The Overview of Bank Treasury

In broad outline can be taken the essence of training materials regarding the bank's treasury are as follows:

1. Asset and Liability Management

Asset & Liability Management (ALMA) is a process of planning, coordination and supervision of asset and liability in order to eliminate the risk, including liquidity risk, interest rate risk, foreign exchange and operational risks in supporting the achievement of bank profits. The scope of the role played by the ALMA is liquidity management, management of interest rates, foreign exchange management, and management of revenue and investment. All this ALMA role mampunyai strategic objectives, namely to maximize bank profits from fund management to the risk tolerance limits that are in the bank.

Risk that the background is the increasing need for ALMA fluctuations in interest rates, fluktiasi currency exchange rates, and monetary sectors, among others, globalization can be seen from the flows of foreign funds coming into a country (emerging market).

In general, ALMA aims to manage interest rate risk on bank balance sheets and ensure that the interest rate risk inherent in the bank's business activities do not interfere with and decrease the stability of bank earnings.

Liquidity Management

Liquidity management aims to ensure the ability of banks to meet short term obligations in rupiah and foreign currency.

manage liquidity management, in general, banks are exposed to in a problem, namely liquidity versus profitability. Where these two things are in a position contrary to rear. If banks are too much liquidity reserve fund in the bank's profitability will not be optimal, and vice versa.

Third party funds allocated to the liquidity reserve, would be a burden for banks, because of the fund, the bank must still pay interest to the owners of the funds (depositors). Likewise what if the banks are too aggressive to place third-party funds into productive assets and less attention to elements of liquidity, the bank must be prepared to suffer the consequences of risk due to the inability of banks to pay its short term obligations.

Bank liquidity can be a big impact risk for banks (major risk consequence) and even a liquidity crisis can lead to a rush on banks, if not handled properly. Liquidity management is a process to support the bank in order to optimize the use of funds (reducing idle fund) to meet regulatory reserve requirement Bank Indonesia, memeluhara daily liquidity to service withdrawals by depositors, and to maintain liquidity for the existing instruments in accordance with the needs of cash flow owned banks.

Interest Rate Management

Management of interest rates is intended to manage interest rate changes associated with the mismatch in the repricing structure of assets and liabilities held by banks, and ultimately the management of interest rates has the goal to optimize revenue for the bank while maintaining the level of risk at an acceptable level by management. Management interest rates may be one basis for pricing (pricing) of products both savings and loans banks.

One analysis that can be done to assess the condition of bank balance sheets as a basis for strategic decision making is by knowing the RSA (Rate Sensitive Asset) and RSL (Rate Sensitive Liability) on its balance sheet. The gap between these two aspects can be used by banks in mengahdapi projected increase or decrease in market interest rates.

RSA is the amount of assets that are sensitive to changes in market interest rates. While the RSL is the amount of liability that are sensitive to changes in market interest rates.

Position


Gap


Market Rate


Income

RSA> RSL


Positive


Up


Up

Down


Down

RSA

Negative


Up


Down

Down


Up

RSA = RSL


Zero


Up


Stagnant

Down


Stagnant

Foreign Exchange Management

The purpose of foreign exchange management is the process of foreign exchange management in both the asset and liability side unruk obtain optimal results and minimize the risk of losses on foreign exchange positions held it.

Risks associated with forex management is the loss due to changes in exchange rates, losses due to changes in interest rates, and losses due to credit risk.

The relationship between changes in currency exchange net open positions with the bank are:

Condition


Forex Long


Forex Short

The rupiah weakened against foreign currency


Fortunately


Loss

The rupiah strengthened against foreign currencies


Loss


Fortunately

While the relationship between changes in interest rates with banks net open positions are:

Condition


Forex Long


Forex Short

Interest rates fell rupiah currency or interest rate rise


Fortunately


Loss

Rupiah interest rate rise or fall of foreign exchange rate


Loss


Fortunately

Earning and Investment Management

ALMA role in earnings and investment management is very closely related to liquidity management as described in the previous section. So that is a function both have links to one another. The aim of earning & investment management is to maintain the liquidity needs, improve the NII and NIM, keeping the interest rate risk exposures, and determine the type of investment portfolio by considering the risks and revenues (optimization of portfolio assets).

