'n Raamwerk vir finansiële bate- en lastebestuur vir 'n Suid-Afrikaanse finansiële beheermaatskappy

Abstract

A FRAMEWORK FOR FINANCIAL ASSET AND LIABILITY MANAGEMENT FOR A SOUTH AFRICAN FINANCIAL HOLDING COMPANY. The fast development in the local and international financial markets has caused larger volatility in the financial markets. In order to manage the interest rate risk volatility, financial holding companies are focussing on the better utilisation of the financial asset and liability management processes. The goal of this study was to create a financial asset and liability management framework to be used within a financial holding company. Due to the uniqueness of the requirements for South African financial institutions, like liquid asset and capital adequacy requirements, the focus was on South African financial holding companies. However, with limited adjustments it would be possible to use this framework in any other country's financial holding company. A literary study has been undertaken to determine the factors which, in theory, play a role in financial asset and liability management within a financial holding company. An empirical study was done to identify the factors that in practice play a role in a financial holding company's financial asset and liability management process. Financial asset and liability management is a process with three main components, namely: - The current position, which is the starting point of the financial asset and liability process. This phase reflects the current position of the financial holding company, information required by product is the current balance, the weighted average interest rate and the maturity and rollover structure of the current balance sheet items. - The second component is the forecasting and strategy phase. Various interest rate scenarios, assumptions over the direction of the financial market and forecasting of the balance sheet and income statement are done during this phase, all this is then combined with various hedging strategies and pricing rules to evaluate the various simulation results. - The third and last component is the analysis phase of the process, the information obtained during the simulation process is evaluated in order to obtain an optimum solution to reduce or limit the interest rate risk of the financial holding company. Financial asset and liability management is not a process to maximise profits and minimise interest rate risk. It should be seen as a process to highlight the underlying risk/reward structures, which will result in the members of the financial holding company's financial asset and liability management committee being in a better position to make better informed decisions on the strategic direction of the financial holding company. Various methods to assist in the financial assets and liability process can be used, namely, gap analysis, simulation modelling and duration analysis. However, it is important to note that the various methods focus on different dimensions of financial asset and liability management within any financial holding company. It is not possible to determine the interest rate risk by using the various methods at the same time. One or more of these methods will have to be addressed separately, this is not a serious problem, but it is important for the members of the financial holding company's financial asset and liability management committee to take note of this, for long term planning purposes. Through the use of a structured financial asset and liability management process, the long term strategic objectives of the financial holding company can be supported, and the focus of management can be to limit the high risk areas of the financial holding company.