Bonds and syndicated loans as the main sources of non-deposit funds

Sources of bank’s funds

A bank is a business firm. Its main aim is to earn profit. In order to achieve this objective it provides services to the customers. It offers a variety of interest bearing obligations to the public. These obligations are the sources of funds for the bank and are shown on the liability side of the balance sheet of a commercial bank. The main sources which supply funds to a bank are as follows: Bank’s Own Funds and Borrowed Funds.

Bank’s own funds.

(A) Banks Own Funds. Bank’s own paid up capital. The amount with which a banking company is registered is called nominal or authorized capital.

2. Reserve fund. Reserve is another source of fund which is maintained by all commercial banks.

3. Profit. Profit is another source to a bank for the purpose of business. Profits signify the credit balance of the profit and loss account which has not been distributed.

(B) Borrowed Funds. The borrowed capital is a major and an important source of fund for any banking business. It mainly comes from deposits which are accepted on varying terms in different accounts.

1. Borrowing from central bank. The commercial banks in times of emergency borrow loans from the central bank of the country. The central bank extends help as and when financial help is required by the commercial banks.

2. Other sources. Bank also raise funds by issuing bonds, debentures, cash certificates etc. etc. Though it is not common but is a dependable source of borrowing.

3. Deposits. Public deposits are a powerful source of funds to a bank. There are’ three types of bank deposits (i) current deposits (ii) saving deposits and (iii) time deposits. Due to the spread of literacy, banking habits and growth in the volume of business operations, there is a marked increase in deposit money with banks. /1, p.154/

Borrowed funds

The borrowed capital is a major and an important source of fund for any banking business. It mainly comes from deposits which are accepted on varying terms in different accounts.

Federal funds

In the United States, federal funds are overnight borrowings by banks to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions.

Federal Reserve borrowing

When countries issue currency, especially fiat currency that is not specifically backed by any commodity, it is necessary to have a central bank whose job it is to monitor and regulate the supply, distribution, and transacting of currency.

Repos

A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest. A repo is equivalent to a spot sale combined with a forward contract. The spot sale results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan, while the settlement date of the forward contract is the maturity date of the loan.

There are three types of repo maturities: overnight, term, and open repo. Overnight refers to a one-day maturity transaction. Term refers to a repo with a specified end date. Open simply has no end date. Although repos are typically short-term, it is not unusual to see repos with a maturity as long as two years. [App.3]

Eurodollar borrowing

Many foreign banks as well as foreign branches of U.S. banks accept deposits of U.S. dollars and grant the depositor an account denominated in dollars. Those dollars are called Eurodollars. As we will see, they exist under quite different constraints from domestic dollars. While Eurodollar banking got its start in Europe, such banking is now active in major financial centers around the world. /2, p.144/

Bonds and syndicated loans as the main sources of non-deposit funds

Bond - a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries." Two features of a bond - credit quality and duration are the principal determinants of a bond's interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.

Issuance

Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process for issuing bonds is through underwriting. When a bond issue is underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue of bonds from the issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. Primary issuance is arranged by book runners who arrange the bond issue, have direct contact with investors and act as advisers to the bond issuer in terms of timing and price of the bond issue. The book runners' willingness to underwrite must be discussed prior to any decision on the terms of the bond issue as there may be limited demand for the bonds.

In contrast, government bonds are usually issued in an auction. In some cases both members of the public and banks may bid for bonds. In other cases only market makers may bid for bonds. The overall rate of return on the bond depends on both the terms of the bond and the price paid. The terms of the bond, such as the coupon, are fixed in advance and the price is determined by the market.

Nominal, principal, par or face amount the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term. Some structured bonds can have a redemption amount which is different from the face amount and can be linked to performance of particular assets such as a stock or commodity index, foreign exchange rate or a fund. This can result in an investor receiving less or more than his original investment at maturity. The issuer has to repay the nominal amount on the maturity date. Most bonds have a term of up to 30 years. Some bonds have been issued with terms of 50 years or more, and historically there have been some issues with no maturity date (irredeemable). In the market for United States Treasury securities, there are three categories of bond maturities:

- short term (bills): maturities between one to five year; (instruments with maturities less than one year are called Money Market Instruments)

- medium term (notes): maturities between six to twelve years;

- long term (bonds): maturities greater than twelve years.

