Mpr Management Skye Bank

MPR AND BALANCE SHEET MANAGEMENT Ayobami Adeloye Performance Measurement

OBJECTIVES • Seek to promote the adoption of the concept of management by objective(MBO) • To institute an objective means of measuring performance. • To enhance quality of balance sheet management • To engender competition among branches without creating suboptimality Fincon/MIS

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FUNDAMENTALS OF MPR • The concept of pool • The determination of pool rate .i.e. transfer price • The concept of average balances

Fincon/MIS

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POOL RATE – TRANSFER PRICE TYPES 2. Nibor Rate 3. Interbank Rate Market Determined Rates 4. Weighted Average Rate plus

Fincon/MIS

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POOL RATE –TRANSFER PRICE (CONTD)

WEIGHTED AVERAGE RATE + MARKET RATES Advantages Advantages c) It is realistic c) Market d) It enhances the concept of determined management by objective d) Little room for (MBO) disagreement e) Aligns with the strategic focus e) Easy to adopt of the management f) Position arrived at after careful Disadvantages considerations of all underlying options h) Open to constant fluctuations g) It is fairly stable i) May not be in Disadvantages line with management’s i) Time wasting objective j) Open to disagreement Fincon/MIS

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FUNDAMENTALS OF MPR (CONTD) AVERAGE BALANCES • It is an objective form of performance measurement • It evens out distortions that may have occurred during the period • It discourages end of month “padding”

Fincon/MIS

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FUNDAMENTALS OF MPR (CONTD) THE CONCEPT OF POOL • Easy transferability of funds among branches • All fund sources and uses emanate from the pool • Where a unit has more liabilities than is required for its immediate use such funds are lent to the pool • Where a unit utilises funds more than its capacity for liability generation such funds are borrowed from the pool • Lending/Borrowing priced at pool rate Fincon/MIS

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MPR MANAGEMENT • Cash Management -The need to determine average cash need without incurring stock out costs - The need to balance cost of holding with availability • Risk Assets Management - Ensure that average rate is well above Fund rate - Minimise/Eliminate incidences of bad loans so as to reduce loan loss provision • Other Assets - The need to effectively manage the balance on these account to avoid/reduce pool charge - Constant reconciliation so as to reduce fictitious assets and reduce possibility of pool Fincon/MIS charge

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MPR MANAGEMENT (CONTD) • Deposits - Ensure that deposits are priced well below the pool/fund rate. - Ensure that deposits mix are skewed towards DDA to increase margin earned from the pool - Try to achieve some level of fund matching between the OD level and tenured deposit - Ensure some level of stability in funding through Fincon/MIS growth in savings and term deposit

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MPR MANAGEMENT (CONTD) • Other Liabilities - Focus on U/E, Bank Cheques etc as a source of funding for the following reasons: - Balance on these accounts not adjusted for liquidity purpose - Income from float is higher than any other class of liabilities

Fincon/MIS

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ISSUES AND CONLUSIONS • The need to maintain proper account management • The need to focus on the principle of 80/20 rule as a condition for maintaining/improving account profitability • Constant review of balance sheet for items that may impact/improve profitability • Fair pricing of assets/liabilities at all Fincon/MIS times

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