Sustainability SMARTRAC. Management. Accountability. TRansparency. Assurance. Compliance. Public Tools Series for Risk Management

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1 SMARTRAC Sustainability Management Accountability Risk TRansparency Assurance Compliance Public Tools Series for Risk Management Smartrac is a joint project of Triodos Facet B.V. and Triodos Investment Management B.V. The goal of this project is to strengthen small and medium-sized, high potential microfinance institutions (MFIs) in their area of risk management and developmental performance measurement. The tools of this project draw upon mainstream banking guidelines (like e.g. Basel II) and the Global Reporting Initiative (GRI), but are adapted to the needs of smaller yet unregulated institutions who aim to become fully licensed banks. Professionalising risk management and sustainability reporting is critical for any MFI that seeks to work towards the bottom-line of growth and sustainability. Tool 9 Risk Management Asset & Liability Committee - Terms of Reference, Templates, Report Master This tool Tool 9: Risk Management Asset & Liability Committee - Terms of Reference, Templates, Report Master offers a guide in how these roles and responsibilities may look like and how they can be used as a guide to implement them in the always unique circumstances of a banking/microfinance institution. This project is funded by: The European Union Doen Foundation Triodos Fund Foundation This project is executed by: x Triodos Investment Management B.V. Utrechtseweg 60 P.O. Box AB Zeist The Netherlands Triodos Facet B.V. P.O. Box AD Zeist The Netherlands

2 ALCO Terms of Reference, Meeting Templates, Report Master <BANK> 1. Terms of References ALCO Overall objective and Authority The Board of Directors shall constitute from among its members an Assets and Liabilities Committee (ALCO). The overall purpose is to assist the Board of Directors with discharging its oversight responsibilities by overseeing all matters as specified in this Terms of Reference. The ALCO is a sub-committee to the Board of Directors. It has no direct authority unless specifically given by the Board of Directors. The Committee executes detailed supervision over the tasks dedicated to it. The Committee informs the Board of Director of any material development, advises on strategic matters to be considered, and presents recommendations for resolutions to be taken by the Board. The ALCO committee shall have unrestricted authority to: Access members of management or employees on ALCO related matters Review policies and procedures related to ALCO matters The Managing Director, Chief Operating Officer, Financial Controller, Head of Credit, and Head of Internal Control are primarily responsible for interaction between the Board through this Committee on ALCO related matters. Membership The Board of Directors shall nominate from among its members the ALCO committee members and the Chairman of the Committee. All members of the Board of Directors are entitled to appointment to the Committee. The ALCO Committee shall consist of at least three members. The quorum for any committee meeting shall be at least two members. In the absence of the Chairman the Committee shall elect a temporary Chairman from among itself. The Secretary of the Committee will be the Company Secretary or such other person as may be nominated by the Board. Meetings Regular meetings shall be held at least once a quarter during the year and shall be held at least one day prior to a Board Meeting. Preferred is to conduct regular weekly meetings when circumstances require or when new Committee members are installed. Special meetings may be convened as and when required. A special meeting can be called for by the Chairman of the Committee or by two members of the Committee. A special meeting can be called with at least 2 days notice. The notice shall include the agenda for the special meeting. The Secretary shall circulate the agenda and supporting documents to the Committee members at least one day prior to the meeting. The Secretary shall prepare the meeting minutes within one day of each meeting. The minutes shall summarise the key topics of debate as well as the agreed upon action points. The Chairman of the ALCO shall present the minutes to the Board of Directors for approval and ratification of the recommended resolutions. 2

3 Roles and responsibilities The ALCO function of the Committee shall include such functions as the Board of Directors. The functions shall include but shall not be exclusive to: Reviewing market trends in terms of product innovations that influence the business practice of the Bank; Reviewing market rates that influence the business practice of the Bank. Rates to be reviewed include interest rates on debit and credit products as well as transaction fees and other charges; Reviewing limits on loan deposit ratios; Reviewing limits on capital ratios; Reviewing all major capital projects / investments; Reviewing matching of maturity calendar between credit and debit products (liquidity mismatch); Reviewing matching of maturity calendar of interest contracts (interest rate mismatch); Reviewing matching of open foreign currency positions (currency mismatch); Reviewing the Treasury policy and strategy; Review limits on inter bank placements. Review maximum exposures on each bank; Review limits of investments in loans and overdrafts, government and other securities; Reviewing next year s Budget prior to the year end of the previous financial year; Review of financial performance vis á vis budget; Review the capital expenditure budget and review expenditure vis á vis the budget. 2. Suggested Format of Meeting Opening Remarks by CEO Minutes of the Last Meeting Issues arising from the minutes Summary of Reports submitted in between the last and the current meeting Mentioning and discussion of ALM issues: o Cash management and liquidity (weekly) o Estimate of available funds and loan disbursement for coming period (weekly) o Customer deposits and savings obligations (weekly) o Relevant ALM issues carried forward from RMC (weekly) o Debt obligations (quarterly only) (Optional) topical 15 minutes presentation (for instance consolidated matching gaps in foreign exchange risk at <BANK> s funding side ) Summary of decisions taking and how to implement them Closing Remarks 3

4 Example of minutes: ALCO Meeting 23 September 2008 Participant John A Jacque B Joana C Jack D Jonathon E Managing Director Operations Manager Treasury Officer (Secretary ALCO) Finance Manager Credit Manager Absent with permission - Commencement The meeting started at exactly 15.30pm, Venue: Head office Conference Room Agenda: 1. Cash management and liquidity for the week ending 22 Sept a) The Treasury officer explained the closing reserves for the week ending 22 Sept, and the following points were noted: 1.) Average Deposit liabilities = $17.8bn, 2.) Primary Reserves Asset = 14% 3.) Secondary Reserves Asset = 25% The Position held was therefore above the Central Bank requirement of 10% and 15% for primary and secondary reserves respectively. b) Treasurer informed members about other bank preparedness to make room for negotiation on the overdraft facility. c.) Treasurer informed members also about the possibility of capital injection from our shareholders. d) Treasurer presented his findings on how loan disbursed affect the deposit balances over a period of time. It was revealed that loan clients withdraw their loans within a week after disbursement and ALCO concluded that the increase in deposits is not as result of loan disbursed. e) Interest Rate as at 10-Sep 91-Day 182-Day 1-Year Transactions during the Week ( to ): a. 100m transferred from Cannery Warf to Hampshire on 27-Sept b. 100m transferred from Cannery Warf to Hampshire on 27-Sept c. 250m transferred from Cannery Warf to Hampshire on 28-Sept d. 600m transferred from MBABC to Bank SCB on 28-Sept 2. Customer deposits and savings obligations In Savings Reserve Report we encountered etc etc 3. Relevant ALM issues carried forward from RMC Maturity risk has grown and we have found that etc etc 4. Debt obligations No remarks etc etc 4

5 5. Summary of decisions taking and how to implement them Decided was to take action on the following: etc etc 6. Closure: The meeting ended at 16.30pm 7. Pending Issues FM presented new Liquidity Planning Tool (Cashflow approach) to members which await testing. (Date noted 02-09) Signed:. (Treasury officer) Signed:... (Managing Director) 5

6 3. Report Master Report name Prepared by Distributed to Frequency (with short description) Of Preparation Of Distribution 1. Liquidity Ratio Summary Report (Liquidity and asset productivity) I Cash Management and Liquidity See excellent tool "Financial Risk Management Policy" from Women's World Banking, available from their website II Debt Obligations II Customer Deposits and Savings Obligations III Customer Credit Funding -=-=- 6