OPTIMIZING BALANCE SHEET FOR BANKS IN INDIA USING GOAL PROGRAMMING
Keywords:
Asset-Liability Management, Risk Management, Goal Programming, Banking.
Abstract
In earlier years, there was abundance of funds in banks in the form of demand and savings deposits. Hence, the focus of banks was mainly on asset management. But intense competition and volatility of interest rate due to banking reforms reduced the availability of low-cost funds and therefore, banks focused on liability management as well. These pressures call for structured and comprehensive measures and not just ad hoc action. This is how banks started to concentrate more on the management of both sides of the balance sheet. As a result, the concept of asset-liability management originated in India and introduced in the Indian banking industry since 1st April 1999 to administer the risk management aspects. This paper attempts to optimize assets and liabilities of banks using goal programming technique. Secondary data is collected from annual reports of Allahabad bank from 2010-2019 and RBI website is used for modelling. The findings show that in Allahabad bank, goal programming help in achieving optimization and increase profitability. The model incorporating constraints and set objectives. It model can support banks in decision making process, planning, budgeting, and forecasting. An attempt is made to use realistic goals and constraints after discussing with bank officials.
JEL Classification Codes: C61, G21, G32.
References
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Charnes, A., & Cooper, W. W. (1977). Goal programming and multiple objective optimizations: Part 1. European Journal of Operational Research, 1(1), 39–54. https://doi.org/https://doi.org/10.1016/S0377-2217(77)81007-2
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Cohen, K. J., & Hammer, F. S. (1967). Linear Programming and Optimal Bank Asset Management Decisions. The Journal of Finance, 22(2), 147–165. https://doi.org/10.2307/2325551
Dash, M., & Pathak, R. (2011). A Linear Programming Model for Assessing Asset- Liability Management in Banks. The IUP Journal of Financial Risk Management : IJFRM, 8(1), 50–67.
Eatman, J., & Sealey, C. (1979). A multiobjective linear programming model for commercial bank balance sheet management. Journal of Bank Research, 9, 227–236.
Fabozzi, F. J., & Konishi, A. (1991). Asset/liability Management: Investment Strategies, Liquidity Requirements, and Risk Controls for Banks and Thrifts. Probus Publishing Company.
Fielitz, B. D., & Loeffler, T. A. (1979). A Linear Programming Model for Commercial Bank Liquidity Management. Financial Management, 8(3), 41–50.
Fortson, J. C., & Dince, R. R. (1977). An Application of Goal Programming to Management of a Country Bank. Journal of Bank Research, Winter, 311–319.
Giokas. D, & Vassiloglou, M. (1991). A goal programming model for bank assets and liabilities management. European Journal of Operational Research, 50(1), 48–60. https://doi.org/https://doi.org/10.1016/0377-2217(91)90038-W
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Haddad, A., Ammari, A. El, & Bouri, A. (2019). Impact of the Ownership Structure on the Financial Performance of Banks: Comparative Study between Conventional and Islamic Banks. International Journal of Accounting & Finance Review, 4(2), 50–63. https://doi.org/10.46281/ijafr.v4i2.442
Halim, B. A., Karim, H. A., Fahami, N. A., Mahad, N. F., Nordin, S. K. S., & Hassan, N. (2015). Bank Financial Statement Management Using A Goal Programming Model. Procedia - Social and Behavioral Sciences, 211(November), 498–504. https://doi.org/10.1016/j.sbspro.2015.11.066
Ignizio, J. P. (1981). Linear Programming in Single and Multiple Objective Systems. Prentice-Hall International Series in Industrial & Systems Engineering).
Jain, M. K., Dalela, A. K., & Tiwari, S. K. (2010). Application of Fuzzy Mathematical Model in Assets-Liabilities. International Journal of Trade, Economics and Finance, 1(3), 247–253. https://doi.org/10.7763/ijtef.2010.v1.45
Jayanthi, M., & Umarani, R. (2014). Asset-Liability Management in Banks. CKPIM Business Review, 9(2), 10–25.
Joshi, S. P., & Sontakay, R. V. (2017). Review Paper on Asset Liability Management in Banking System. Imperial Journal of Interdisciplinary Research, 3(6), 670–678.
Kalyan, N. B. (2017). Banking Sector Reforms in India. International Journal of Management and Humanities, 4(4), 13–18. https://doi.org/10.2139/ssrn.2303731
Kosmidou, K., & Zopounidis, C. (2002). An optimization scenario methodology for bank asset liability management. Operational Research, 2(2), 279–287. https://doi.org/http://dx.doi.org/10.1007/BF02936331
Kosmidou, K., & Zopounidis, C. (2004a). Combining Goal Programming Model With Simulation Analysis For Bank Asset Liability Management. INFOR: Information Systems and Operational Research, 42(3), 175–187.
