Assessment of banks asset and liability management: problems and perspectives (case of Lithuania)

Abstract

Asset and liability management is one of the most important risk management measures at a bank. It is one of most important tool for decision making that sets out to maximize stakeholder value. Nevertheless it is important to track the external factors of the asset and liability management in the market to remain in the long term and to prepare for negative effects. Banking sector analysis could be the instrument to measure the sustainability of the country's financial sector. This paper showed Lithuanian banking sector asset and liability management activity and make assumptions of how sustainable the sector are during the different business cycle stages and how banks can manage their risks according to business cycles. The analysis revealed that banks tend to take more risk over time. The cycles of bank assets and liability are not identical to the cycles of business activity level, therefore it is seen that banks manage their assets and liability and attempt to influence their activity and profitability. The results indicate why the banks tend to enhance their risk levels before and during the financial crisis.