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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 sub-
optimality
Fincon/MIS 2
FUNDAMENTALS OF MPR

• The concept of pool


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

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

Fincon/MIS 4
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
h) Open to constant options
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 5
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 6
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 7
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 8
charge
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 9
term deposit
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 10
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
times Fincon/MIS 11