Abstract:
In financial markets, the main component of risk management is liquidity risk. Asset and Liability Management (ALM) strategy is concerned with managing all risks. Asset and liability management seeks to manage liquidity risk, which refers to both the liquidity of markets and which assets can be translated into cash. The liquidity is importantly affected by the management of banks’ balance sheets. This paper contributes to the discussion by focusing on liquidity and asset and liability management by providing a theoretical framework to examine how the ALM could be reduced the liquidity risk in banking. We investigate the effect of ALM indicators on liquidity risk. We measure liquidity risk, and ALM with indicators approach, using financial statement in 2006-2018 and panel data approach. The results indicate that if asset and liability management improves, liquidity risk decrease and if the ratio of capital adequacy increases, the bank can better cover liquidity risk, and so increasing in capital adequacy will reduce liquidity risk. Deposit per shareholders increases the liquidity risk of banks. Interest rate increases liquidity risk. When profitability increases, liquidity risk will increase. The relation between liquidity risk and profitability is positive.
Machine summary:
Guthua (2013) investigated the effect of Asset Liability Management on the liquidity risk on the commercial banks in Kenya.
The results of the regression analysis show that there is a significant positive relationship between independent variables (return on equity, capital adequacy, loan to deposit ratio, return on assets, total assets, asset-liability management policies, liquidity stress testing, and contingency funding plan) and the dependent variable, i.
Brennan, Schwartz, and Lagnado (1997), Mulvey (2001), Rosen and Zenios (2006), Kosmidou and Zopounidis (2008), and Mulvey and Vladimirou (1989) indicate the importance of ALM in banking and introduce the methods that could improve the banking business models.
This paper contributes to the discussion by focusing on liquidity and asset-liability management by providing a theoretical framework to examine how the ALM could be reduced the liquidity risk in banking.
This paper contributes to the discussion by focusing on liquidity and asset-liability management by providing a theoretical framework to examine how the ALM could be reduced the liquidity risk in banking.
Table 7 (View the image of this page) According to the results, there is a negative relationship between liquidity risk and asset and liability management.
Thus, banks increasingly need to match the maturities of the assets and liabilities, balancing the objectives of profitability, liquidity, and risk.
To investigate the effect of asset and liability management on liquidity risk, the financial statements of Iran’s banking system for the period 2006-2018 have been used.
Modeling the Effects of Asset Liability Management on the Liquidity Risk of Commercial Banks in Zimbabwe (2009-2013).