Development of ALM tool for non-maturing accounts

Non-maturing assets and liabilities (NoMALs) are those positions in a bank's balance that have no contractual maturity such as traditional savings deposits. For the calculation of transfer prices and the quantification of interest rate risk, a fix maturity profile must be assigned to a NoMAL position. Usually a replicating portfolio of fixed-income instruments with constant weights is determined from historical data whose cash flows match those of the underlying position. As an alternative, a multistage stochastic programming model is proposed where the replicating portfolio is derived from representative scenarios of the relevant risk factors (market rates, client rate, volume). Moreover, the portfolio composition is frequently readjusted using the current information about market rates and changes in volume. Compared to the traditional static method, practical experience shows that the margin of NoMALs can be significantly increased at reduced volatility by such a dynamic approach.

For many banks, deals based on interest rate differences are one of the most important sources of income. In this context, the uncertainty regarding future interest rates and cash flows forms the central challenge in asset and liability management for every bank.