liabilities mix and composition to ensure maximization of shareholders wealth. Provide policy direction on the investment, trading and contingency funding strategies.
1.3
RESPONSIBILITIES AND AUTHORITIES The ultimate responsibility for proper management of the Banks assets and liabilities lies with the Board of Directors. The Board of Directors shall delegate that responsibility to Asset and Liability Management Committee (ALCO). ALCO shall be responsible for proposing amendments to Policies for Approval by the Board of Directors. Where approval is required between Board meetings, such approval may be sought from the Board Chairman and one other Director subject to report to the next full Board meeting. ALCO shall delegate limits/authorities to line management to enable the smooth functioning of the Banks day to day operations.
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY Management will be responsible for implementation and providing the information input to ALCO.
2.2 Membership The Committee comprises of the following members:1. 2. 3. 4. 5. 6. 7. Managing Director(Chairman) Head of Treasury (Secretary) Head of Corporate Banking Head, Institutional Clients & Retail Banking Head, Operations and Service Delivery Financial Controller Others where appropriate and/or by invitation.
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY 2.3 Frequency of Meeting
The Committee will meet on monthly basis except where there is an urgent matter, in which case, the Chairman/Secretary may decide to call for an ad-hoc meeting. Managing Director, Head of Treasury and Financial Controller will have brief meetings prior to ALCO meeting which will not require taking of notes. It is advised that they hold such briefing on weekly basis if there any material development that can not wait for the main committee. 2.4 Quorum of the Meeting Provided that at least 4 members are present, the quorum will be considered sufficient to make any decision. 2.5 Agenda of the Meeting The contents and format of the reports and agenda shall be determined from time to time but a typical meeting agenda should include but not be limited to the following: Economic and Financial Markets Review. Liquidity Risk Reports Review including liquidity ratios, liquidity gap analysis, depositors concentrations. Interest Rate Risk Review including interest rate gap analysis and Interest rate sensitivity analysis. Balance Sheet and Income Statement analysis. Pricing review including base lending rates, deposits rates, cost of fund Limits and Statutory compliance status Any other Business.
2.6 Preparation and Coordination of the Meetings The Secretary shall prepare the agenda, coordinate the information and reports and ensure the notice is given to all members two working days prior to the meeting .The Secretary shall also take minutes and ensure the same are circulated to members for them to follow up on the agreed action plans. 2.7 ALCO Reports All ALCO reports shall be precise and straight to issues of concern in order to keep the meetings focused.
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY ALCO shall review on a regular basis, the cash flow assumptions, stress testing, and other commitments to ensure they are realistic. ALCO will monitor material changes in interbank money markets, counterparty, large depositors, funding sources, cashflows and reserves. ALCO shall delegate authority to Head of Treasury for day to day management of the liquidity.
6.0
CAPITAL ADEQUACY
ALCO shall ensure that the Bank complies fully with both internal and regulatory capital adequacy. ALCO shall determine the future capital requirements and ensure the capital is aligned with anticipated business growth and expansion.
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY ALCO should ensure product programmes address booking procedures, accounting, risk mitigations and other regulatory compliance. The respective heads of business must table the products programmes in the ALCO before the products are launched to customers.
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY independent sources of market rates and ensure the trading positions are revalued daily.
1. 2. 3. 4. 5.
Natural disaster or national emergency having a long term impact. General distruct of banking system. Major detrimental economic change in Tanzania. Unfounded rumors concerning Banks financial stability. Dramatically reduced earnings, major fraud or major credit loss at UBA.
