Streamlining disconnected data and inefficient workflows

KEY TAKEAWAYS

How can banks overcome fragmented balance sheet data and manual workflows that slow decision making and increase risk? This article examines why disconnected ALM and ALCO reporting creates challenges for treasury, risk, and finance teams, from NIM management to regulatory compliance, and explains how an integrated, single source of truth approach enables banks to harmonize data, automate reporting, run dynamic scenario analysis, and give boards and ALCO clearer, timelier insight into balance sheet performance and risk.

In order to manage and steer the balance sheet effectively, a bank’s Asset Liability Committee Management Information (ALCO MI) should be accurate and up to date, at the aggregate level and accessible without manual reconciliation or cross-system workarounds. This is a continuing issue for banks, particularly heritage banks and established banks with numerous banking services often spread across different subsidiaries.

Data analytics remains challenging for Asset Liability Management (ALM) reporting often due to: 

• Siloed datasets, leading to duplicate effort across Treasury, Risk and Finance; 

• Subsidiary legal entities / cross-border entities using different systems and MI production systems, creating inconsistent outputs and delays; 

• Bolt-on solutions not able to access the core general ledger in real time, forcing teams to manually stitch together data. 

This makes Board decision-making at group level problematic, with resulting delay. It also slows Treasury’s ability to hedge, price, and reposition ahead of market changes. This risks losing the initiative to competitors and more nimble operators who may be unencumbered with disaggregated data analytics solutions (often the case with new entrants such as neo-banks). 

The solution is, on paper at least, straightforward: ALCO requires a single “source of truth” to be accessed by any service used for balance sheet MI reporting, eliminating the manual reconciliation and fragmented workflows most banks still rely on. This will enable more efficient and speedier decision-making under conditions of greater certainty. 

A good (and common) example is net interest margin (NIM) management. Preserving NIM under any interest rate regime is an important goal for any bank. However, the decisions that need to be made concerning product mix, currency mix, customer mix and rates basis suffer not only from incomplete MI, but also a less than adequate ability to undertake “what if?” scenarios of the impact on NIM from different balance sheet mix options, often slowed by manual data manipulation or disconnected systems. Exhibit 1 illustrates this in a single slide: what mix of all these factors would deliver the maximum NIM over the next 12 months? 

Another area demanding attention from ALCO is balance sheet data integration and reporting. This is pertinent for the following reasons: 

• For example, in the UK the PRA’s focus on granular liquidity data means ALM systems must pull clean, reconciled data across lending, treasury, finance, and risk systems. If this is not available, banks have to manage delays, manual adjustments, and higher compliance risk; 

• Product pricing: banks need to ensure that their pricing models are comprehensive, prudent, and capable of accurately reflecting all material risks and costs, including but not limited to: (1) factoring all relevant costs into their cost of funds (notably hedging, liquidity term premium, and liquidity holding costs); (2) ensuring pricing is reflective of the risk being taken on; and (3) ensuring models are validated in line with regulatory expectations6—all of which require reliable, connected data. 

Hence, banks need ALM solutions that deliver: 

• Dynamic balance sheet simulation: robust scenario modelling across liquidity, interest rate, and financial market risks; 

• Data harmonisation: integrated architectures unifying finance, risk, treasury, and lending data; 

• Automated regulatory reporting: for example, PRA110, ICAAP, ILAAP, IRRBB, and produced reliably without manual intervention; 

• Built-in compliance reporting templates: aligned with relevant national jurisdiction reporting frameworks. 

For ALCO and the Board, this will enable accessible MI that allows them to glean, almost at a glance, the current state of the balance sheet as well as the sensitivity of capital and liquidity to changes in external factors, without relying on fragmented reports or manual collation. ALM solutions enabling this will mitigate compliance risks and give banks insight and agility to remain viable in a highly competitive industry.  

Based on an excerpt from the “Strategic Advantage in Bank Treasury and Risk: Regulation, Data and Analytics” white paper, published by Bloomberg in collaboration with the Certificate of Bank Treasury Risk Management (BTRM).