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Role Of Asset Liability Management In Banking Industry

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Question:

Describe about the Role of Asset Liability Management in Banking Industry?
 
 

Answer:

Introduction

In a country commercial bank plays vital role for the mobilization of deposits and disbursement of credit in different sectors of economy. The financial system of a bank should be efficient for maintaining the financial stability. Financial stability of a bank depends on the efficient management of all assets. It is also important to take proper strategies against the financial risks. Asset liability area is an important area for banking sector especially for those banks that provides service globally.

According to different reports, banking industry is facing challenges for maintaining financial stability especially for those banks that provide service internationally. The purpose of this research is to understand the role of asset liability management in banking institutions. It is also important to identify the factors which can increase the risk of the banking sectors.

Research Aim

The aim of the research is to identify the role and function of asset liability management in the banking institutions. This research proposal is basically about the discussion of the importance of theoretical and practical aspects of asset liability management in commercial banking sector. It will also help to identify the role of asset liability management in reducing the risk of the management in banking industry (Coleman, 2012).

Research Questions

For this research proposal, researcher has selected certain questions and the entire research is based on those questions. The research questions related to this research are as follows:

  • What is the role and importance of asset liability management in banking industry?
  • How asset liability management can reduce the risk associated with functional activities of banking industry?
  • What are the possible ways for managing the assets of banking industry?
  • How the asset liability management can reduce the risk associated with functional activities of banking industry
 

Literature Review [understanding of the background]

As per the different researcher has been mentioned all are the required thoughts about the theoretical and practical aspects about the asset management activities for managing liabilities in the commercial banking sector.

Asset Liability Management- Concept

According to Ratnovski (2013), asset liability management is considered as comprehensive and dynamic model for determining, monitoring and managing of market risk of financial institutions. It provides such structure of balance sheet for the financial institutions through which they can increase the net earnings from interest considering the overall risk-preference (Ambira and Kemoni, 2011). This techniques also manage the different types of functions and risks such as liquidity risk, market risk, trading risk, funding and capital planning and also profit planning and growth projections (Hull, 2012).

As per the opinion of Samad (2012), asset liability management can be defined as the process through which banking organizations can get the options for allowing alternative interest rate and liquidity scenarios. As it is said by Bryan (2013) that banking organizations should focus on asset liability management for overcoming the different kinds of financial risks. It is also said that this concept is not only provide the formalization of understanding, but it also provide the way for quantifying and managing the risk.

On the other side, Arewa, Owoputi and Torbira (2013) opine that asset liability approach can be considered as the initial stage of long-term strategic planning procedure. So, this concept can be referred to as the planning function for financial institutions. In better way it can be said that it deals with the management of various items of balance sheet and it also help in planning and also directing and controlling of different levels due to changing in assets, liabilities and capital if financial institutions.

Plan to carry out the research

Research Stages

Defining of research problem

At the first, researcher is required to find out and defining the problem or situation on which the study will be done. In this step, researcher is going to understand the problem clearly and rephrasing the same in proper way.

Review of literature

After the defining of research problem, the researcher will include a brief description of past research and conceptual framework related with the current research work.

Formulation of research model

In the third step, researcher would formulate the different models to conduct the research. The various financial tools and theories are to be considered to role of asset liability management.

Preparing of research design

The step of research design contains the collection of relevant evidence with less expenditure of effort and time and money.

 

Data Collection

After the preparation of research design, researcher is going to collect the data from the different sources.

Data Analysis

In this step, researcher will analyze the collected and represent the results through tabulation, chart, graph, etc.

Interpretation of research outcomes

The last of the research includes the interpretation and preparation of report according to the outcomes of the research.

Research Outline/Plan

Task Name

Duration

Start

Finish

Predecessors

Research proposal on Banking industry

38 days

Mon 12/14/15

Sun 1/24/16

 

Selection of Topic of the research

1 day

Mon 12/14/15

Mon 12/14/15

 

Data gathering for primary stage to select the research aim

7 days

Tue 12/15/15

Tue 12/22/15

 

Finding sources of data

4 days

Tue 12/15/15

Fri 12/18/15

2

Strengthening initial proposal

3 days

Sun 12/20/15

Tue 12/22/15

4

literature review

12 days

Tue 12/22/15

Mon 1/4/16

 

conducting research on the available journals

3 days

Tue 12/22/15

Fri 12/25/15

5

Setting the appropriate theories and models for discussing

3 days

Fri 12/25/15

Mon 12/28/15

7

Preparing different views in literature

3 days

Tue 12/29/15

Thu 12/31/15

8

Summarizing the reviews

3 days

Fri 1/1/16

Mon 1/4/16

9

Preparation of research aims

5 days

Mon 1/4/16

Sun 1/10/16

 

Identifying the contemporary problems associated with the customer satisfaction

2 days

Mon 1/4/16

Wed 1/6/16

10

Preparing the research questions

1 day

Wed 1/6/16

Thu 1/7/16

12

Set the objectives of conducting the research

2 days

Thu 1/7/16

Sun 1/10/16

13

Research methodologies

6 days

Sun 1/10/16

Fri 1/15/16

 