The most significant funding risk is considered to be in the final two scenarios, where the event precipitating a funding is UBA specific. 10.1 Contingency Funding Plan Team:-
This section lists by title those individuals responsible for activation and implementation of the plan. Managing Director Head of Treasury Manager, Money Markets Head, Corporate Banking Manager, Treasury Operations Head, Institutional Clients & Retail Banking Head, Operations and Services Delivery Financial Controller. Head of Marketing & Product Development Responsibilities of the CFP Team Designing and managing funding strategies Attending all customer enquiries Communicating information within and outside the Bank including the press
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY 10.2 Contingency Plan Activation
This plan will be activated when the bank is unable to fund its current commitments, as a result of sudden deposit erosion. Members of the contingency team will convene to decide if and when the plan is activated. The whole plan or any part could be activated depending on the cause and degree of severity of the loss of confidence. If the funding crisis is considered severe or long-term, the Board and BOT must be notified immediately. 10.3 Actions to be taken during the crisis
Immediate dialog with banks and other financial institutions with which UBA has an established standby funding facilities. Immediate arrange to raise funds from Banks and financial institutions whom UBA has lines of credit. Suspension of all lending activities Use Repurchase agreements with Banks and financial institutions. Access Bank of Tanzania intraday and Lombard facilities Sale/discounting of un-pledged securities Sale of loans. Communicate to Board of Directors, Bank of Tanzania, External Auditors and the media. Convene special Board of the Directors if the liquidity situation is severe. Preparation of a report detailing the crisis, outlining the course of actions and support being solicited. This shall also cover the initial response from customers ,employees, counterparty, news media, shareholders and regulators 10.4 Deactivation of plan
Contingency Team will determine when crisis has stabilized and loss of confidence has been restored to an acceptable level. Interested parties should be contacted to apprise them of the situations improvement.
Confidential
6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY Measurement method. The Treasury Department is responsible for daily monitoring of the Liquidity position, and ensuring that there are sufficient funds to meet this requirement. Deposit concentration. The Bank should avoid excessive reliance on few sources for deposits; concerted efforts should be made to diversify deposit sources. Top ten depositors should account for at most 40% of total Banks deposits. Limits on Fixed deposit interest rate of 6% and 1.5% for TZS and USD Fixed deposits respectively. This is possible though reducing our reliance on Fixed deposits from Pension Funds The Bank will maintain, at all times a minimum spread of 10% on TZS facilities and 5% on USD facilities. The ratio of interest earning Assets to Total Assets of at least 80% should always be maintained. The Bank shall maintain at all times a net open position, which does not exceed 20% of its core capital. The Treasury Department is responsible for managing gainfully the open position for the Bank.
Head of Treasury will be responsible for day to day implementation of the policy under guidelines of ALCO while Head of Operations and Service Delivery will be responsible for ensuring the compliance with internal and regulatory compliance .The Financial controller shall have responsibility of preparing and providing financial reports and other relevant information for discussion in the ALCO. He /she shall also be responsible for submission regulatory compliance reports as per Bank of Tanzania regulations and directives. 12.2 Exceptions to the Policy All exceptions to Asset and liability policy shall be promptly reported to the Chairman of ALCO (MD) for resolutions.
Confidential
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6/7/2010
UNNITED BANK OF AFRICA LIMITED ASSET AND LIBILITY MANAGEMENT POLICY ALCO shall be notified of all exceptions at the next meeting with explanations and steps taken so far. ALCO shall provide guidance and may decide on any further action to be taken. The Chairman of ALCO shall have mandate to approve temporary excesses to limits pending ratification by ALCO at the next meeting.
12.3
Reporting Financial Controller in conjunction with Head of Treasury shall be responsible for preparation and coordination of various Asset and liability management reports for ALCO and Board resolutions. Weekly liquidity reports shall be prepared by the Head of Treasury and circulated to ALCO members for their review and deliberations. Monthly summary report on Asset and liability management to be submitted to ALCO for review and deliberations. Quarterly summary report on Asset and liability management, performance and ALCO strategy shall be submitted to the Board of Directors for review and further guidance.
Confidential
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6/7/2010
3.
LIQUIDITY REPORT ANALYSIS LIQUIDITY RATIOS ANALYSIS LIQUIDITY MISMATCH (GAP) ANALYSIS TREASURY FUNDING GAP MANAGEMENT INTEREST RATE MISMATCH (GAP) AND SENSITIVITY ANALYSIS BALANCE SHEET AND INCOME STATEMENT ANALYSIS MONTHLY CHANGES DEPOSIT STRUCTURE & CONCENTRATION INVESTMENT PORTIFOLIOS & ASSETS STRUCTURE CURRENCY RISK EXPOSURES POSITIONS PRICING REVIEW BASE LENDING RATE DEPOSITS RATES BUSINESS DEVELOPMENT REVIEW PIPELINES AND NEW ASSETS LIABILITY STRATEGY REVIEW LIMITS AND COMPLIANCE REVIEW STATUS
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Confidential
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