Background to the Study

Islamic Economics, 2006

In recent years, commercial banking worldwide has experienced a significant decline in its traditional business of accepting deposits and offering loans. Simultaneously, banks have become more involved in nontraditional activities that provide financial services and generate fee income. As a result, income from nontraditional activities has risen relative to income from traditional activities. This article presents an empirical investigation of Islamic banks' involvement in various fee income activities. Our theoretical hypotheses relate the level of fee income activities at an individual bank to asset size, profitability, core deposits, capital risk as well as credit risk. These hypotheses are tested empirically using bank-specific information from a panel of Malaysian Islamic commercial banks for the years 1994 to 2004. The results imply that banks with higher levels of fee-generating activities tend to have higher assets and core deposits as well as exhibit less risk. These findings show that banks involved in nontraditional activities have more diverse sources of funds and greater access to financial markets, which reduces risk. Since the findings suggest that banks with a greater involvement in nontraditional activities must resort to alternative sources of funds to finance their operations, nontraditional activities appear to be one method a bank can use to generate income. Furthermore, institutions engaged in such activities tend, to a larger extent, to be safer. Therefore, the underutilized fee income plays an important alternative source of revenue, hence able to reduce the over-dependence of Islamic banks on debt-financing as the main source of revenue.

Journal of Banking & Finance, 1994

Banks are very important organizations which aid in the execution of socioeconomic activities undertaken by individuals, business organizations and even sovereign states. They serve primarily as a medium which bridges the gap between surplus and deficit units in an economy. The theoretical rationale of this study is strong competition among banks in the banking industry and its effect on asset-liability management. If a bank is not competitive at matching duration of assets and liabilities, it is exposed to more risk. Does this make this bank more likely or less likely to focus on fee income generation? If a bank is competitive at matching duration of assets and liabilities, it is also exposed to risk. Does the bank leverage on this comparative advantage to focus even more on fee incomes, or do fee incomes become less important to the bank? These are questions to which the literature to the best of knowledge has yet to proffer an answer. Purposive sampling method will be adopted where the twelve deposit money banks to be considered will be arrived at after computing average total assets (representing bank’s size) of the nineteen (19) banks. After this process, ranking and selecting of 4 large sized banks, 4 medium sized banks and 4 small sized banks will be selected. The model allowed for both heteroscedasticity and autocorrelation as a result the use of Ordinary Least Square (OLS) regression was employed in the estimation of the parameter of the model drawn in this research work. Findings from the study shows Banks' asset liability management have impact on the extent to which non-interest income is a significant component of banks' aggregate performance as evidenced in ALM Ratio and Bank's size measured with total asset is not a general determinant for non-interest income.

1984

The purpose of this book is to instruct the reader on 'how to run a bank'. By this, the authors mean '...how to make, at the highest levels, the tactical and strategic decisions that will structure the bank's balance sheet so as to maximize its profits subject to the constraints that liquidity risk be held to an acceptable level and that interest-rate exposure be assumed only on favorable risk-reward terms' (p. 3). Mark the words at the highest levels, because the authors also suggest (in their preface) that the book should be of interest to bankers (at institutions of all sizes), managers of thrift institutions, corporate financial officers, dealers, bank stock analysts, bank examiners, and university students. Attempting to serve such a wide range of backgrounds and abilities is an ambitious undertaking. As a result, decision-makers at the

Contributions to Finance and Accounting

The main determinants of bank profitability is the net interest margin. Although the net interest margin is an important component of bank profitability, it is also important to manage assets, liabilities and risks such as market interest rates, exchange rates, credit risk effectively and efficiently. Risk management (RM) requires an effective asset and liability management (A&LM). (A&LM) is the effective arrangement, planning and management of the bank balance-sheet in order to achieve the goal of maximum profitability, stable and sustainable growth by taking risk and liquidity principles in banking as reference. (A&LM) includes the management of assets and cash flows in order to meet the liabilities of the changing conditions in the economy and financial markets, and the distribution of funds realised from various sources to obtain the highest resource efficiency. It is a way of risk management, which aims to reduce banks' failure to fulfil their liabilities and to increase their profitability. Although RM in banks is not an (A&LM) but they complement each other in terms of increasing market value, sustainability and performance of banks. In this context, the aim of the study is to examine the risks (of credit, market, liquidity, operational) in the banking sector (A&LM), together with techniques used in (A&LM). In this regard, Basel III, developed by the Basel Committee for the purpose of helping banks in management of potential risks, and one of the most important regulations for banks' capital adequacy, planning of liquidity and reducing systemic risk and preventing or resolving financial crises in a systematic and conceptual approach would be explored.

