Optimizing balance sheet performance: Advanced asset and liability management strategies for financial stability
1 Independent Researcher, Lagos, Nigeria.
2 Independent Researcher, Port Harcourt, Nigeria.
3 Independent Researcher, Abuja, Nigeria.
4 Reeks Corporate Services, Lagos, Nigeria.
Review
International Journal of Scientific Research Updates, 2021, 02(01), 055-065.
Article DOI: 10.53430/ijsru.2021.2.1.0041
Publication history:
Received on 26 October 2021; revised on 05 December 2021; accepted on 08 December 2021
Abstract:
Optimizing balance sheet performance is critical for financial institutions seeking to enhance profitability, maintain liquidity, and ensure long-term stability. Asset and Liability Management (ALM) plays a central role in achieving these objectives by aligning the management of assets, liabilities, and capital to mitigate risks associated with interest rates, liquidity, and credit. This review explores advanced ALM strategies designed to optimize the balance sheet while navigating complex financial environments. Key strategies include interest rate risk management through duration gap analysis, hedging instruments, and interest rate swaps; liquidity management techniques leveraging cash flow matching, stress testing, and scenario planning; and capital optimization using risk-adjusted return on capital (RAROC) models. Additionally, managing leverage ratios, diversifying funding sources, and optimizing the cost of funding are highlighted as critical to enhancing financial resilience. The integration of technology, particularly data analytics, artificial intelligence, and automation tools, is increasingly important in enhancing ALM practices. These technologies enable predictive modeling, real-time monitoring, and efficient reporting, thereby improving decision-making and risk management. The review also presents case studies of successful ALM implementations, demonstrating how institutions have effectively managed interest rate and liquidity risks during periods of market volatility. Lastly, the discussion extends to future trends, such as the impact of regulatory shifts, the rise of green finance, and the integration of digital innovations in financial management. By adopting a proactive and integrated ALM approach, financial institutions can optimize balance sheet performance, reduce risk exposure, and adapt to evolving economic and regulatory landscapes, ultimately achieving sustainable financial stability.
Keywords:
Balance Sheet Performance; Asset and Liability; Management Strategies; Review
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Copyright © 2021 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0