Linking Profits to Asset-Liability Management of Domestic and Foreign Banks in the UK
Technical University of Crete (TUC) - Department of Production Engineering and Management
University of Surrey - Surrey Business School; Technical University of Crete; Coventry University - Faculty of Business, Environment & Society; Centre for Financial and Risk Management, Audencia Nantes School of Management; Centre for Governance & Regulations
Aristotle University of Thessaloniki - Department of Economics
Applied Financial Economics, Vol. 14, No. 18, pp. 1319-1324, 2004
This paper employs the statistical cost accounting method on a sample of 36 domestic and 44 foreign banks operating in the UK over the period 1996-2002 to examine the relationship between profits and asset-liability composition. The sample was initially split into high and low profit banks by comparing their operating profit with the industry average. The results show that high profit banks experience considerably lower cost of liabilities for most sources of funding, which can cover any losses from the lower rate of return on assets that they experience compared to their lower profit competitors. The sample was then split into domestic and foreign banks. The operating profit that domestic banks experience appeared to be generated by the loans that they hold on their earning assets portfolio and their fixed assets while the operating profit of foreign banks was generated by all the assets that comprise their portfolios. Turning to liabilities, in both cases customer and short-term funding was found to be more costly than other sources of funding.
Keywords: Banks, Cost Accounting, UK,
JEL Classification: G21Accepted Paper Series
Date posted: April 19, 2006
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.281 seconds