Kosmidou, K., & Zopounidis, C. (2004b). Goal Programming Techniques for Bank Asset Liability Management (90th ed.). Kluwer Academic Publishers Boston. https://doi.org/10.1007/b106009
Kruger, M. (2011). A Goal Programming Approach to Strategic Bank Balance Sheet Management. SAS Global Forum 2011 Banking, Financal Services and Insurance, 1–11.
Lee, S. M. (1981). Goal Programming. In A. G. Holzman (Ed.), Mathematical Programming for Operations Researchers and Computer Scientists. Marcel Dekker Inc.
Matz, L., & Neu, P. (Eds.). (2007). Liquidity Risk Measurement and Management: A practitioner’s guide to global best practices. John Wliey & Sons Pte Ltd.
Naderi, S., Minouei, M., & Gashti, H. P. (2013). Asset and Liability Optimal Management Mathematical Modeling for Bank. Journal of Basic and Applied Scientific Research, 3(1), 484–493.
Professional Actuarial Specialty Guide: Asset- Liability Management. (2003). Society of Actuaries (SOA). Retrieved from www.soa.org/library/professional-actuarial-specialty- guides/professional-actuarial-specialty-guides/2003/september/spg0308alm.pdf
RBI. (1999). Asset - Liability Management ( ALM ) System. Reserve Bank of India Notifications, 1–23. Retrieved from https://rbidocs.rbi.org.in/rdocs/notification/PDFs/5212.pdf
Riyazahmed, K., & Baranwal, G. (2021). Determinants of Credit Risk. International Journal of Accounting & Finance Review, 6(1), 53–71. https://doi.org/10.46281/ijafr.v6i1.1005
Romero, C., Tamiz, M., & Jones, D. (1998). Goal programming, compromise programming and reference point method formulations: Linkages and utility interpretations. Journal of the Operational Research Society, 49(9), 986–991.
Rosenthal, R. (1983). Goal programming- A Critique. Nz Oper.Res., 11(1), 1–8. Retrieved from https://www.researchgate.net/publication/256502481_A_Preemptive_Goal_Programming_Model_for_the_Sustainability_of_Growth_in_Engineering_Colleges
Saaty, T. L. (2008). Decision making with the Analytic Hierarchy Process. International Journal of Services Sciences, 1(1), 83–98. https://doi.org/10.1504/ijssci.2008.017590
Sedzro, K., Marouane, A., & Assogbavi, T. (2012). Analytical Hierarchy Process and Goal Programming Approach for Asset Allocation. Journal of Mathematical Finance, 02(01), 96–104. https://doi.org/10.4236/jmf.2012.21012
Seth, H., Saurabh, C., & Sharma, S. (2020). Benchmarking the efficiency model for working capital management: data envelopment analysis approach. International Journal of Productivity and Performance Management, in print.
Singh, A., & Tandon, P. (2012). Asset - Liabilty Management in Indian Banking Industry. Asia Pacific Journalof Marketing & Management Review, 1(3), 121–132.
Singh, K. (2013). Asset-Liability Management in Banks: A Dynamic Approach. AIMA Journal of Management & Research, 7(2), 1–14.
Tanwar, J., Seth, H., Vaish, A. K., & Rao, N. V. M. (2020). Revisiting the Efficiency of Indian Banking Sector: An Analysis of Comparative Models Through Data Envelopment Analysis. Indian Journal of Finance and Banking, 4(1), 92–108. https://doi.org/10.46281/ijfb.v4i1.585
Tanwar, J., Vaish, A. K., & Rao, N. V. M. (2020). Mathematical Modeling of Asset Liability Management in Banks Using Goal Programming and Ahp. Indian Journal of Finance and Banking, 4(4), 1–19. https://doi.org/10.46281/ijfb.v4i4.899
Viswanathan, P. K., & Balasubramanian, G. (2007). Modelling asset allocation for banks- A goal programming approach. Journal of National Institute of Bank Management-Prajnan, XXXVI(1), 135–145.