The coupon is the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or it can be even more exotic. The name "coupon" arose because in the past, paper bond certificates were issued which coupons had attached to them, one for each interest payment. On the due dates the bondholder would hand in the coupon to a bank in exchange for the interest payment. Interest can be paid at different frequencies: generally semi-annual, i.e. every 6 months, or annual. The yield is the rate of return received from investing in the bond. It usually refers either to:

- the current yield, or running yield, which is simply the annual interest payment divided by the current market price of the bond (often the clean price), or to

- the yield to maturity or redemption yield, which is a more useful measure of the return of the bond, taking into account the current market price, and the amount and timing of all remaining coupon payments and of the repayment due on maturity. It is equivalent to the internal rate of return of a bond.

Optionality: Occasionally a bond may contain an embedded option; that is, it grants option-like features to the holder or the issuer:

Call ability some bonds give the issuer the right to repay the bond before the maturity date on the call dates; see call option. These bonds are referred to as callable bonds. Most callable bonds allow the issuer to repay the bond at par. With some bonds, the issuer has to pay a premium, the so-called call premium. This is mainly the case for high-yield bonds. These have very strict covenants, restricting the issuer in its operations. To be free from these covenants, the issuer can repay the bonds early, but only at a high cost.

Put ability - some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates; see put option. These are referred to as retractable or put able bonds.

Bond indices

A number of bond indices exist for the purposes of managing portfolios and measuring performance, similar to the S&P 500 or Russell Indexes for stocks. The most common American benchmarks are the Barclays Capital Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. Most indices are parts of families of broader indices that can be used to measure global bond portfolios, or may be further subdivided by maturity or sector for managing specialized portfolios.

Syndicated loans

A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial banks or investment banks known as arrangers.

At the most basic level, arrangers serve the investment-banking role of raising investor funding for an issuer in need of capital. The issuer pays the arranger a fee for this service, and this fee increases with the complexity and risk factors of the loan. As a result, the most profitable loans are those to leveraged borrowers—issuers whose credit ratings are speculative grade and who are paying spreads (premiums or margins above the relevant LIBOR in the U.S. and UK, Euribor in Europe or another base rate) sufficient to attract the interest of non-bank term loan investors. Though, this threshold moves up and down depending on market conditions.

Types of syndications.

Globally, there are three types of underwriting for syndications: an underwritten deal, best-efforts syndication, and a club deal. The European leveraged syndicated loan market almost exclusively consists of underwritten deals, whereas the U.S. market contains mostly best-efforts.

Underwritten deal.

An underwritten deal is one for which the arrangers guarantee the entire commitment, and then syndicate the loan. If the arrangers cannot fully subscribe the loan, they are forced to absorb the difference, which they may later try to sell to investors. This is easy, of course, if market conditions, or the credit’s fundamentals, improve. If not, the arranger may be forced to sell at a discount and, potentially, even take a loss on the paper. Or the arranger may just be left above its desired hold level of the credit. Arrangers underwrite loans for several reasons. First, offering an underwritten loan can be a competitive tool to win mandates. Second, underwritten loans usually require more lucrative fees because the agent is on the hook if potential lenders balk. Of course, with flex-language now common, underwriting a deal does not carry the same risk it once did when the pricing was set in stone prior to syndication.

Best-efforts syndication.

A best-efforts syndication is one for which the arranger group commits to underwrite less than or equal to the entire amount of the loan, leaving the credit to the vicissitudes of the market. If the loan is undersubscribed, the credit may not close or may need major surgery to clear the market. Traditionally, best-efforts syndications were used for risky borrowers or for complex transactions. Since the late 1990s, however, the rapid acceptance of market-flex language has made best-efforts loans the rule even for investment-grade transactions.

Club deal.

A club deal is a smaller loan usually $25-100 million, but as high as $150 million that is premarket to a group of relationship lenders. The arranger is generally a first among equals, and each lender gets a full cut, or nearly a full cut, of the fees.

The Syndications Process.

Leveraged transactions fund a number of purposes. They provide support for general corporate purposes, including capital expenditures, working capital, and expansion. They refinance the existing capital structure or support a full recapitalization including, not infrequently, the payment of a dividend to the equity holders. They provide funding to corporations undergoing restructurings, including bankruptcy, in the form of super senior loans also known as debtor in possession (DIP) loans. Their primary purpose, however, is to fund M&A activity, specifically leveraged buyouts, where the buyer uses the debt markets to acquire the acquisition target’s equity.

Loan Market Participant

There are three primary-investor constituencies: banks, finance companies, and institutional investors; in Europe, only the banks and institutional investors are active.

Credit Facilities

Syndicated loans facilities (Credit Facilities) are basically financial assistance programs that are designed to help financial institutions and other institutional investors to draw notional amount as per the requirement.

There are four main types of syndicated loan facilities: a revolving credit; a term loan; an L/C; and an acquisition or equipment line (a delayed-draw term loan).

