/pdf/the-role-of-net-interest-margin-in-improving-banks-asset-48p48xd8b1.pdf

The Role of Net Interest Margin in Improving Banks’ Asset Structure and Assessing the Stability and Efficiency of their Operations

Asset-Liability Management (ALM) is concerned with strategic management of assets (uses of funds) and liabilities (sources of funds) of banks, against risks caused by changes in the liquidity position of the bank, interest rates, and exchange rates, and against credit risk and contingency risk. An effective ALM technique aims to manage the volume, mix, maturity, rate sensitivity, quality and liquidity of the assets and liabilities as a whole so as to attain a predetermined acceptable risk/reward ratio. The purpose of ALM is to enhance the asset quality, quantify the risks associated with the assets and liabilities and further manage them, in order to stabilize the short-term profits, the long-term earnings and the long-run sustenance of the bank. The Reserve Bank of India (RBI) has implemented the Basel II norms for the regulation of Indian banks, providing a framework for banks to develop ALM policies. The present study analyses asset-liability management in banks operating in India using the asset-liability guidelines provided by the Reserve Bank of India. The primary objective of the study was to compare the maturity gaps in public, private and foreign banks in the Indian banking industry.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1760786_code1147191.pdf?abstractid=1760786&mirid=1&type=2

An Analysis of Asset-Liability Management in Indian Banks

Purpose




Motivated by massive bank failures during the financial crisis and the remarkable resilience of Islamic banks (IBs), this paper aims to analyze the interdependencies between asset/liability portfolio choices of IBs in emerging markets.




Design/methodology/approach




The authors collect data from the financial statements of IBs in the Middle East and North Africa region and Southeast Asia during the period 2002-2012. Using canonical correlation analysis, the authors investigate the degree of interdependencies between the asset/liability accounts unique to IBs and how their ALM models work at times of economic turmoil.




Findings




IBs tend to make decisions on sources of finance based on their asset portfolio choices. The interdependencies are stronger for small banks. IBs direct more of their investments to risk-mitigating instruments that share the risk with the borrower/client and are based on the purchase and sale of real goods rather than financial instruments. Additionally, banks tend to rely less on equity to finance their investments during economic boom and increase their equity holdings during economic bust.




Practical implications




This paper contributes to research on an under-researched, globally growing finance sector. It extends research on ALM while providing novel evidence using non-standardized asset/liability accounts unique to IBs.




Originality/value




The analysis of unique accounts has not been discussed in prior studies, which mainly used standardized account balances to compare Islamic and conventional banks. Moreover, the resilience of IBs and whether their ALM models are superior at times of turmoil has remained a black box. The results of this study are relevant to unravel this unanswered question.

Asset-liability management in Islamic banks: evidence from emerging markets

Asset-liability management in banks is the strategic management of assets and liabilities to optimize profitability, while ensuring liquidity, and protecting against different risks. This study examines the impact of asset-liability management on the profitability for a sample of thirty-five public and private sector Indian banks. The results of the study indicate that most of the banks are exposed to short term risk, with negative maturity mismatches in the 1-90 days bracket, and more so for public sector banks. However, the regression results indicate that there is an incentive to maintain negative maturity mismatch in the short-term, as this improves profitability.

A Study of the Impact of Asset-Liability Management on the Profitability of Banks in India

In earlier years, there was abundance of funds in banks in the form of demand and savings deposits. Hence, the focus of banks was mainly on asset management. But intense competition and volatility of interest rate due to banking reforms reduced the availability of low-cost funds and therefore, banks focused on liability management as well. These pressures call for structured and comprehensive measures and not just ad hoc action. This is how banks started to concentrate more on the management of both sides of the balance sheet. As a result, the concept of asset-liability management originated in India and introduced in the Indian banking industry since 1st April 1999 to administer the risk management aspects. This paper attempts to optimize assets and liabilities of banks using goal programming technique. Secondary data is collected from annual reports of Allahabad bank from 2010-2019 and RBI website is used for modelling. The findings show that in Allahabad bank, goal programming help in achieving optimization and increase profitability. The model incorporating constraints and set objectives. It model can support banks in decision making process, planning, budgeting, and forecasting. An attempt is made to use realistic goals and constraints after discussing with bank officials.

/pdf/optimizing-balance-sheet-for-banks-in-india-using-goal-3fphus8xf8.pdf

Optimizing balance sheet for banks in india using goal programming

Asset-liability management (ALM) may be defined as the simultaneous planning of all asset and liability positions for a bank, considering the different bank management objectives and the legal, managerial and market constraints, for the purpose of enhancing the value of the bank, providing liquidity, and mitigating interest rate risk (Gup and Brooks, 1993). An efficient asset-liability management system aims to manage the volume, mix, maturity, rate sensitivity, quality and liquidity of the assets and liabilities as a whole, so as to earn a predetermined, acceptable risk/reward ratio. The framework of asset-liability management broadly covers the areas of interest rate risk, liquidity risk, exchange risk and credit risk. The present study proposes a linear programming model for asset-liability management, with profitability as the objective, and constraints based on liquidity and statutory requirements. The model was applied to a sample of banks operating in India, resulting in a recommended optimal asset-liability mix of the banks in the sample. Using these results, the study assessed the nature of asset-liability management of different bank groups, in terms of its implications on profitability, liquidity, and interest rate sensitivity.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1542776_code1147191.pdf?abstractid=1542776&mirid=5

A Linear Programming Model for Assessing Asset-Liability Management in Banks

Asset-liability management is the simultaneous planning of all asset and liability positions for a bank, considering the different bank management objectives and the legal, managerial and market constraints, for the purpose of enhancing the value of the bank, providing liquidity, and mitigating interest rate risk. The framework of asset-liability management broadly covers the areas of interest rate risk, liquidity risk, exchange risk and credit risk. The present study uses canonical correlation analysis to assess the nature of asset-liability management of different bank groups. The results of the study indicate that, among the three groups, private banks had the most dynamic asset-liability management, with a strategy of active liability management. Public and foreign banks seemed to concentrate on fixed assets in their asset-liability management strategies, without actively involving other asset classes, thus bringing the possibility of liquidity and interest rate sensitivity issues in their asset-liability management.

Canonical Correlation Analysis of Asset-Liability Management of Indian Banks

The present study analyses asset-liability management in Indian banks using the methodology of Ranjan and Nallari (2004). The study covers all scheduled commercial banks except regional rural banks (RRBs), in the five-year period 2003-08. The banks are grouped on the basis of ownership structure: viz. public sector banks (including SBI & associates), private sector banks, and foreign banks.

/pdf/canonical-correlation-analysis-of-asset-liability-management-1fotrncde0.pdf

Ravi Pathak

Papers

A Linear Programming Model for Assessing Asset-Liability Management in Banks

Canonical Correlation Analysis of Asset-Liability Management of Indian Banks

Canonical Correlation Analysis of Asset-Liability Management of Indian Banks