Premium Essay

Impact of Alm on Profitability

In: Business and Management

Submitted By SamsonAbate
Words 6472
Pages 26
College of Business and Economics Department of Accounting and Finance Research Proposal

“The Impact of Asset Liability Management on Banks Profitability: A Comparative Study on Ethiopian Commercial Banks”

Prepared by: Samson Abate ID No. GSE/1482/08

Submitted to: Samuel Kifle(Phd.)

In Partial fulfilment of Business Research Methods Course January, 2016

Abstract
Banks’ profitability is of utmost concern in modern economy. Banks are in a business to receive deposits or liabilities and to issue debt securities on the one hand and create or invest in assets on the other hand. Commercial Banks incur costs for their liabilities and earn income from their assets. Thus profitability of banks is directly affected by management of their assets and liabilities. In addition, different market and macroeconomic factors also influence the ability of the banks to make profits. The asset and liability base of banks in developing countries are narrower than their counterparts in developed countries. This study examines how asset and liability management together with external variables such as degree of market concentration and inflation rate impact the profitability of selected commercial banks in Ethiopia. Although impact of the management of banks’ asset and liability on their profitability has been studied by a number of researchers, the issue of banks’ profitability in Ethiopia has received scant attention from the researchers. This study is an attempt to close this gap, to bring the issues of banks’ assets and liability management in Ethiopia squarely into focus for assisting better performance.

Contents

CHAPTER I: INTRODUCTION

1.1 Background of the study 4
1.2 Statement of the Problem 5
1.3 Objectives and Hypothesis of the study 6
1.3.1 General Objective 6
1.3.2 Specific Objectives 6
1.3.3...

Similar Documents

Premium Essay

Managment

...TOOL 4 W An Introduction to Liquidity and Asset-liability Management Monnie M. Biety hen a formerly credit-only microfinance institution (MFI) starts raising voluntary savings and using those deposits to finance the loan portfolio, the liquidity and asset-liability management of the institution becomes more complex. The institution not only has to deal with the fluctuating demand and varying interest rates and terms on loans, but also with erratic deposit demands and withdrawals and changing interest rates and terms on savings. Liquidity and assetliability management in savings institutions requires a coordinated, planned approach. Liquidity Management Liquidity refers to the ability of an institution to meet demands for funds. Liquidity management means ensuring that the institution maintains sufficient cash and liquid assets (1) to satisfy client demand for loans and savings withdrawals, and (2) to pay the institution’s expenses. Liquidity management involves a daily analysis and detailed estimation of the size and timing of cash inflows and outflows over the coming days and weeks to minimize the risk that savers will be unable to access their deposits in the moments they demand them. In order to manage liquidity, an institution must have a management information system in place—manual or computerized—that is sufficient to generate the information needed to make realistic growth and liquidity projections. The information needed includes: ■ The actual......

Words: 2254 - Pages: 10

Premium Essay

An Introduction to Liquidity and Asset-Liability Management

...TOOL 4 W An Introduction to Liquidity and Asset-liability Management Monnie M. Biety hen a formerly credit-only microfinance institution (MFI) starts raising voluntary savings and using those deposits to finance the loan portfolio, the liquidity and asset-liability management of the institution becomes more complex. The institution not only has to deal with the fluctuating demand and varying interest rates and terms on loans, but also with erratic deposit demands and withdrawals and changing interest rates and terms on savings. Liquidity and assetliability management in savings institutions requires a coordinated, planned approach. Liquidity Management Liquidity refers to the ability of an institution to meet demands for funds. Liquidity management means ensuring that the institution maintains sufficient cash and liquid assets (1) to satisfy client demand for loans and savings withdrawals, and (2) to pay the institution’s expenses. Liquidity management involves a daily analysis and detailed estimation of the size and timing of cash inflows and outflows over the coming days and weeks to minimize the risk that savers will be unable to access their deposits in the moments they demand them. In order to manage liquidity, an institution must have a management information system in place—manual or computerized—that is sufficient to generate the information needed to make realistic growth and liquidity projections. The information needed includes: ■ The actual......

Words: 2254 - Pages: 10

Premium Essay

Asset Liability Management

...management techniques and to establish a link between risk exposures and capital. Effective management of risk has always been the focus area for banks owing to the increasing sophistication in the product range and services and the complex channels that deliver them. The challenge for the banks is to put in place a risk control system that minimizes the volatility in profit and engenders risk consciousness across the rank and file of the organization. Sound risk management will ensure a healthy bottom line for the bank as risk taken by the bank will be commensurate with return and will be within an approved risk management policy. As all transactions of the banks revolve around raising and deploying the funds, Asset-Liability Management (ALM) gains more significance as an initiative towards the risk management practices by the Indian banks. The present paper discusses the various risks that arise due to financial intermediation and by highlighting the need for asset-liability management; it discusses the Gap Model for risk management. Introduction As Alan Greenspan,...

Words: 6980 - Pages: 28

Premium Essay

Alm Practice in Banks: a Perspective of the Southeast Bank Ltd.

...risk it assumes are effectively managed, appropriate policies and procedures are established to control the direction of the organization. The whole exercise is with the objective of limiting these risks against the resources that are available for evaluating and controlling liquidity and interest rate risk. Asset Liability Management (ALM) can be defined as a mechanism to address the risk faced by a bank due to a mismatch between assets and liabilities either due to liquidity or changes in interest rates. Liquidity is an institution’s ability to meet its liabilities either by borrowing or converting assets. Apart from liquidity, a bank may also have a mismatch due to changes in interest rates as banks typically tend to borrow short term (fixed or floating) and lend long term (fixed or floating). A comprehensive ALM policy framework focuses on bank profitability and long-term viability by targeting the net interest margin (NIM) ratio and Net Economic Value (NEV), subject to balance sheet constraints. Significant among these constraints are maintaining credit quality, meeting liquidity needs and obtaining sufficient capital. An insightful view of ALM is that it simply combines portfolio...

Words: 9186 - Pages: 37

Premium Essay

Asset Liability Management

...and the new information technology initiatives that beneficially affect asset-liability management. The rise in conglomerate financial services and their implications for asset-liability management are also being described. The research article which is descriptive in nature has been able to successfully describe the concept and application of ALM technique. Before going into the details of what ALM concept is all about, the article briefly discusses the banking reforms that took place in India in the last two decades and tries to emphasize on the changes that have happened in the Indian Banking Sector. ALM Concept ALM is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earnings from interest is maximized within the overall risk-preference (present and future) of the institutions. The ALM functions extend to liquidly risk management, management of market risk, trading risk management, funding and capital planning and profit planning and growth projection. Benefits of ALM • It is a tool that enables bank managements to take business decisions in a more informed framework with an eye on the risks that bank is exposed to. • It is an integrated...

Words: 1548 - Pages: 7

Premium Essay

Assets

...Structural Risk Management (Asset/Liability Management) (ALM) Section Topic Page 7000 Executive Summary…………………………………………… 7-2 7100 Legislative Summary………………………………………….. 7-3 7200 Policy……………………………………………………………. 7-5 7201 Asset/Liability Management Philosophy…………………….. 7-6 7202 Balance Sheet Mix…………………………………………….. 7-7 7203 Managing Liabilities…………………………………………… 7-9 7204 Managing Assets………………………………………………. 7-13 7205 Pricing…………………………………………………………… 7-14 7206 Terms……………………………………………………………. 7-15 7207 Interest Rate Risk……………………………………………… 7-16 7208 Matching Maturities……………………………………………. 7-17 7209 Foreign Currency Risk………………………………………… 7-18 7210 Financial Derivatives…………………………………………... 7-19 7300 Planning………………………………………………………… 7-21 7400 Risk Measurement and Board Reporting…………………… 7-22 7401 Mix and Yields…………………………………………………. 7-25 7402 Growth………………………………………………………….. 7-26 7403 Financial Margin……………………………………………….. 7-27 7404 Interest Rate Risk Measurement…………………………….. 7-28 7405 Monitoring Derivatives………………………………………… 7-35 7500 Risk Management……………………………………………… 7-36 7501 Reliance on Qualified and Competent Staff and Volunteers 7-37 7502 Managing Interest Rate Risk… ……………………………… 7-38 Executive Summary The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. These risks should be......

Words: 12512 - Pages: 51

Premium Essay

Microfinance Standards Ratios

...analyze financial performance and risk management. The proposed Microfinance Financial Reporting Standards: Measuring Financial Performance of Microfinance Institutions (the Standards) seeks to address this need. These Standards are designed for use by all microfinance institutions (MFIs): non-governmental organizations, non-bank financial institutions or companies, commercial banks, rural banks, credit unions, and cooperatives. Below are the detailed description of each ratio and table. 1. Profitability Ratios All MFIs, from non-profit NGOs, to for-profit banks, must be profitable over the long-term in order to be self-sustaining. Profitability allows an MFI to continue operating and to grow. Profitability ratio is any ratio that measures a company's ability to generate cash flow relative to some metric, often the amount invested in the company. Profitability ratios are useful in fundamental analysis which investigates the financial health of companies. An example of a profitability ratio is the return on investment which is the amount of revenue an investment generates as a percentage of the amount of capital invested over a given period of time. Other examples include return on sales, return on equity, and return on common stock equity. Operational Self-Sufficiency (originally called “Operating Self-Sufficiency” or OSS) and Financial Self-Sufficiency (FSS), the adjusted version of Operational Self-Sufficiency, were the earliest attempts to measure whether an......