A term loan is simply an installment loan, such as a loan one would use to buy a car. The borrower may draw on the loan during a short commitment period and repay it based on either a scheduled series of repayments or a one-time lump-sum payment at maturity (bullet payment). There are two principal types of term loans: an amortizing term loan and an institutional term loan.

An amortizing term loan (A-term loan or TLA) is a term loan with a progressive repayment schedule that typically runs six years or less. These loans are normally syndicated to banks along with revolving credits as part of a larger syndication. In the U.S., A-term loans have become increasingly rare over the years as issuers bypassed the bank market and tapped institutional investors for all or most of their funded loans.

An institutional term loan (B-term, C-term or D-term loan) is a term-loan facility with a portion carved out for nonbank, institutional investors. These loans became more common as the institutional loan investor base grew in the U.S. and Europe. These loans are priced higher than amortizing term loans because they have longer maturities and bullet repayment schedules. This institutional category also includes second-lien loans and covenant-lite loans.

Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instruments combining features of relationship lending and publicly traded debt. They allow the sharing of credit risk between various financial institutions without the disclosure and marketing burden that bond issuers face. Syndicated credits are a very significant source of international financing, with signings of international syndicated loan facilities accounting for no less than a

third of all international financing, including bond, commercial paper and equity issues.

This special feature presents a historical review of the development of this increasingly global market and describes its functioning, focusing on participants, pricing mechanisms, primary origination and secondary trading. It also gauges its degree of geographical integration. We find that large US and European banks tend to originate loans for emerging market borrowers and allocate them to local banks. Euro area banks seem to have expanded pan European lending and have found funding outside the euro area.

The syndicated loan market has advantages for junior and senior lenders. It provides an opportunity to senior banks to earn fees from their expertise in risk origination and manage their balance sheet exposures. It allows junior lenders to acquire new exposures without incurring screening costs in countries or sectors where they may not have the required expertise or established presence. Primary loan syndications and the associated secondary market therefore allow a more efficient geographical and institutional sharing of risk origination and risk-taking. For instance, loan syndications for emerging market borrowers tend to be originated by large US and European banks, which subsequently allocate the risk to local banks. Euro area banks have strengthened their pan-European loan origination activities since the advent of the single currency and have found funding for the resulting risk outside the euro area./4, p.125/

 

 

Assets Liability Management

In the system of financial management an important area is the effective management of assets and liabilities of the bank. Asset and liability management as a concept used in the banking industry began in the U.S. in the 60's of the last century, and refers to the regulation of the level of risk when interest rates rise and fall. Up to this time money managers have used some methods of management of assets, liabilities and spread (spread - the difference between the rates, prices. Difference between the weighted average deposit rate and the weighted average rate of their placement), as in the 1940s and 1950s, the banks were in abundance cheaper sources of funding in the form of demand deposits and savings deposits. The main management problem was this distribution of assets, which would ensure the liquidity of the commercial bank and the maximum income, therefore, based on the asset management. In this case, asset management has two main areas: the distribution of assets (pool of funds approach.) and the conversion of assets (assets allocation or conversion funds approach.).

Under the asset management understand the ways and procedures in own funds and borrowings. In relation to commercial banks - the distribution for cash, investments, loans and other assets. Particular attention is given to the allocation of resources in investments in securities and loan operations, including the composition of the securities portfolio and outstanding loans.

Fund management in commercial banks is complicated by several factors:

- Banks are the most regulated industry and business has been placing funds in strict accordance with the laws and regulations of control;

- The relationship between the bank and its customers on loans and deposits are based on trust and support;

- The holders of shares of a commercial bank, like all other investors expect the rate of return, the appropriate investment risk and comparable in magnitude to profit from those investments.

Most of the attracted funds are payable on customer's demand or with very short term of notice. Therefore, the first condition of good governance is to enable the bank to meet the demands of depositors. The second condition - it is the availability of funds, sufficient to meet the reasonable needs of a loan.

Commercial banks are private business entities, whose activities should be quite profitable with help of certain liquidity maintenance. Customers should not have a reason to doubt the solvency, liquidity and stability of the banking system, investors must have full confidence in any bank. In some way goals of depositors and holders of its shares are not compatible. This inconsistency is reflected in the inevitable conflict between the requirements of liquidity and desired profitability, which is exhibited in every financial transaction. The conflict between liquidity and profitability is a main problem to be solved by placing the pot of funds.

The main objectives of asset and liability management are: management of short-and long-term bank liquidity, maintaining and developing the profitability of the bank, management and adequacy of the capital structure of the bank, the bank's cost management, especially related to the payment of interest, management of asset quality, optimizing and reducing the tax burden, stabilization and an increase in the market value of the bank.

