Central Bank of Libya Guideline on Asset/Liability Committee (ALCO) Policy

Central Bank of Libya CENTRAL BANK OF LIBYA

Guideline for the Asset/Liability Committee (ALCO) Policy

Banking and Currency Control Department

Banking and Currency Control Department

Guideline for the Asset/Liability Committee (ALCO) Policy

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1. Definition of Asset/Liability Management Asset/Liability management policy represents the strategic management of the balance sheet aimed at achieving sustainable growth, profitability, and financial solvency, including the determination of long-term strategic objectives and the management of various risks including liquidity risk, interest rate risk, and market risk.

2. Purpose of the Policy:

• Define the scope and responsibilities of the Asset/Liability Committee (ALCO).
• Identify, measure, and manage the various risks facing the bank on a continuous basis.
• Establish guidelines for compliance with various applicable regulatory rules and regulations.
• Formulate a policy consistent with other bank policies (investments, lending, capital, etc.).
• Coordinate the management of the bank's financial position.
• Review this policy periodically.

3. Asset/Liability Committee (ALCO) The Asset/Liability Committee (ALCO) will consist of the following members:

• Chairman of the Board of Directors.
• Vice Chairman of the Board of Directors.
• Director of the Accounting Department.
• Director of the Risk Management Department.
• Director of the Treasury Department.
• Head of the Corporate Credit Department.
• Director of the Branches Department.
• Director of Banking and Islamic Finance Department.
• Committee Secretary.

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Banking and Currency Control Department

4. Tasks of the Asset/Liability Committee

• Hold a formal meeting (once a month), and an informal meeting may be held as needed.

• Monitor and discuss the status and results of applied Asset/Liability management strategies.

• Review current and future liquidity positions and monitor alternative funding.

• Provide reports on various measurable risks, and compare potential exposures to these risks.

• Review current and future capital levels (on a risk-based basis as well as net value) to determine solvency with respect to: expected growth rate, interest rate risk, price volatility risk, and asset quality.

• Review banking service rates.

• Review maturity/repricing schedules with special attention to maturity dates and the distribution of large amounts of assets and liabilities maturing (for example, large investment certificates of deposit).

• Formulate appropriate alternative strategies taking into account the following changes:

  • Interest rate levels and trends, and profit margins. • Deposit and financing products and related markets. • Banking regulations. • Fiscal policy.

• Establish standards for the distribution of pricing and maturities of deposits, financings, and investments.

The Asset and Liability Committee will include the overall financial performance of the bank, and thus keep abreast of significant changes and trends in its financial results. In this regard, the following will be done:

• Review actual net interest income from financings and asset/liability distribution against the budget.

• Evaluate performance against established standards, and if possible, also against peer data.

• Review the level and composition of non-performing assets.

• Review the bank's liquidity and emergency financing terms.

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Banking and Currency Control Department

The items mentioned above do not exhaust all the duties of the Asset and Liability Committee; additional items may be included depending on the nature of the Committee's work and responsibilities.

5. Asset/Liability Committee Meetings:

5.1 The Committee meets at least once a month, and meeting minutes are kept. Copies of all reports and analyses presented at the meeting must be attached to the minutes of each meeting, and minutes and agendas of meetings must be retained.

5.2 The Asset/Liability Committee formulates action paths designed to affect the bank's liquidity and profitability and capital placement, and directs executive management to implement appropriate action paths and report the results of these actions to the Asset/Liability Committee at the next meeting.

5.3 Submit the minutes of each monthly meeting to the Board of Directors and the Central Bank of Libya.

6. Basic Objectives: When setting the Committee's objectives, the following risks are considered:

● Liquidity Risk: The risk of insufficient cash availability from either assets or liabilities or from external sources to respond to customer requests.

● Credit Risk - The risk of non-payment of some financings and investments (default risk): The impact of the asset mix on risk-based capital and the quality of the ability to utilize the bank's capital.

Other Risks:

Other risks can be measured from time to time. However, their importance is also key to the continued successful operations of the bank. The Asset/Liability Committee (ALCO) will review these risks at least annually, and more frequently as circumstances dictate.

● Operational Risk: The risk that errors occurring during the conduct of operations will lead to losses.

● Compliance Risk: The risk of violations or non-compliance with laws, rules, and policies (regulatory or internal) and ethical standards.

● Yield Curve or Mismatch Risk: The risk of negative consequences of changes in interest rates, and profit margins arising from differences in the timing of changes in the bank's assets and liabilities.

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Banking and Currency Control Department

● Basis Risk - The risk of changes in the spread between instruments with similar maturities.

● Option Risk: Customer options to repay financings before maturity, deposit funds, or break deposits or withdraw them before the maturity date.

● Event Risk: The risk that changes in laws, regulations, or external factors (such as disasters) may lead to losses for the bank.

● Strategic Risk: The risk of making contrary business decisions.

● Reputational Risk: The risk of negative public opinion and its impact on the bank.

6.1 Provide healthy, comfortable, and balanced growth without sacrificing service quality.

6.2 Maintain policies and procedures that align with the short-term and long-term strategic objectives of the Board of Directors.

Reporting Requirements:

6.1 Internal Cost of Funds (Last Pricing).

6.2 Maturity Ladder Report.

6.3 Expected Financing Requests.

6.4 Liquidity Position.

6.5 Net Interest Income, and Returns from Financings.

6.6 Tax Leverage.

6.7 Investment Portfolio Assessment.

6.8 Average Daily Balance Sheet.

6.9 Financing Revenue and Financing Expense Data.

6.10 Monthly Financial Position.

6.11 Budget Assessment.

6.12 Capital Adequacy.

6.13 Any exceptions to this policy along with an action plan and specific timeline.

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