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Abstract
Asset Liability Management (ALM) is the core part of the bank with the intention to reduce the risk of the bank and maximizing total revenue. This paper concentrates on the asset (uses of funds) and liabilities (sources of funds) management process of Prime Bank Limited (PBL) and the process of managing different risk of the bank. The main process of ALM is to manage the liquidity risk and the market risks (including Interest Rate Risk). We have evaluated some previous performance through ratio analysis and shown graphically the trend of the position of the bank. There is an ALM committee at PBL who manages the asset and liability strategy of the bank and give the high security against the risk. Then we have found some problems and prospect of the ALM strategy of PBL and provided some suggestions or directions to improve ALM process of the bank. As ALM is the main or core part of the balance sheet of the bank so this paper will help to generate the idea about the ALM process of the banking sector in Bangladesh.
Keywords: ALM Process, Assets Liability Management, ALCO, Bank Management in Bangladesh, GAP Analysis.
JEL Code: G21, G32, G33
1.0 Introduction:
ALM is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earnings from interest is maximized within the overall risk-preference (present and future) of the institutions (Gardner and Mills, 1991). The ALM functions extend to liquidly risk management, management of market risk, trading risk management, funding and capital planning and profit planning and growth projection. The purpose of ALM is to enhance the asset quality, quantify the risks associated with the assets and liabilities and further manage them, in order to stabilize the short-term profits, the long-term earnings and the long-run sustenance of the bank Dash (2010).
In banking, asset and liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. This can also be seen in insurance. Banks face several risks such as the liquidity risk, interest rate risk, credit risk...