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Asset–Liability Linkages in Managing Bank Funds:An Empirical Analysis
Funds management is an integrated approach to match liabilities (sources) and assets (uses). Each source of funding uniquely influences the employment of funds and the overall profitability of banks. Capital funds determine the risk absorption capacity as well as the type of asset(s) to be held by banks. The size and composition of deposits determine the volume of funds to be employed in investments and advances. Efficient management of funds requires mobilization and utilization of funds in a manner that minimizes costs, generates revenue, recovers operational and financial costs, and contributes towards reasonable returns. A mismatch between sources and uses would be imminent with increased linkage of banking operations to market dynamics. Therefore, it is necessary to trace the interrelationship between sources and usage of funds, and make an appropriate design that has a high degree of customer orientation.
Keywords
Sources, Uses, Fund Management, Banks’ Capital Base, Asset-Liability Management.
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