Optimization of Asset and Liability Management of Banks with Minimum Possible Changes

Pejman Peykani (), Mostafa Sargolzaei, Mohammad Hashem Botshekan, Camelia Oprean and Amir Takaloo
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Pejman Peykani: School of Industrial Engineering, Iran University of Science and Technology, Tehran 1684613114, Iran
Mostafa Sargolzaei: Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba’i University, Tehran 1489684511, Iran
Mohammad Hashem Botshekan: Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba’i University, Tehran 1489684511, Iran
Amir Takaloo: Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba’i University, Tehran 1489684511, Iran

Mathematics, 2023, vol. 11, issue 12, 1-24

Abstract: Asset-Liability Management (ALM) of banks is defined as simultaneous planning of all bank assets and liabilities under different conditions and its purpose is to maximize profits and minimize the risks in banks by optimizing the parameters in the balance sheet. Most of the studies `and proposed models in the ALM field are based on an objective function that maximizes bank profit. It is not easy to apply changes in these models in order to reach the optimal values of the parameters in the balance sheet. In this article, an attempt has been made to propose a linear model using constraints to achieve optimal values of balance sheet parameters using ALM objectives and considering balance sheet, system and regulatory constraints. It has also been tried to design the model according to the most possible mode and with the least changes and to minimize the size of the balance sheet. The analysis of the model presented in this article has been conducted using the parameters of the balance sheet and income statement of one of the famous Iranian banks. The results obtained from the proposed model show that the values of cash and receivables from banks and other credit institutions have decreased by 30% and increased by 200%, respectively, compared to the actual values of these parameters. Also, Total Income, Operating Income and Non-Operating Income have grown by 30% compared to the actual values of these parameters. Also, the values of a number of parameters are estimated to be zero after optimization. According to the results, it is obvious that the performance of bank managers, especially in the management of bank assets, is significantly different from the optimal values of the balance sheet, and the results obtained from the proposed model can help the management of banks as much as possible.

Keywords: Asset-Liability Management; banking industry; mathematical optimization; financial statements; balance sheet; revenue and cost (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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