CCB implements new asset and liability management system to improve control of liquidity risks

China Construction Bank (CCB) is one of the world’s largest banks, ranking second in China and the world by total assets. One of the 30 global systemically important banks (GSIB), CCB recently implemented a new asset and liability management (ALM) system to improve the control of liquidity risks. This includes monitoring and controlling cash flow gaps, forecasting liquidity risks under normal and stress scenarios, and establishing early warning indicators to detect potential liquidity risks.

In addition, the system optimises the allocation of assets and liabilities to reduce financing costs and support long-term asset investment. It also provides a reliable digital basis for formulating business strategies and decision-making.

The system was developed internally by its subsidiary, CCB Fintech. It replaced vendor-sourced systems that had reached end-of-life and can no longer be maintained and updated effectively. The new system also improves the transparency of modelling algorithms to better meet new regulatory requirements.

The bank’s chief financial officer, Sheng Liurong, reported that key liquidity performance improved after implementing the new ALM system. CCB’s liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) have continued to meet regulatory standards and maintain an upward trend.

Foo Boon Ping, Managing Editor, TAB Global with Sheng Liurong, Chief Financial Officer, CCB

In the fourth quarter of 2022, CCB’s daily average LCR was 148.96%, an increase of 14.26 percentage points year-on-year (YoY), while the NSFR at the end of the year was 127.88%, a YoY increase of 2.13 percentage points.

Through optimal allocation of assets and liabilities, low-yielding assets have been reduced, financing costs saved, and the level of corresponding fund operational income continues to increase.

Sheng explained that the implementation of the system has enhanced CCB’s risk management capabilities and overall business performance. The bank’s liquidity risk management has helped to optimise the structure of assets and liabilities, improving the efficiency and refinement level of liquidity management.

Through cash-flow calculation and analysis, liquidity early-warning indicators, risk-limit management, financing strategies and arrangements, CCB can monitor and discover potential liquidity risks and adopt early control measures to improve the daily liquidity management level.