Asset Liability Management 2

Topics: Asset, Balance sheet, Investment Pages: 3 (690 words) Published: March 25, 2011

It is generally accepted that risk is a fact of life and hence firms have to account for risk when making decisions on output levels or prices. This is particularly true for the banking industry. Since banks are traditionally in the business of issuing loans and taking deposits they are in contrast to normal firms exposed to a number of very special risks. In this regard credit risk i.e. the risk of borrower default and the risk of changes of market prices for certain financial products and services may be considered as the most important ones. Moreover, it is acknowledged that by issuing loans and taking deposits banks perform a number of very important functions in the economy e.g. allocation of funds and provision of liquidity etc. However, if the existence of risks induces banks to change decisions on deposits and loans compared to the risk, one could expect risks to influence the performance of the functions of a bank. It is thus very important to know in which way risks react banks optimal decisions on deposits and loans and hence banks assets and liabilities management. Changes in market liquidity and interest rates exposes banks to the risk of loss, which may in extreme cases, threaten the survival of the institution. As such it is important to understand the existent of such risk. Increasingly asset liability management has become an integral part of bank management. Banks are exposed to balance sheet risk, where it is absolutely necessary for the bank to understand the existence of such risk and best manage the exposure to the risk. In this connection, this report has been designed to analyze the asset liability situation of PBL. From this point of view it justifies the subject matter of the report. 1.1 Scope and Objective of the Study:

The scope of the study is limited to organizational setup, functions, and performances. Since Prime Bank Ltd. is still in its growth stage in Bangladesh; it has still to go a long way to...
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