Words: 2923 - Pages: 12

Premium Essay

Avimnvygvhvbjkbvkjb

...------------------------------------------------- ------------------------------------------------- Course Instructor: Prof. D N Panigrahi Objectives of the course: The course inputs are designed to accomplish the following objectives. * To help students to understand the role and functions of Commercial Banks, main strategic issues in retail and corporate banking and the risks faced by the Banking Industry in India. * To familiarise the students with the new Banking Practices and Processes including new banking technologies. * To familiarise the students with the legal and regulatory framework for banks in India. * To equip the students with the tools and techniques used in interpreting and evaluating the performance, profitability, productivity, and efficiency of the Commercial Banks. * To equip the students with the in-depth knowledge of Bank Financial Management Process including Treasury, Investment, Asset Liability Management & Risk Management. * To equip the students with the in-depth knowledge and skills in Credit Analysis & Appraisal Processes relating to the banks’ lending decisions like Working Capital Financing, Term Loan & Project Financing, Domestic & International Trade Finance including Export-Import Finance, BG (LG) & LC, Retail Asset Financing like Home Loans, Car Loans, Educational Loans, Gold Loans, Loans ag. Securities, Personal and Credit Card Loans. * To understand and appreciate customer-focused......

Words: 2603 - Pages: 11

Premium Essay

American National Insurance Co.

...American National Insurance Co. COMPANY OVERVIEW American National Insurance Co. is a major American insurance corporation. The corporate headquarter is located in Galveston, Texas since founding in 1905 by William Lewis Moody. American National Insurance Co. and its subsidiaries (collectively “American National”) operate in all 50 U.S. states, the District of Columbia, Puerto Rico, and American Samoa. Subsidiaries consist of six life insurance companies, eight property and casualty insurance companies, and numerous non-insurance subsidiaries all operating only domestically. The company conducts its business through five segments. The following segments are: * Life * Annuity * Health * Property and casualty * Corporate and Other In addition, through non-insurance subsidiaries, American National invests in stocks and real estate. The majority of revenues are generated by the insurance business. It is ranking among the largest of life insurance companies in the United States. Therefore, the life insurance continues to be the core product today through their long history. Various distribution systems are utilized, including multiple-line exclusive agents, independent agents, third-party marketing organizations, career agents, and direct sales to the public. As of September 2011, American National Insurance Company’s (Nasdaq: ANAT) total revenue was $3.04 billion. RISK FACTORS American National, being a leading insurance company, is also exposed...

Words: 3132 - Pages: 13

Free Essay

Marketing

...Important Questions for Banks Finance Job 1. 2. 3. 4. 5. 6. 7. What do mean by a Bank, what kind of business a bank is doing? How banks earn profit? What are the product and services offered by a bank? What assets and liability products of a bank? What is net interest margin (NIM)? What deposit mobilization? Why these days the mobilizations are going down? What are the factors effecting deposit mobilization of a bank? What is RBI Credit Policy and how RBI control money supply and interest rate (definition and importance of CRR, SLR, Repo rate, Reverse Repo rate and Bank rate). What are the Securities qualify for SLR requirement of a bank? What is Open Market Operation (OMO) of RBI? What is base rate of a bank, how it is different from BPLR (Banks Prime Lending Rate). What is Credit rating and how it helps banks in credit appraisal of company. What is the process of the credit rating? If client approaches you for a project loan than how you are going to assess the credit worthiness of the client (important ratios use for credit appraisal) dead services coverage ratio, interest coverage ratio, etc. If you are working with a bank then are the important ratios for credit appraisal? What are your strengths weakness for your banking jobs? Do your SWOT analysis for a bank job. What are the main functional areas in a bank for finance professionals (treasury related jobs, risk management, credit appraisal, loans indication, merchant banking). What is IRR, how it is used for project......

Words: 1280 - Pages: 6

Premium Essay

Indian Banking

...The Indian Banking Sector On the Road to Progress G. H. Deolalkar G. H. Deolalkar is formerly Managing Director of State Bank of India. 60 A STUDY OF FINANCIAL MARKETS Overview of Banking and Financial Institutions The Banking Sector The banking system in India is significantly different from that of other Asian nations because of the country’s unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban and rural centers. The country’s economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the “exportled growth” of other Asian economies, with emphasis on self-reliance through import substitution. These features are reflected in the structure, size, and diversity of the country’s banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive fiveyear development plans, particularly concerning equitable income distribution, balanced...

