Analysis of Chosen Strategies of Asset and Liability Management in Commercial Banks

Angelė Lileikienė

Abstract


The article presents methods and strategies of asset and liability management in commercial banks as well as their comparative analysis. It is very important for commercial banks to choose such performance strategy that would reduce the credit-, liquidity-, interest-raterelated risk and would balance the risk, profitability, liquidity and security. Recommendations for further improvement of asset and liability management system in functioning commercial banks are provided. This article discusses strategy and methods of asset and liability management in commercial banks, choosing the strategy aimed at reducing the credit risk, liquidity risk and interest rate risk. The aim is to choose the strategy oriented to balancing the returns and stability of commercial bank activities, to prepare recommendations for possible performance improvement in commercial banks. The chosen strategy of the bank asset and liability management allows to achieve banking harmony in the bank’s performance, i.e. the balance in combining its striving for maximalisation of the profit at the same time ensuring its liquidity with the least risk. Research works describe three asset and liability management strategies: zero, positive, negative Net interest income strategies in asset and liability management. Whatever strategy commercial bank applies in its performance, it shows that it is able to follow contemporary systemic approach in asset and liability management, having direct impact not only on the bank’s performance, but also the profit. The core problem in asset and liability management is the fact that the main asset of commercial bank - credits – not always can be liquid, especially if the country‘s economy is in deep recession. Upon such conditions, the need for restructuring of some credits arises. This in its turn, leads to the necessity to look for new available sources of fund formation. At the same time it is necessary to stress that this is an opportunity to issue profitable credits: bank is able to issue certain part of credits for long term. But such a step requires the bank to look for new, untraditional sources of financing instead of traditional liquid assets or short-term deposits. As the performed research shows, significant changes in management of asset and liability structure could be observed in sixties and seventies. Having faced rapidly fluctuating interest rate and intense competition in fund formation, the banks started paying more attention to fund formation and monitoring of deposit value and structure, as well as the situation of non-deposit liabilities. Traditional asset and liability management is directly related to assessment of interest rate risk, monitoring and control of bank performance and the policy for stabilisation and increase of net interest income and capital market.


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Print ISSN: 1392-2785
Online ISSN: 2029-5839