An Insight into the Asset Liability

Management of Mutual Trust Bank

Limited
CHAPTER-1INTRODUCTION
1.1 INTRODUCTION:
Asset Liability management is very much
importance for a bank. Banks are making
profitfrom various services provided to
their customers. Banks profit is
functions of revenueearned form the
assets and the cost incurred for the
liability that has occurred
for acquiring funds for financing the
assets. Proper management of bank
assets and liabilitiescan increase the
profitability of the bank. The fuming
of these loans and advances
andinvestments comes from liability.
So the earnings of a bank ultimately

depend onliabilities. Banks have to

incur costs for its liability. For
example, they have to giveinterest to
the public and also to the lending
institutions. So banks liability is not
costfree. Efficient use of liabilities
depends on effective liability
management. Effectiveliability
management indicates that the cost of the
liability will be less and also it will
lessvolatile. But less cost and less
volatility is inversely related. If we give
our concentrationonly to less cost fund,
then the funds will be volatile. Again
if we give our attention toonly to less
volatility, then the cost of fund will be
high because only the fixed deposithas
the characteristics of less volatility. So
we have to make coordination between
leastcosts fund and least volatile

fund.ALM has mainly two

components. One is asset management
and the other is liabilitymanagement.
Asset management deals with how a
manager can appropriately handle
theassets of the bank and efficiently
use the profitable opportunities. On the
other hand,liability management deals
with the liability side of the balance
sheet. A banks earningor spread is the
difference between the revenue
generated mainly from the asset side
of the business and expense generated
mainly from the liability side of the
business. Thefoal of liability
management is to gain control over the
banks funds sources.Almost in every
moment in our life we are confronted
with different types of risk. Humanmind
is programmed to learn to manage risk.

Managing risk is unique and fundamental

in banking industry, because unlike other
industry it is exposed to multidimensional risks12

that has aggravated with the advent

of deregulation and globalization.
No bankingindustry in the world is
isolated from the risks, and in this project
paper my efforts shouldconcentrate on
understanding and appreciating these
risks specially managing asset
andliability so that I can learn more how
can manage them efficiently,
appropriately and in atimely manner. The
major risks that a bank encounters in its
business are as follows:

1)Asset Liability Management Risk

2)
Credit/ Lending Risk
3)
Foreign Exchange Risk
4)
Internal Control and Compliance Risk
5)
Money Laundering Risk This Project
paper is based on
An Insight into the Asset Liability
management of Mutual Trust Bank
Limited
. To manage the above risk effectively
and to ensure sustainable performance
and good governance of the banking
company, the following
requirementsmust be fulfilled:
1)
An effective regulatory frame work

2)
A sound operations system to support the
regulatory framework.
3)
A Socio ethical standard to ensure that
the people engaged in the organization
iscommitted towards their stakeholders
in a meaningful way.Given the fact that
an appropriate asset liability
management system was required
tomanage risk better.
1.2 RATIONALE OF THE STUDY:
I am preparing this report to know the
insight of the asset liability Management
of a bank.
Sample Bank:
Mutual Trust Bank Limited
13

An Insight into the Asset Liability

Management of Mutual Trust Bank
Limited
1.3 SCOPE OF THE STUDY:
As my supervisor is very helpful and
cooperative, I got some privilege to
prepare this report. Asone of my friends
is an employee of Mutual trust Bank, I
have special opportunity to
collectimportant and sensitive data,
which make this report different from
others.
1.4 OBJECTIVE OF THE STUDY:
The main objectives of preparing this
Report

To identify the management of asset and

liability of Mutual Trust Bank Ltd.

To analyze and find out degree of risks

involved in each area.

To suggest how to manage this areas

risks for minimizing the risk.
1.5 METHODOLOGY:1.5.1 Sources of
Data Collection:
To undertake the study in the light of
research objectives, information both
from the primary and secondary
sources are necessary. However,
first, in order to build uptheoretical
premise, standard textbooks, reference
books, domestic and foreign
journalsand other related literature
have been collected from annual
reports and other officialrecords of the
banks.
1.5.2 Data Analysis:

The collected information has then been

tabulated, analyzed and the findings
thereof havelaid the basis of research
report. Data processing and analysis
has been done bothmanually and by
using computer. Tabular method, ratio
analysis, and suitable statisticaltools and
techniques have been used to
operationally the research where
required.
1.6 LIMITATIONS OF THE STUDY:
There were some problems while this
research is conducted. A wholehearted
effort wasapplied to overcome the
limitations and to bring a reliable and
fruitful result. In spite of 14