Viswanathan, P. K., Ranganatham, M., & Balasubramanian, G. (2014). Modeling asset allocation and liability composition for Indian banks. Managerial Finance, 40(7), 700–723. https://doi.org/10.1108/MF-10-2013-0276
Zaloom, V., Tolga, A., & Chu, H. (1986). Bank Fund Management By Goal Programming. Computers & Industrial Engineering, 11(1–4), 132–135. https://doi.org/https://doi.org/10.1016/0360-8352(86)90064-1
Chakroun, F., & Abid, F. (2013). A Multiobjective Model for Bank Asset Liability Management: The Case of a Tunisian Bank. The IUP Journal of Financial Risk Management, 10(4), 35–56. https://doi.org/10.2139/ssrn.2246972
Chambers, D., & Charnes, A. (1961). Inter-Temporal Analysis and Optimization of Bank Portfolios. Management Science, 7(4), 393–410. https://doi.org/10.1287/mnsc.7.4.393
Charnes, A., & Cooper, W. W. (1977). Goal programming and multiple objective optimizations: Part 1. European Journal of Operational Research, 1(1), 39–54. https://doi.org/https://doi.org/10.1016/S0377-2217(77)81007-2
Chaturvedi, V. (2014). Asset Liability Management in Banks. International Journal of Engineering Technology, Management and Applied Sciences, 1(2), 2349–4476. Retrieved from http://www.ijetmas.com/admin/resources/project/paper/f201406281403951723.pdf
Cohen, K. J., & Hammer, F. S. (1967). Linear Programming and Optimal Bank Asset Management Decisions. The Journal of Finance, 22(2), 147–165. https://doi.org/10.2307/2325551
Dash, M., & Pathak, R. (2011). A Linear Programming Model for Assessing Asset- Liability Management in Banks. The IUP Journal of Financial Risk Management : IJFRM, 8(1), 50–67.
Eatman, J., & Sealey, C. (1979). A multiobjective linear programming model for commercial bank balance sheet management. Journal of Bank Research, 9, 227–236.
Fabozzi, F. J., & Konishi, A. (1991). Asset/liability Management: Investment Strategies, Liquidity Requirements, and Risk Controls for Banks and Thrifts. Probus Publishing Company.
Fielitz, B. D., & Loeffler, T. A. (1979). A Linear Programming Model for Commercial Bank Liquidity Management. Financial Management, 8(3), 41–50.
Fortson, J. C., & Dince, R. R. (1977). An Application of Goal Programming to Management of a Country Bank. Journal of Bank Research, Winter, 311–319.
Giokas. D, & Vassiloglou, M. (1991). A goal programming model for bank assets and liabilities management. European Journal of Operational Research, 50(1), 48–60. https://doi.org/https://doi.org/10.1016/0377-2217(91)90038-W
Greuning, H. V., & Bratanovic, S. B. (2009). Analyzing Banking Risk: A framework for assessing corporate governance and finacial risk management. In Analyzing Banking Risk A framework for assessing corporate governance and finacial risk management (Third). The World Bank. Retrieved from http://books.google.com/books?id=73CX8O8akZ4C&pgis=1
Haddad, A., Ammari, A. El, & Bouri, A. (2019). Impact of the Ownership Structure on the Financial Performance of Banks: Comparative Study between Conventional and Islamic Banks. International Journal of Accounting & Finance Review, 4(2), 50–63. https://doi.org/10.46281/ijafr.v4i2.442
Halim, B. A., Karim, H. A., Fahami, N. A., Mahad, N. F., Nordin, S. K. S., & Hassan, N. (2015). Bank Financial Statement Management Using A Goal Programming Model. Procedia - Social and Behavioral Sciences, 211(November), 498–504. https://doi.org/10.1016/j.sbspro.2015.11.066
Ignizio, J. P. (1981). Linear Programming in Single and Multiple Objective Systems. Prentice-Hall International Series in Industrial & Systems Engineering).
Jain, M. K., Dalela, A. K., & Tiwari, S. K. (2010). Application of Fuzzy Mathematical Model in Assets-Liabilities. International Journal of Trade, Economics and Finance, 1(3), 247–253. https://doi.org/10.7763/ijtef.2010.v1.45
Jayanthi, M., & Umarani, R. (2014). Asset-Liability Management in Banks. CKPIM Business Review, 9(2), 10–25.
Joshi, S. P., & Sontakay, R. V. (2017). Review Paper on Asset Liability Management in Banking System. Imperial Journal of Interdisciplinary Research, 3(6), 670–678.
Kalyan, N. B. (2017). Banking Sector Reforms in India. International Journal of Management and Humanities, 4(4), 13–18. https://doi.org/10.2139/ssrn.2303731
Kosmidou, K., & Zopounidis, C. (2002). An optimization scenario methodology for bank asset liability management. Operational Research, 2(2), 279–287. https://doi.org/http://dx.doi.org/10.1007/BF02936331
Kosmidou, K., & Zopounidis, C. (2004a). Combining Goal Programming Model With Simulation Analysis For Bank Asset Liability Management. INFOR: Information Systems and Operational Research, 42(3), 175–187.
Kosmidou, K., & Zopounidis, C. (2004b). Goal Programming Techniques for Bank Asset Liability Management (90th ed.). Kluwer Academic Publishers Boston. https://doi.org/10.1007/b106009
Kruger, M. (2011). A Goal Programming Approach to Strategic Bank Balance Sheet Management. SAS Global Forum 2011 Banking, Financal Services and Insurance, 1–11.
