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

Keywords: assets and liabilities of commercial banks , strategies of asset and liability management , interest rates , Net interest income

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Abstract:

The article presents methods and strategies of assetand liability management in commercial banks as well astheir comparative analysis. It is very important forcommercial banks to choose such performance strategythat would reduce the credit-, liquidity-, interest-raterelatedrisk and would balance the risk, profitability,liquidity and security. Recommendations for furtherimprovement of asset and liability management system infunctioning commercial banks are provided. This articlediscusses strategy and methods of asset and liabilitymanagement in commercial banks, choosing the strategyaimed at reducing the credit risk, liquidity risk and interestrate risk. The aim is to choose the strategy oriented tobalancing the returns and stability of commercial bankactivities, to prepare recommendations for possibleperformance improvement in commercial banks. Thechosen strategy of the bank asset and liability managementallows to achieve banking harmony in the bank’sperformance, i.e. the balance in combining its striving formaximalisation of the profit at the same time ensuring itsliquidity with the least risk. Research works describe threeasset and liability management strategies: zero, positive,negative Net interest income strategies in asset andliability management. Whatever strategy commercial bankapplies in its performance, it shows that it is able to followcontemporary systemic approach in asset and liabilitymanagement, having direct impact not only on the bank’sperformance, but also the profit. The core problem in assetand liability management is the fact that the main asset ofcommercial 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 somecredits arises. This in its turn, leads to the necessity to lookfor new available sources of fund formation. At the sametime it is necessary to stress that this is an opportunity toissue profitable credits: bank is able to issue certain partof credits for long term. But such a step requires the bankto look for new, untraditional sources of financing insteadof traditional liquid assets or short-term deposits. As theperformed research shows, significant changes inmanagement of asset and liability structure could beobserved in sixties and seventies. Having faced rapidlyfluctuating interest rate and intense competition in fundformation, the banks started paying more attention to fundformation and monitoring of deposit value and structure,as well as the situation of non-deposit liabilities.Traditional asset and liability management

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