2. Money Market Transactions

Money market is a place (abstract) in which the owner bana (lenders) and borrowers of funds (borrower) is related through the means of communication either directly or through an intermediary (broker) to perform transaction lending and borrowing of funds. Due to these transactions the borrower benefits or compensation funds received from the borrower of funds in the form of interest.

Transactions can be either money market lending and borrowing of funds directly or through short-term debt instruments of less than 1 (one) year.

Participants in this money market in general can be grouped into 4 (four) components, namely the central bank, commercial banks, non bank financial institutions, and companies or individual fund voters in large numbers. However, what is recorded in the transaction banking hanyalan money market central banks and commercial banks only.

In money markets, central banks have an interest in regulating the monetary conditions, while for commercial banks, money market used to meet the liquidity and profitability.

The role of brokers in the money market transactions are very useful, especially in influencing both the bid and offer prices so that prices of existing money market can be more controllable because the broker will be a market maker with the bid and offer to collect data from banks that need access to money markets.

Unlike the money market without a broker, the price will be determined by each bank. This is risky because it will hurt banks that are in need of money because it will get a relatively high price if known by other banks that have funds.

Risks contained in the money market include liquidity risk, interest rate risk, settlement risk, credit risk and sovereign risk. As a simple example but it often happens is, the bank is expected not to give or very cautious in giving loans to banks that are too easy to accept a high rate, or has a loan portfolio that exceeds reasonable limits.

To mitigate credit risk on money market transactions, the bank may apply a limit or a credit line for each bank in accordance with the credibility and risks inherent in each counterparty banks.

Credit line is used by the treasury to bertransksi money markets, but credit lines made by the Financial Institution with the work unit to get recommendations from the risk management unit in terms of measuring risk.

3. Foreign Exchange Transactions

In principle means of exchange forex transactions (selling or buying) a country's currency in the currency of other countries using a particular exchange rate.

While the forex market is an abstract place where it can be executed purchase and sale transactions of foreign exchange (forex) which resulted in transfer of ownership of the currency in the transaction. Forex OTC market is carried out continuously for 24 hours on each working day throughout the world.

In general, forex transactions aimed at:

a. Serve the demand of customer transactions.

b. Hedging (hedging) due to exchange rate movements.

c. Portfolio management to maximize the revenue of bank assets.

d. Buying and selling (trading) to get profits from foreign exchange rates.

In the forex transactions are largely inherent risks such as country risk, credit risk, liquidity risk, nili exchange, interest rate risk, settlement risk and operational risk.

The types of forex transactions are spot, cross rate, forward, and swap. Spot transaction is a sale and purchase transaction delivery of which is two working days after the date of the contract. This transaction is generally performed by the client to the bank. While the cross rate transactions is a transaction involving two foreign currencies at the same time in one transaction, and certainly with the rupiah as the basis for calculation. While the forward transaction is a transaction with the submission of more than 2 working days after the date of the contract. And the last is a swap transaction (swap sale or swap buy) which is a combination of transactions between the types of other transactions, or in other words, do different transactions with the same counterpart but with a different transaction penyelasaian date with the exchange rate determined at the time of the transaction.

4. Capital Market Transactions

Capital market transactions typically use bond (bond) as an instrument transaction. Bonds or debt instruments by the issuer divided into 4 types, namely government bonds, municipal bonds (not already in Indonesia), bonds Badau state-owned enterprises, and private corporate bonds.

Because the bonds are debt instruments, automatically will be very closely related to credit risk. In other words, the quality of bonds is determined by the party that issued the bonds. Therefore, dibelo bonds by banks should be at investment grade rating from a recognized institution by the regulator.

Posted in: banking terasury,Dasar Perbankan