How much is worth quantitative ALM & Planning tool for banks

A quantitative ALM and planning tool is immensely valuable for banks, providing critical functionalities that directly impact profitability, decision-making, risk management, and regulatory compliance.

With the increasing complexity of interest rate and liquidity risk management, even smaller banks can no longer afford to rely on static spreadsheets or rudimentary planning techniques. A well-structured data system, a properly functioning funds transfer pricing (FTP) framework, and scenario analysis are the foundation of effective financial planning and ALM.

In this blog, I explore the tangible benefits of adopting a professional ALM and planning solution and provide a practical perspective on why banks should consider such a tool for their financial planning and asset/liability management. As an example, I showcase QuantPlan, a system developed by our business partner, QuantALM.

1. The Need for Quantitative ALM & Planning

Every bank must create robust budgets, forecasts, and strategic plans that take into account:

• The existing business and its evolving balance sheet composition
• New business volumes, pricing strategies, and market assumptions
• Scenario analysis to measure potential risks and future developments

A quantitative approach ensures that all of these factors are dynamically projected and interconnected rather than being treated as isolated estimates. The ability to simulate various scenarios and adjust key parameters in real time makes a significant difference in strategic decision-making.

• Data-Driven Projections: With many financial instruments, deposits, and loans on the balance sheet, manual calculations are impractical. A quantitative tool automates complex projections, ensuring accuracy.
• Granular Planning: From business lines to profit centers, products, and regions, planning must reflect the bank’s operational structure. Advanced tools offer multidimensional planning approaches that static models cannot achieve.
• Scenario Analysis & Stress Testing: The future is uncertain, and banks must be prepared for multiple economic and market scenarios, as well as behavior of their customers. A proper ALM tool allows for interest rate shocks, liquidity stress testing, and FTP strategy adjustments to optimize decision-making.

2. Key Functionalities that Drive Value

A modern ALM & planning tool should cover the following essential areas:

?? Balance Sheet Projections: A dynamic model that forecasts how existing and new business impact the bank’s balance sheet over time.

?? Interest Rate and Liquidity Risk Management: Banks need precise modeling of cash flows, loan amortizations, deposit behaviors, and rate sensitivities.

?? Funds Transfer Pricing (FTP) and Margin Analysis: A well-defined FTP system ensures fair pricing of assets and liabilities, enabling banks to manage profitability and align incentives across business units.

?? Volumes Planning & Forecasting: The tool should distinguish between existing and new business, allowing flexible planning approaches (top-down or bottom-up).

?? Scenario Simulation: The ability to test different economic conditions, such as rising or falling interest rates, changing customer behaviors, or new market entrants, ensures the bank is prepared for different potential futures.

QuantPlan, the system we reference in this blog, is designed specifically for small to mid-sized banks, offering a powerful yet accessible way to manage these complexities.

3. Real-Life Use Case: Why Even Small Banks Need an ALM Tool

Imagine a regional savings bank that previously relied on static Excel models for ALM and planning. The bank faced challenges in:

• Tracking the profitability of its loan and deposit products under changing interest rate environments
• Managing liquidity gaps effectively due to unexpected customer behavior
• Running multiple planning scenarios efficiently within a structured framework

After implementing QuantPlan, the bank achieved:

? Automated forecasting of balance sheet developments, considering behavioral assumptions on loan prepayments and deposit withdrawals

? Enhanced FTP system, ensuring a transparent allocation of funding costs and risk-adjusted margins

? Stronger regulatory compliance, with clear projections for liquidity coverage ratios (LCR) and net stable funding ratios (NSFR)

? Greater efficiency in financial planning, reducing manual workload while increasing the precision of forecasts

Even a bank with a smaller balance sheet benefits from professional-grade ALM capabilities, ensuring stability and profitability in volatile markets.

4. Conclusion: Why Banks Should Act Now

In an environment of rising regulatory demands, evolving risk landscapes, and increased market competition, having a robust ALM and planning solution is no longer a luxury - it’s a necessity.

?? Investing in an ALM system is cost-effective. Instead of employees spending days, or even struggling to achieve the required precision, an advanced tool can deliver high-quality forecasts, scenario analyses, and FTP calculations in seconds. Paying a monthly fee for such a system is far more efficient than relying on manual spreadsheets, ensuring accuracy and saving valuable time.

?? Even smaller banks should consider adopting an adequate system to improve their ALM, optimize their FTP approach, and conduct more reliable financial planning and forecasting.

?? QuantPlan is a proven ALM & Planning tool that helps banks simulate future balance sheet developments, test different risk scenarios, and make data-driven decisions with confidence.

?? Want to learn more? We offer a FREE e-learning course on ALM and planning using showcases from QuantPlan. You can explore the methodology and principles directly on Bearning's website Budgeting, forecasting, planning in QuantPlan.

?? Need a tailored consultation? I’m happy to discuss individual ALM solutions for banks in one-on-one sessions. Contact us at Bearning.com.