Lee, S. M. (1981). Goal Programming. In A. G. Holzman (Ed.), Mathematical Programming for Operations Researchers and Computer Scientists. Marcel Dekker Inc.
Matz, L., & Neu, P. (Eds.). (2007). Liquidity Risk Measurement and Management: A practitioner’s guide to global best practices. John Wliey & Sons Pte Ltd.
Naderi, S., Minouei, M., & Gashti, H. P. (2013). Asset and Liability Optimal Management Mathematical Modeling for Bank. Journal of Basic and Applied Scientific Research, 3(1), 484–493.
Professional Actuarial Specialty Guide: Asset- Liability Management. (2003). Society of Actuaries (SOA). Retrieved from www.soa.org/library/professional-actuarial-specialty- guides/professional-actuarial-specialty-guides/2003/september/spg0308alm.pdf
RBI. (1999). Asset - Liability Management ( ALM ) System. Reserve Bank of India Notifications, 1–23. Retrieved from https://rbidocs.rbi.org.in/rdocs/notification/PDFs/5212.pdf
Riyazahmed, K., & Baranwal, G. (2021). Determinants of Credit Risk. International Journal of Accounting & Finance Review, 6(1), 53–71. https://doi.org/10.46281/ijafr.v6i1.1005
Romero, C., Tamiz, M., & Jones, D. (1998). Goal programming, compromise programming and reference point method formulations: Linkages and utility interpretations. Journal of the Operational Research Society, 49(9), 986–991.
Rosenthal, R. (1983). Goal programming- A Critique. Nz Oper.Res., 11(1), 1–8. Retrieved from https://www.researchgate.net/publication/256502481_A_Preemptive_Goal_Programming_Model_for_the_Sustainability_of_Growth_in_Engineering_Colleges
Saaty, T. L. (2008). Decision making with the Analytic Hierarchy Process. International Journal of Services Sciences, 1(1), 83–98. https://doi.org/10.1504/ijssci.2008.017590
Sedzro, K., Marouane, A., & Assogbavi, T. (2012). Analytical Hierarchy Process and Goal Programming Approach for Asset Allocation. Journal of Mathematical Finance, 02(01), 96–104. https://doi.org/10.4236/jmf.2012.21012
Seth, H., Saurabh, C., & Sharma, S. (2020). Benchmarking the efficiency model for working capital management: data envelopment analysis approach. International Journal of Productivity and Performance Management, in print.
Singh, A., & Tandon, P. (2012). Asset - Liabilty Management in Indian Banking Industry. Asia Pacific Journalof Marketing & Management Review, 1(3), 121–132.
Singh, K. (2013). Asset-Liability Management in Banks: A Dynamic Approach. AIMA Journal of Management & Research, 7(2), 1–14.
Tanwar, J., Seth, H., Vaish, A. K., & Rao, N. V. M. (2020). Revisiting the Efficiency of Indian Banking Sector: An Analysis of Comparative Models Through Data Envelopment Analysis. Indian Journal of Finance and Banking, 4(1), 92–108. https://doi.org/10.46281/ijfb.v4i1.585
Tanwar, J., Vaish, A. K., & Rao, N. V. M. (2020). Mathematical Modeling of Asset Liability Management in Banks Using Goal Programming and Ahp. Indian Journal of Finance and Banking, 4(4), 1–19. https://doi.org/10.46281/ijfb.v4i4.899
Viswanathan, P. K., & Balasubramanian, G. (2007). Modelling asset allocation for banks- A goal programming approach. Journal of National Institute of Bank Management-Prajnan, XXXVI(1), 135–145.
Viswanathan, P. K., Ranganatham, M., & Balasubramanian, G. (2014). Modeling asset allocation and liability composition for Indian banks. Managerial Finance, 40(7), 700–723. https://doi.org/10.1108/MF-10-2013-0276
Zaloom, V., Tolga, A., & Chu, H. (1986). Bank Fund Management By Goal Programming. Computers & Industrial Engineering, 11(1–4), 132–135. https://doi.org/https://doi.org/10.1016/0360-8352(86)90064-1
Published
2021-04-16
How to Cite
Tanwar, J., Vaish, A. K., & Rao, N. (2021). OPTIMIZING BALANCE SHEET FOR BANKS IN INDIA USING GOAL PROGRAMMING. International Journal of Accounting & Finance Review, 6(2), 81-101. https://doi.org/10.46281/ijafr.v6i2.1082
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2021 Jyoti Tanwar, Arun Kumar Vaish, NVM Rao
This work is licensed under a Creative Commons Attribution 4.0 International License.
