Effectiveness of ALM Function – A Study on Banks in Pakistan
16 Pages Posted: 21 Aug 2015
Date Written: August 20, 2015
Mismatch between average maturities of assets and liabilities expose a business organization to liquidity risk and interest rate risk. Such a mismatch has been a major contributor to the adverse financial performance of commercial banks in Pakistan, the phenomenon being more pronounced in the case of public sector banks.
The State Bank of Pakistan (SBP) promulgated prudential regulations for banking and non-banking financial institutions in July 1992, with a view to ensuring their smooth functioning. However, these regulations focus mainly on the assets side of the balance sheet. Recent discussions with commercial bankers reveal that SBP is now directing it’s attention towards liabilities management also. It is analyzing the liabilities management function of the banks and suggesting steps for improvement. It is therefore quite likely that in the near future, SBP might issue specific guidelines and outline limits/ bench marks for commercial banks to follow, in respect of liabilities management.
This paper evaluates the Assets/Liabilities Management (ALM) function of commercial banks in Pakistan, in order to assess the importance being given to this function, the extent of awareness of ALM issues amongst bank executives/officers and ALM tools and techniques presently being employed.
Keywords: Commercial Banks, Asset/Liability Management
JEL Classification: G21, G32
Suggested Citation: Suggested Citation