What is the main objective of asset liability management (ALM)?

The main objective of asset liability management (ALM) is to optimize risk and reward decisions. ALM focuses on managing the risks that arise due to mismatches between assets and liabilities. It seeks to ensure that an organization can meet its obligations while maximizing financial performance. This involves carefully analyzing and balancing the financial trade-offs between liquidity, interest rate risk, funding costs, and the expected return on assets.

Successful ALM enables financial institutions to align their asset base with the liabilities they hold, thereby achieving a favorable balance between risk exposure and return potential. It allows for informed decision-making regarding investments, funding strategies, and risk management practices that ultimately contribute to the overall financial health and stability of an organization. By maintaining this balance, organizations can sustain profitability while effectively managing various financial risks.