The Study On Asset Liability Ratio Management Of Commercial Banks Under The Perspective Of Economic Capital

Asset liability ratio ma nage ment is an important mana geme nt tool forcommerc ia l banks to bala nce security, liquid ity and profitab ility. While with thedeepening of the reform o f fina nc ial s yste m and hastening of the financ ia l marketing,trad itiona l asset liability ratio mana ge ment can no lo nger meet the various needs ofthe operating and risk manage me nt of commerc ia l banks. The paper proposes toimprove the asset liability ratio ma nage ment under the idea of economic capita l, sothat it can better adapt to the reality request o f commerc ial bank mana ge ment atpresent.Though great successes have been achieved since traditiona l asset liability ratiomana ge ment have been fully carried out in1996, the traditio na l index s yste m is notsuitable for the actua l situation because of exterior environme nt, operatingmecha nis m, bus iness situation and risk ma nage ment of commercia l banks haveundergo ne a vast change. The paper analyzed the imp le mentatio n of overall indexsystem and found some proble ms, then studied three ma in ind icators includ ing capita ladequacy, loans concentratio n ind icators and return o f equity and fina lly c larified theexisting limitations of those three main kinds of index.Economic capita l mana geme nt is one of the most important methods ofmana ge ment in commercia l banks. Introducing the concept of economic capita l intoasset liability ratio ma nage ment can remedy the proble ms of traditio nal index syste mto some extent. First of a ll, adjusting examination method of loan concentrationindicators for branch banks, that is divid ing branch banks into different gradesaccord ing to the results o f comprehe ns ive eva luation method, then changing theca lculation method of ind icators, the method in this paper is us ing the customer’sbiggest econo mic capital d ivided by the total econo mic capita l that branch banks havebeen allocated, and managing various branch banks according to d ifferent standardvalues at last. In this way, the paper enha nced the applicability of the indicators.Second, the paper constructed econo mic capita l adequacy ratio and economic capita lof unit asset aim at the proble m whic h capita l manage me nt index s ystem lack ofindicators for performance of branch banks. The economic capita l adequacy ratio isecono mic capital that have been allocated divided by the risk-weighted asset ofbranch banks, together with the econo mic capita l of unit asset we can assess the effic iency o f capita l operating a nd lead to optima l capita l a llocatio n. Third, the paperintroduced the Risk Adjusted Return on Capita l into index s yste m to remedy theshortage of return of equity which neglects risk. RAROC has achie ved a balancebetween risk and return and enrich the index syste m. And then co mpared RAROC andROE by examples and clarified the strength that RAROC has.However, the asset liab ility ratio mana geme nt inte grates the concept of econo miccapita l need further study and collaborative practice in order to be brought to its fullplay in commerc ia l banks’ ma nage ment. Finally, this paper suggested to completeindex syste m under the idea of econo mic capita l, and to establis h e ffective capita lrestriction and constant comp le mentary mechanis m. Bes ides, the paper gave somesuggestion about pus hing forward the ratio ma nage ment a nd economic capita lmanagement cooperatively to strengthen asset liability ratio management.