As 2025 is well underway, Treasury and Asset-Liability Management (ALM) continue to play a critical role in navigating the ever-changing financial landscape. Banks and financial institutions must adapt, innovate, and act decisively to stay competitive. Several key priorities will shape the success of Treasurers and Heads of ALM in the coming years. By focusing on these areas, banks can strengthen their position in the industry—while neglecting any of them could risk falling behind.
Here are 9 priorities, looking through a European lens, that should be on every Treasurer’s and Head of ALM’s radar:
- Dealing with uncertainty
In a world where geopolitical and macroeconomic uncertainty seems to reach new heightened levels every week, Treasury and Balance Sheet Management Teams, will need to prepare and expect the unexpected. Tariffs, triggering potential trade wars on top of ongoing armed conflicts are unlikely to make life easier for treasurers in being guardians of their banks balance sheets. The financial markets have shown fairly low volatility given the events witnessed in January and early February. Whether this is the calm before the storm or something else, remains to be seen but dealing with uncertainty is likely to be top of the agenda in 2025.
2. Optimising Net Interest Income (Nii)
Net interest income has long been a core driver of revenue for banks, and in recent years, it has accounted for a significant portion of earnings. However, as interest rates have begun to soften, banks face the challenge of mitigating the risk to profitability posed by this critical revenue stream. In 2025, it’s crucial for banks to not only focus on maintaining net interest income but also on optimising it throughout different interest rate cycles. Additionally, banks should evaluate their balance sheet structure and consider how new technologies or advanced risk management tools could help in actively steering net interest income. It is essential that banks have systems in place to monitor and adapt to the fluctuating interest rate environment, ensuring sustainable profitability from this critical source of income.
3. Strategic Focus on Deposits
As interest rates decrease, deposits, are becoming increasingly critical in margin optimisation. Banks must focus on strengthening their deposit management capabilities. This involves revisiting and upgrading deposit pricing models, developing better analytical tools to understand customer behaviour, and operationalising advanced pricing techniques. The way deposits are managed can significantly impact a bank’s bottom line, and ensuring your team has the right tools to optimise margins is now a strategic priority. Strengthening deposit management capabilities will be essential to maintaining profitability and financial stability.
4. Active Balance Sheet Management
The era of elevated levels of financial resources in the system is coming to an end, and with it, the necessity for active balance sheet management has become more pronounced. Balancing risk and profitability while maintaining operational flexibility requires strategic, technical, and transactional levers. Banks should be focusing on deploying these levers to optimise their balance sheets and mitigate potential risks. Effective balance sheet management involves making informed decisions on capital allocation, asset management, and liquidity planning. A proactive approach to managing the balance sheet will strengthen a bank’s financial position and optimise risk-adjusted returns.
5. FTP Steering: A Strategic Necessity
Funds Transfer Pricing (FTP) is an evergreen topic in banking, but recent shifts have shown that a one-size-fits-all FTP approach risks creating long-term balance sheet imbalances. To be effective, FTP must be used actively and strategically to steer balance sheet dynamics, pricing, and overall performance. With the right FTP framework, banks can ensure they are effectively allocating capital, pricing products appropriately, and aligning with their overall financial strategy. Active use of FTP to drive performance will ensure better decision-making and optimal financial outcomes.
6. Liquidity Evolution
Liquidity risk management is a foundational element of banking, but 2023 proved just how critical it is in times of uncertainty. As the industry faces rapid changes in customer behaviour, regulatory environments, and market conditions, banks need to evolve their liquidity risk management strategies. This includes adopting a more forward-thinking approach that not only focuses on regulatory compliance but also accounts for customer needs and potential market disruptions. Banks must ensure their liquidity framework is robust, flexible, and reflective of recent lessons learned. Updating liquidity risk management systems and preparing for future regulatory changes will strengthen a bank’s ability to manage disruptions effectively.
7. Mergers and acquisitions (M&A)
Mergers and acquisitions will continue to be a significant aspect of strategic growth in the banking sector. In many European markets bank valuation multiples continue to be on the lower side hence consolidation can be expected.
8. Capital Adequacy:
Capital adequacy has always been crucial for banks, but the importance of maintaining strong capital buffers is especially emphasised by the European Central Bank’s Supervisory Review and Evaluation Process (SREP). Banks need to ensure they have sufficient capital to withstand economic shocks and regulatory pressures. In 2025, having solid capital adequacy frameworks will be essential not only to meet regulatory requirements but also to provide the financial resilience needed in times of economic volatility. Maintaining robust capital positions will safeguard a bank’s ability to weather potential shocks and support long-term stability.
9. Building Treasuries of the Future
In a world where technological advances are transforming how financial resources are managed, Treasury and ALM operations must evolve. Integrated management of financial resources is more critical than ever, and leveraging emerging technologies such as AI can make operations both more efficient and effective. Banks should be reassessing their operational models, investing in the right infrastructure, and ensuring that their teams have the skills needed to thrive in a technology-driven future. Setting up Treasury and ALM systems for success over the next five years requires careful planning and proactive change management. Ensuring your Treasury operations are future-ready is essential to staying competitive.