- 20 Marks
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)
Answer
From my ALM experience at Stanbic Bank Ghana, ALM involves balancing risks via ALCO, per BoG guidelines. Concentration risks can lead to liquidity crunches, as in the cleanup and recent 2025 economic pressures.
(a) Depositor Concentration Risk (Liability) and Its Pose to the Bank (5 marks)
This risk arises when a large portion of deposits comes from few sources. It poses threats like sudden withdrawals, violating liquidity ratios. E.g., reliance on one entity could trigger runs, as in UT Bank.
(b) Addressing Depositor Concentration Risk (10 marks)
Diversify via:
- Marketing: Target retail via digital, as Ecobank did in 2025.
- Products: Varied terms for broad appeal.
- Limits: Caps on single depositors.
- Contingency: Liquid assets and BoG facilities.
- Relationships: Loyalty programs.
(c) Concern About Sectoral Concentration Risk in Loan Portfolio (5 marks)
Overexposure (e.g., to oil) amplifies defaults from shocks, raising NPLs. In 2025, energy sector issues highlighted this; diversification mitigates, per BoG limits.
- Topic: INTRODUCTION TO ASSETS AND LIABILITY MANAGEMENT
- Series: JULY 2020
- Uploader: Samuel Duah