Question

In: Finance

Name and explain the four areas of primary concern in bank management.

Name and explain the four areas of primary concern in bank management.

Solutions

Expert Solution

The main concerns of bank management are listed below.

  • Asset Liability management : Manager should take proper care while considering the duration of asset and liability. Long term liabilities should be matched with long term assets and short term liabilities with short term assets. Any significant deviation from this can cause liquidity crunch at one point or the other
  • Liquidity management: Banks will be having huge cash inflows and outflows in a daily basis and it is important to keep a check on the difference between cash inflow and cash outflow and should be kept at minimum. There should also be enough liquid asset ready to deploy when in need of an increase in cash withdrawal.
  • Capital adequacy management and maintaining the reserve ratio: For any bank it is mandatory to follow the regulation frameworks of the central bank of the country as well as following Basel norms. To maintain these, banks should keep enough deposits as reserves and enough equity in its balance sheet to maintain the Capital adequacy requirement.
  • Reduce the NPA and risk management: In the present context risk managing is of at most important for a bank and one of the main way to reduce the inherent risk is to reduce the NPA by more active credit check ups and credit evaluation of customers.

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