Banking. Liability Management (LM) (most important)

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Banking. Liability Management (LM) (most important)

Lecture notes, cheat sheets

Directory / Lecture notes, cheat sheets

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Topic 12. Liability management (PM)

UP is the activity of various divisions of the bank aimed at:

1) developing a developed deposit base of the bank;

2) to increase the bank’s own capital;

3) on the growth of bank income;

4) rationalization of the bank's client base.

In the process of liability management, 2 stages can be distinguished:

1) Study of the structure of sources of own and borrowed funds a) determine the amount of own funds and their compliance with the requirements of Instruction No. 1;

b) the degree of riskiness of banking operations; c) pay attention to the immobilization of funds. Immobilization includes: the cost of fixed assets; non-state securities; own funds diverted to payments; factoring funds.

2) Evaluation of the structure of attracted funds for the purpose of subsequent management. The total amount of attracted funds and their distribution by groups are determined: term deposits; demand deposits; funds coming from the sale of shares, etc. This analysis shows one or another predominant group. This is followed by the development of event systems (advertising). To assess the deposit base, the following is used: Deposit utilization ratio = average debt on a loan / average balances on attracted funds. The coefficient shows what part of the deposits is used in lending operations. Ratio < 65, then risky; if > 75 - aggressive credit policy.

CONCLUSIONS (in the process of liability management):

▪ measures are identified

▪ development trends of certain types of liabilities, the medium- and long-term level of liquidity is determined;

▪ the growth rate of the deposit base is determined.

The main ones are:

1) average term of deposits = the amount of deposits of a given type * for the period of their storage. Shows what part of the attracted deposits the bank can use now. 2) instability ratio = (amount of long-term withdrawals of deposits/total amount of deposits) * 100%. Characterizes the level of early withdrawal of time deposits.

Authors: Shevchuk D.A., Shevchuk V.A.

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