Words: 30682 - Pages: 123

Premium Essay

Narolac Paints

...Table of Contents EXECUTIVE SUMMARY ..................................................................... 3 CHAPTER-1 INTRODUCTION ................................................................ 4 1.1 Types Of NBFC‘s ...................................................................................... 5 1.2 Regulations of NBFC‘s ............................................................................... 6 1.3 Guidelines for new deposits ........................................................................ 8 1.4 Responsibilities .......................................................................................... 11 1.5 Current Scenario ....................................................................................... 12 CHAPTER-2 Literature review ....................................................................................... 14 2.1 Importance Of NBFC‘s .............................................................................. 15 2.2 Role of NBFC‘s ... ................................................................................. 16 2.3 On Global Crisis .................... .............................................................. 17 CHAPTER-3 RESEARCH METHODOLOGY ............................................................. 18 3.1 RESEARCH DESIGN ...............................

Words: 15708 - Pages: 63

Premium Essay

Economy and Financial Sector

...Executive Summary Liquidity management refers to meeting liquidity needs by using the outside sources of discretionary funds like government funds, discount window borrowings, repurchase agreements, certificates of deposits and other types of commercial borrowings. The major risk a bank runs is liquidity risk. Under any circumstances a bank has to honor its commitments. As a result, it has to make sure that enough liquidity is available to meet fund requirements in situations like liquidity crisis in the market, policy changes by central bank, a name problem of the bank etc. So, a bank’s balance sheet should have enough liquid assets for meeting contingencies. Here, I can introduce with the theoretical development of asset liability management from the different aspects of The City Bank Limited. Then I can show their policy and statements regarding to the managing their assets liabilities and then I have shown their liquidity analysis through the external analysis to assess their recent market condition. The whole analysis part is undergone from 2004 to 2008. In this analysis part I have analyzed different ratio related to liquidity management so that liquidity position of CBL can easily be assessed. Then I have shown the maturity model from 2004 to 2008. In this analysis CBL’s weighted average assets and liabilities are compared. Here we can see that except 2004 the bank’s assets’ weighted average maturity always higher than its weighted average liabilities’ maturity. ......

Words: 8580 - Pages: 35

Premium Essay

Risk Management

...A Summer Training Project Report on “RISK MANAGEMENT BY INDUSIND BANK LTD.” Undertaken at INDUSIND BANK, AGRA 10th April to 10th June 2009 Submitted by SUBODH AGARWAL Enrollment no. : 4108163163 Management of Business Finance INDIAN INSTITUE OF FINANCE CORPORATE GUIDE: MR. ASHOK SHARMA ASST. MANAGER AGRA BRANCH, AGRA UTTAR PRADESH. ACKNOWLEDGEMENT Expressing gratitude is not just an exercise of formality rather doing so evokes the memories of my association with my mentors and mates. I thank Chairman Prof. J. D. Agarwal and Director Aman Agarwal for allowing me to carry out this project. I wish to express my sincere gratitude to my corporate guide, Mr. Ashok Sharma for guiding me to understand the concepts those were not clear to me. I learnt a lot from his professional sknowledge. SUBODH AGARWAL 4108163163 Management of Business Finance Preface As a part of Management of Business Finance (MBF) programme, a student has to pursue a project duly approved by the Director of the Indian Institute of Finance. I had the privilege of undertaking a project on “Risk Management by INDUSIND BANK LTD.” My project report is divided into seven chapters and they are given as under: Chapter 1 INTRODUCTION Chapter 2 Review of literature Chapter 3 Research Methodology Chapter 4 Analysis Chapter 5 Consist of Findings, Conclusion, Suggestions, Limitations SIGNATURE: Name: SUBODH AGARWAL Enrollment No.: 41O8163163 Management of Business Finance CERTIFICATE This...

Words: 47032 - Pages: 189

Premium Essay

Risk Management in Banking Sector

...Risk management in banking sector Table of content Particulars | Page no. | Executive summary | | Introduction | | Literature review | | Research methodology | | Sampling techniques | | Tools of analysis | | Data analysis & findings | | Conclusions | | Scope for further research | | Reference | | Executive Summary Today, The Indian Economy is in the process of becoming a world class economy. The Indian banking industry is making great advancement in terms of quality, quantity, expansion and diversification and is keeping up with the updated technology, ability, stability and thrust of a financial system, where the commercial banks play a very important role, emphasize the very special need of a strong and effective control system with extra concern for the risk involved in the business. Globalization, Liberalization and Privatization have opened up a new methods of Financial transaction where risk level is very high. In banks and financial institutions risk is considered to be the most important factor of earnings. Therefore they have to balance the Relationship between risk and return. In reality we can say that management of financial institution is nothing but a management of risk managing financial risk systematically and professionally becomes an even more important task. Rising global competition, increasing deregulation, introduction of innovative products and delivery channels have pushed risk management to the......

Words: 26880 - Pages: 108