Approaches to Improving Asset Structure Management in Commercial Banks

Macroeconomic and financial conditions for commercial banks can change rapidly as shown by the 2008 financial crisis and, more recently, the European debt crisis. Therefore ensuring asset quality and profitability in response to the changing environment remains an important issue. This paper considers the key problems in asset structure management using the example of Latvian banks and proposes several techniques to address these problems. The key problems of banks are the need to dynamically optimize asset and liability structure, to ensure profitability of operations and to minimize risks. These can be addressed by jointly structuring asset and liability portfolios, using the gap method for interest rate risk and expanding the range of profitable operations.The management techniques outlined in this paper comprise a high level blueprint for a successful operation of a commercial bank. Underlying these management techniques, there has to be a high quality analysis of financial and macroeconomic indicators.