Journal of Monetary Economics, 1975

VIKALPA The Journal for Decision Makers 40(1) 28–41, 2015

Banks in India have focused on non-interest income streams to complement their income from traditional interest earning activities for some years now. This move to innovation adoption and new income streams has been more pronounced for new private and foreign banks, while there appears to have been certain hesitation on the part of public sector and old private banks. This article studies the impact of the move to new income streams and the consequent rising diversification on performance (as measured by profitability and stability of income) for Indian banks. A comparative analysis of income generated from these income streams for different bank groups in India shows that new private banks and foreign banks in India have been more successful than public sector banks in generating a greater proportion of their income from non-interest and fee-based sources. However, this increasing diversification cannot be linked to better risk-adjusted performance in the Indian context. The article finds that the rising share of fee-based income and non-interest income in total income and diversification has a positive impact on profitability, but the impact on risk-adjusted performance and hence stability is not statistically significant. While the results show a positive impact of diversification on profitability, the article underlines that the impact direction of diversification measures may be negative, which is in agreement to what many studies have shown in the US, European, Australian and Indian contexts. This article considers the impact of diversification in non-interest income separately from diversification in total income. This diversification score helps to know if the banks are generating their non-interest income from only fee income or only their own investments or have they diversified the non-interest income generation by focusing on both. Importantly, there is a positive impact of increasing share of ‘fee income’ in both total income and non-interest income on profitability as well as risk-adjusted measures. The results underscore that while public sector banks need to generate more income from fee-based activities, it would be imperative to choose sources of fee-based income that remain stable and have a positive impact on risk-adjusted measures. Using multiple regression analysis, the impact of diversification and increasing share of fee-based income on profitability and risk-adjusted profitability is questioned for all banks in India over the period 2005–2012. The article finds that the rising share of fee-based income and non-interest income in total income and diversification has a positive impact on profitability, but the impact on risk-adjusted performance and hence stability is not statistically significant. While the results show a positive impact of diversification on profitability, the article underlines that the impact direction of diversification measures may be negative, which is in agreement to what many studies have shown in the US, European, Australian and Indian contexts.This article considers the impact of diversification in non-interest income separately from diversification in total income. This diversification score helps to know if the banks are generating their non-interest income from only fee income or only their own investments or have they diversified the non-interest income generation by focusing on both. Importantly, there is a positive impact of increasing share of ‘fee income’ in both total income and non-interest income on profitability as well as risk-adjusted measures. The results underscore that while public sector banks need to generate more income from fee-based activities, it would be imperative to choose sources of fee-based income that remain stable and have a positive impact on risk-adjusted measures.

IAEME PUBLICATION, 2021

Liabilities and assets play a crucial role in any business and these are helpful to calculate the net worth of the company. This study focused on asset and liability management policies in a company. However, the concept of the ALM framework and the management procedure is described in this study. Apart from that, the importance of this ALM in the organization is described in this study which is essential to mitigate the possible risks of the company. The entire study highlights the application of the ALM in both theoretical and practical aspects. In addition to that, mitigation strategies that are applied by bankers in reducing the impact of risk have also been discussed in this study. The banking sector of the US has been taken into consideration for determining and generating results within 31 commercial banks. Besides, data analysis has been done in the form of descriptive research and that helped in governing the types of loan lending towards its customers.

Law and Contemporary Problems, 1984

"Fee shifting" refers to the rules for deciding which party to a lawsuit will pay for the attorney fee costs of the suit.' The literature on fee shifting is extensive, and virtually every page of it contains statements or predictions concerning the effects of one fee system or another on the economic behavior of litigants or classes of litigants. 2 Most of these statements are based on intuitive reasoning; with few exceptions, 3 the literature does not contain logically rigorous models of the behavioral patterns that underlie the predictions. This is hardly surprising. It is extraordinarily difficult to model the behavior of litigants. Any attempt to do so quickly makes apparent the large number of more or less arbitrary assumptions that must underlie any firm statement about the effect of one method of fee payment versus another.

2015

Asset-Liability-Management (ALM) is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of balance sheet structure (Asset-Liability) in such a way that the net earnings from interest are maximized within the overall risk-preference (present and future) of the banks. This study examined the effect of Asset-Liability- Management (ALM) on the Commercial banks profitability in Indian financial market by taking into consideration one Public Sector Bank namely Union Bank of India and one private sector bank namely ICCI bank by using Gap Analysis Technique. This paper attempts to assess the interest rate risk that both the banks are exposed to, spread over a period from 2009 to 2014. The findings from the study revealed that both the banks have been exposed to interest rate risk. The study also indicated that Union bank of India has a better Asset-Liability-Management (ALM) framework in practice. Assets and liabilitie...