Asset/Liability Management in Australia: 2025 Guide

From volatile markets to regulatory shakeups, 2025 is shaping up to be a landmark year for asset/liability management in Australia. Whether you’re a finance manager, business owner, or savvy individual investor, mastering ALM is key to protecting your balance sheet and capitalising on new opportunities.

Why Asset/Liability Management Matters More Than Ever in 2025

Asset/liability management (ALM) is the discipline of balancing assets and liabilities to control risk, maintain liquidity, and meet financial goals. In a year marked by sustained inflation, fluctuating interest rates, and stricter regulatory oversight from APRA and ASIC, effective ALM has become a frontline defence for both businesses and households.

Key drivers shaping ALM strategies in 2025 include:

• Interest Rate Volatility: The RBA’s cash rate continues to fluctuate as policymakers battle inflation. Sudden rate hikes can erode asset values and increase borrowing costs, while drops can squeeze returns on cash-heavy portfolios.

• Regulatory Updates: The 2025 APRA liquidity standards have tightened reporting and capital requirements for ADIs (Authorised Deposit-taking Institutions), compelling more robust ALM practices.

• Climate and ESG Risks: New ESG disclosure rules are forcing corporates and super funds to rethink the sustainability and resilience of their asset portfolios.

Core Components of Asset/Liability Management

ALM isn’t just for banks or large institutions—it’s increasingly relevant for any entity with meaningful assets and liabilities. Here’s how the core pillars break down in 2025:

• Liquidity Management: Ensuring enough liquid assets to meet short-term obligations. With the RBA’s Term Funding Facility winding down, many banks are revisiting their liquidity buffers and funding sources.

• Interest Rate Risk: Managing exposure to rate changes. This year, forward rate agreements and interest rate swaps are seeing a surge in popularity among corporates hedging against RBA unpredictability.

• Capital Management: Maintaining sufficient capital to absorb losses and satisfy regulators. APRA’s 2025 capital adequacy reforms have pushed both banks and credit unions to revise their risk weightings and capital plans.

• Funding Strategy: Diversifying sources of funding, from retail deposits to wholesale markets, to protect against shocks and funding squeezes.

For individuals, ALM can mean matching mortgage repayments to salary cycles, or balancing investment portfolios to offset HECS/HELP debt or personal loans.

Real-World Examples: Australian ALM in Action

Let’s look at how ALM is playing out across different sectors in 2025:

• Banking: The ‘Big Four’ have ramped up dynamic balance sheet modelling to stress-test for multiple rate scenarios, while regional banks are partnering with fintechs to automate ALM analytics.

• Superannuation Funds: Facing new liquidity stress testing requirements, super funds are trimming exposure to illiquid property assets and boosting cash holdings, especially after the government’s release of the 2025 Retirement Income Covenant update.

• Small Businesses: SMEs are increasingly seeking fixed-rate business loans and building cash reserves to weather rate shocks, as evidenced by the uptick in demand for forward rate agreements reported by the Australian Finance Industry Association.

• Households: Homeowners are locking in fixed-rate mortgages and using offset accounts to buffer against payment increases, while investors are reviewing their mix of shares, property, and cash to align with changing liability profiles.

2025 Policy and Market Trends Shaping ALM

This year, several policy shifts and market forces are redefining best practices for ALM:

• APRA’s Enhanced Liquidity Framework: The new Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) requirements demand detailed asset-liability matching and more granular stress testing.

• ASIC’s Focus on Non-Bank Lenders: With non-bank lending now over 15% of the Australian credit market, ASIC’s 2025 guidelines are pushing these lenders to adopt ALM frameworks akin to those in the banking sector.

• Climate Risk Integration: APRA and ASIC’s joint guidance on climate scenario analysis means asset managers must now assess how physical and transition risks impact both sides of the balance sheet.

• Tech Innovation: AI-driven ALM tools are enabling real-time scenario analysis, helping both institutions and individuals make smarter decisions about refinancing, investing, and liquidity planning.

Strategies for Smarter Asset/Liability Management in 2025

To thrive in this dynamic environment, consider these strategies:

• Regularly Review Your Balance Sheet: Map out your assets and liabilities, stress-test them against multiple scenarios, and update your strategy as the economic landscape shifts.

• Embrace Hedging Tools: From swaps to fixed-rate products, these can help manage interest rate risk and smooth cash flows.

• Diversify Funding and Investments: Don’t rely too heavily on one funding source or asset class; build resilience by spreading your risk.

• Stay Informed: Keep up to date with regulatory changes, market trends, and technological advancements that can affect your ALM approach.

Conclusion

Asset/liability management is no longer just a behind-the-scenes function—it’s a core strategy for resilience and growth in 2025’s unpredictable financial environment. Whether you’re a business leader, investor, or household decision-maker, mastering ALM can help you safeguard your financial future and turn volatility into opportunity.