Describing the methodologies to be applied in this research

1 day

Sun 1/10/16

Sun 1/10/16

14

Tools and techniques of the research selected

2 days

Mon 1/11/16

Tue 1/12/16

16

procedure of research is prepared

1 day

Wed 1/13/16

Wed 1/13/16

17

Selection of data collection method

1 day

Thu 1/14/16

Thu 1/14/16

18

Selection of analysis method

1 day

Fri 1/15/16

Fri 1/15/16

19

Secondary data collection method

3 days

Sun 1/17/16

Tue 1/19/16

 

Conducting information from secondary sources

2 days

Sun 1/17/16

Mon 1/18/16

20

tentative outcome of the research analyzed

1 day

Mon 1/18/16

Tue 1/19/16

22

Ethical consideration

4 days

Tue 1/19/16

Sun 1/24/16

23

Table 1: Outline of the research

Figure: Gantt chart

Research Methodology and Choice of Sources

Research Approach

The researcher is going to apply certain tools and techniques for conducting the current research study. The different statistical techniques and models will be applied by the researcher on basis of the requirement. The research methodology refers to the plans to examining the factors related with the problematic situation (Denicolo and Becker, 2012). The researcher needs to collect the data from different sources. Before conducting the research work, the preparing of work structure is essential. Researcher will try to focus on different ideas and information collected from different sources. As per the different researcher for the research process of finding out the different banking aspects which is based on the different policies and theories related to the research activities of the banking approaches of the organization. In this case, research approach is deductive approach because researcher does not focus on the specific model or theory (Denscombe, 2012). The focus is to apply different theories and models for identifying the role of asset liability management in banking industry.

The approach of the study will be to find out the current position of managing the asset-liability in banks contrasting with the current systems and regulations. Thereby, the deductive approach will be applied in this study where we may deduce the past reviews related to asset-liability management.

 

Research Design

In this research process the ever achievement event is to understand the different strategies of the financial aspects of the commercial banking. This research work is based on the descriptive research designing process to analyze and describe the overall research process of the commercial banking system (Hieronymi and Stephanou, 2013). The overall research is on the different aspects of managerial theories to manage the commercial banking system. The entire process of research will be over at the descriptive research design of the company.

The overall target of research work is about to acquire the overall knowledge related to the different practical and theoretical aspects of the techniques of the commercial banking. The research process fully depends upon the descriptive research design to understand the different diversification of acquiring knowledge about the project.

Research method

The method of the research is divided into two parts – primary and secondary research. Primary research is useful in delivering the analysis using the raw information from the market. However, the secondary information provides the ‘as is’ situation of the market or regarding any topic. In this context, the study will follow the secondary research as the data associated with this research will be secondary. In addition to this, the secondary method will allow the researcher to conduct the study analyzing the historical data to understand the trend of the ALM in the banks. The performance of the banks in managing the asset and liabilities in a long-run can be understood by analyzing the historical data only. Thereby, it is justified to use the secondary research in this study.  

Data Sources and Data Collection Methods

Secondary data will be collected for different sources such as internet, books, journals and articles. Financial information of certain banks will be collected from the website of the banks. This research is mainly depends on financial aspect of the companies how the banking organizations manages their assets and liabilities. So, financial information is more important for the research. The research will follow the primary research too as it may find some valuable information of managing the asset-liabilities in the banks.

 

Sample Size

There are sample sizes selected for the research process with the 5 commercial banking system operators. The sample size is justified as the majority of the assets and liability distribution in the banks can be understood by following their style of ALM.

Research Ethics

The purpose of this is not for any commercial use.

Limitations

Research time scheduled and money for the different sources of the research is required which is the one of most limited constraint of this research process.

Conclusion

The proposal on the asset liability management in the bank may be found to be important as it holds great importance in delivering better performance for the banking institutions. Further, the study will find the requirements of asset-liability management in the banking institutions as well as the possible way to build up the managing process in the banks. In addition to this, the study will grow with the risk reduction in banking business through managing the asset and liability in single line. 

 

References

Coleman, T. (2012). Quantitative risk management. Hoboken, New Jersey: John Wiley & Sons, Inc.

Denicolo, P. and Becker, L. (2012). Developing research proposals. Los Angeles: Sage.

Denscombe, M. (2012). Research proposals. Maidenhead: Open University Press.

Hieronymi, O. and Stephanou, C. (2013). International debt. New York: Palgrave Macmillan.

Hull, J. (2012). Risk management and financial institutions + website. Hoboken, New Jersey: John Wiley & Sons, Inc.

Liamputtong, P. (2012). Qualitative research methods.

Silverman, D. (2013). Doing qualitative research.

Ambira, C. and Kemoni, H. (2011). Records management and risk management at Kenya Commercial Bank Limited, Nairobi. S Afr j inf manag, 13(1).

Arewa, A., Owoputi, J. and Torbira, L. (2013). Financial Statement Management, Liability Reduction and Asset Accumulation: An Application of Goal Programming Model to a Nigerian Bank.International Journal of Financial Research, 4(4).

Bryan, S. (2013). Evaluation of Risk and Bank Management. Journal of Entrepreneurship & Organization Management, 02(01).

Ratnovski, L. (2013). Liquidity and Transparency in Bank Risk Management. IMF Working Papers, 13(16), p.1.

Samad, A. (2012). Credit Risk Determinants of Bank Failure: Evidence from US Bank Failure. IBR, 5(9).

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