Keywords: Asset-Liability Management, Goal Programming, Analytical Hierarchy Process, Indian Banking.


Asset Liability Management has gained popularity in the banking sector. Earlier banks focused on asset allocation, but now the management of assets and liabilities is equally essential. Asset liability management targets the optimum distribution of funds in assets and managing liabilities so that banks can earn higher profits and minimize risk. In this paper, the optimization of assets and liabilities of Indian banks has been concentrated using mathematical models. Combining the Analytical Hierarchy Process (AHP) and Goal Programming (GP) model has been used to solve the optimization problem. AHP is a multi-criteria decision-making approach for deriving priority weights. Goal Programming is a linear programming model to solve complex issues having multiple objectives. In this paper, the primary data gathered from Bank senior managers have been analyzed using the AHP approach to derive weights for criteria. These weights are assigned to goals in goal programming to prioritize the goals. Secondary data on OBC bank is used in goal programming from 2010-2019 collected from OBC bank's annual reports and RBI websites. The findings show that OBC bank has the scope of improving its assets and liabilities position to increase its profit and minimize the risk. The model generates an optimum balance sheet that achieves the set goals and satisfies all the statutory and planning constraints. The same model can be useful for scheduled commercial banks in India with modifications concerning banks' targets and controls. The model developed in this paper is helpful for bank managers in planning and forecasting. AHP and GP's combined approach is unique in this paper, which uses experts' knowledge and applies it in the model. The model is created on the bank's realistic goals and constraints after carefully considering the issues faced by bank officials. The paper is limited to the Indian Banking system as other countries have different balance sheet structures and constraints.

Author Biographies

Jyoti Tanwar, BP

Research Scholar, Department of Economics and Finance, BITS-Pilani, Pilani Campus, Jhunjunu, Rajasthan- 333031, India

Arun Kumar Vaish, BP

Assistant Professor, Department of Economics and Finance, BITS- Pilani, Pilani Campus, Jhunjunu, Rajasthan- 333031, India

N V M Rao, BP

Professor, Department of Economics and Finance, BITS-Pilani, Pilani Campus, Jhunjunu, Rajasthan- 333031, India


Chambers, D., & Charnes, A. (1961). Inter-Temporal Analysis and Optimization of Bank Portfolios. Management Science, 7(4), 393–410.

Charnes, A., & Cooper, W. W. (1977). Goal programming and multiple objective optimizations: Part 1. European Journal of Operational Research, 1(1), 39–54.

Chronology of events. (n.d.). Reserve Bank of India.

Cohen, K. J., & Hammer, F. S. (1967). Linear Programming and Optimal Bank Asset Management Decisions. The Journal of Finance, 22(2), 147–165.

D. Giokas, & Vassiloglou, M. (1991). A goal programming model for bank assets and liabilities management. European Journal of Operational Research, 50(1), 48–60.

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. 10.2307/3665037

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.

Hunjak, T., & Jakovčević, D. (2001). AHP Based Model for Bank Performance Evaluation and Rating. Proceedings of 6th International Symposium on Analytic Hierarchy Process (ISAHP 2001), 149–158.

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.

Javalgi, R. G., Armacost, R. L., & Hosseini, J. C. (1989). Using the analytic hierarchy process for bank management: Analysis of consumer bank selection decisions. Journal of Business Research, 19(1), 33–49.

Kamil, K. H., Ismail, A. G., & Shahimi, S. S. (2013). Use of the Analytic Hierarchy Process ( AHP ) to Derive Priorities in the Management of Assets and liabilities in Accordance with Islamic Banking Objectives. Malaysian Management Review, July-December, 39–51.

Kosmidou, K., & Zopounidis, C. (2002). An optimization scenario methodology for bank asset liability management. Operational Research, 2(2), 279–287.

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.

Markowitz, H. M. (1959). Portfolio Selection: Efficient Diversification of Investments. John Wiley & Sons.

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.

Rezaei, S. T., Ameleh, K. N., Ghalmegh, K., & Ramezanzadeh, A. (2013). Management of Balance Sheet Bank Using Goal Programming Model (GP) and Fuzzy Analytic Hierarchy Process (FAHP). Semantic Scholar.

Romanyuk, Y. (2010). Asset-Liability Management : An Overview. In Bank of Canada Discussion Paper.

Saaty, T. L. (2008). Decision making with the Analytic Hierarchy Process. International Journal of Services Sciences, 1(1), 83–98.

Samuel, G. (2011). The effect of Asset liability management on profitability of National Investment Bank in the New Jyabeng municipality. 1–61.

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.

Srdevic, Z., Blagojevic, B., & Srdevic, B. (2011). AHP based group decision making in ranking loan applicants for purchasing irrigation equipment: A case study. Bulgarian Journal of Agricultural Science, 17(4), 531–543.

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.

Tummala, V. M. R., Smith, J. R., & Uppuluri, V. R. R. (1983). Evaulating Commercial Credit Decisions by Analytical Hierarchy Process. ASCI Journal of Management, 12(1 & 2), 48–56.

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.

Wang, Y. M., & Chin, K. S. (2008). A linear goal programming priority method for fuzzy analytic hierarchy process and its applications in new product screening. International Journal of Approximate Reasoning, 49(2), 451–465.

Ziemba, W. T., & Mulvey, J. M. (1998). Worldwide Asset and Liability Modeling. Publications of the Newton Institute.
How to Cite
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.
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper