Implications of Low/Negative Interest Rates for Banks’ Asset and Liability Management – An Example
Implications of Low/Negative Interest Rates for Banks’ Asset and Liability Management – An Example

Author(s): Ľudomír Šlahor, Daniela Majerčáková, Mária Barteková
Subject(s): Business Economy / Management, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: asset and liability management; ultra-low interest rates; bank balance sheet; duration;
Summary/Abstract: Asset and liability management (ALM) in the current low/negative interest rate environment is a major concern for all banks. ALM is defined as the simultaneous planning of all asset and liability positions on the bank’s balance sheet under consideration of the different bank management objectives and legal, managerial and market constraints, for the purpose of mitigating interest rate risk, providing liquidity and enhancing the value of the bank. ALM is heavily dependent on the movement of interest rates in the market. The history of ALM suggests that it is very important for a financial institution to measure, manage and control interest rate risk. The aim of this paper is to show how a sample bank’s balance sheet might have looked like before and after the advent of the persistently low/negative interest rates environment. Further, we will show a duration structure of the example-bank´s balance sheet before the period of low and further falling rates sets in. Also in this paper we will present most important implications for ALM after the period of persistently low interest rates. To attain this goal, we analysed the 2008 and 2015 balance sheets of a medium commercial bank facing conflicting goals such as returns, liquidity, solvency, and expansion of deposits and loans under uncertainty.

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