- 20 Marks
RM – JUL 2020 – L4 – Q4 – Depositor Concentration Risk and Sectoral Concentration in ALM
Explain depositor concentration risk, how to address it, and why management should worry about sectoral concentration in loans within ALM context.
Question
In the context of Assets and Liability Management, explain;
(a) What depositor concentration risk (liability) is, and how this poses a risk to your bank? (5 marks)
(b) How would you address this particular risk? (10 marks)
(c) Why should a bank’s management be concerned about sectoral concentration risk (disproportionate exposure to a particular sector of the economy) in its loan portfolio? (5 marks)
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