Asset Liability Committee (ALCO) processes sit at the center of balance sheet management in banking, bringing together treasury, risk, finance, and business perspectives to support decisions on liquidity, funding, interest rate risk, and profitability. Through ALCO, banks assess how the balance sheet is evolving, how risk exposures are changing, and which actions may be required to maintain alignment with strategy, risk appetite, and market conditions.
At the core of this process is a consistent framework of ALCO metrics used to monitor and interpret the main drivers of balance sheet performance. These typically include metrics related to IRRBB, Net Interest Income (NII), Economic Value Sensitivity (EVE), liquidity risk, funding structure, regulatory ratios such as LCR and NSFR, as well as portfolio positioning and internal transfer pricing.
While these metrics are widely used, their value comes from how they are interpreted together. ALCO is not built around isolated indicators, but around the interaction among liquidity, funding, interest rate risk, profitability, and balance sheet strategy. Understanding these relationships is central to effective balance sheet management.
This guide provides a structured view of the ALCO metrics framework and how it is applied in practice. It covers the core components of the standard ALCO package, how key risk and treasury metrics are analyzed, and how they support decision-making under both normal and stressed market conditions.
Beyond explaining the metrics themselves, this guide focuses on how they support decisions. It explores how balance sheet evolution is assessed through production, pricing, and volumes; how IRRBB metrics help evaluate exposure under different rate scenarios; how liquidity and funding metrics support resilience and funding planning; and how portfolio and FTP metrics contribute to positioning decisions.
It also addresses how scenario analysis is used when market conditions change and how these metrics support the evaluation of management actions across pricing, hedging, funding, and portfolio strategy.
For risk and treasury teams, the priority is to organize metrics within a consistent decision framework that supports balance sheet management. This guide is designed as a practical reference for that purpose, bringing together the key metrics used in ALCO and explaining how they support the understanding and effective management of the balance sheet.
ALCO decisions rely on the ability to interpret multiple metrics together and understand how they interact across the balance sheet. This requires consistent information, clear structure, and the ability to assess changes quickly when conditions evolve.
The guide provides a practical reference for risk and treasury teams looking to strengthen their ALCO framework and improve how metrics support balance sheet management.