The purpose of asset and liability management - is preventing or correcting imbalances and avoiding of banking risks by analyzing the general strategy of the bank on the balance sheet structure and profitability.

Asset and liability management requires accurate and sufficient information from both internal and external sources. The external information is needed to predict the economic development and the formulation of the strategy, and internal - to monitor the implementation of policies to manage assets and liabilities, assessing the need for change in the policy and making new deals. All of the information used by the banks could be relevant, reliable and timely.

This information is necessary to ensure that the appropriate unit of the bank that manages assets and liabilities could:

- Set the current and future risks;

- Identify the quantity of the risk with help of sensitivity analysis of assets and liabilities to changes in interest rates, exchange rates, and inflation and growth rates;

- Analyze the results and determine the actions necessary to maintain the desired position on the balance sheet (positive, negative, neutral to the movement of interest rates);

- Develop further scenario to determine the value of the measure needed to maintain the desired position, i.e. assess the potential costs or losses and to take appropriate action, including changes in the strategies developed.

Thus, management of assets and liabilities is provided by all the financial policy and strategy of the bank, and the complexity of its activities, the rapid rise in interest rates and exchange rate changes have intensified the impact of market risk on the final results, which led to a special function of asset and liability management.

With the right choice of strategy asset and liability management is an integral part of the financial and banking management used to minimize the financial risk of credit institutions, optimizing the structure of balance in order to ensure a high level of efficiency of banking operations and reducing costs./18, p.199/

Historically there are following strategies in the management of assets and liabilities:

a) Asset management strategy (60's.) - This strategy has prevailed in international banking practice in the 60s of this century. In this approach, the bankers perceived sources of resources - equity and liabilities which are not dependent on banking, but determined mainly by opportunities and needs of customers and shareholders. It was assumed that the size, type and structure of liabilities, that the bank might attract, were attributed to the population. If the latter is itself determined the quantitative relationship between deposits and checking account. The advantages of asset management strategy is relatively easy to use, because decisions are made only on one aspect of the banking business - asset allocation, and for the management of liquidity it apply simple techniques that do not require significant resource costs. The bank does not make sense to attract highly qualified staff, which helps reduce the cost of training and labor experts. This approach does not maximize profit. Indeed, on the one hand, the bank refuses liability management, and consequently, on the impact on their value. On the other hand, a significant part of bank assets must be in the form of highly liquid to maintain a sufficient level of liquidity, which leads to a decrease in revenue.

b) Liability management strategy (in the 60's and 70's.) - liability management strategy was developed in the international banking business in the 60 - 70 years of this century. During this period, banks are faced with the rapid growth of interest rates and intense competition in the field of fundraising. Bankers began to focus the search for new sources of funding, as well as control over the structure and the cost of deposits and deposit liabilities, which gave impetus to the formation of the strategy through the management of the bank liability management. Bank liability management strategy does not preclude parallel asset management, but the problem is the delimitation and autonomy of each of these approaches. In this case, the structural units of the bank which are responsible for raising funds are separated from lending and investment divisions and have no information on possible areas of resources. The main drawback of liability management strategy is that it is usually applied on the principle of "more is better", the funds are raised without effective lines of their placement. During the recovery period, when the demand for credit increases, this approach may be appropriate and useful. But during a recession, when demand for loans is limited, unbalanced approach to the management of the bank's assets and liabilities may lead to a significant reduction in profits and even cause damage. The advantage of this approach to the management of the bank is the ability to increase revenues, controlling operating costs and accurately predicting the bank needs for liquidity.

c) Asset and liability management strategy (modern approach) - The main feature of the international financial markets in the 80's was the volatility of interest rates and, consequently, an increase in the interest rate risk of banks. Before this time the main risk banks was a credit risk, starting with the 80's the number one risk in the banking sector was interest rate risk. This led to the development of a balanced approach to the simultaneous management of assets and liabilities, which is prevalent now in the global banking practice. The essence of a balanced management strategy is that banks consider their portfolios of assets and liabilities integrally, defining the role of the aggregate portfolio of high returns for an acceptable level of risk. Joint management of assets and liabilities gives the bank the tools to create the optimal balance sheet structure and a protection against the risks caused by extreme changes the parameters of the financial markets. The main idea of a balanced strategy is to understand that both revenues and expenses relate to both sides of the bank balance. The price of each transaction or service should cover the costs of the bank for its provision.

Commercial banks have to allocate funds raised to various types of active operations. The banks may be guided by the two following methods of placement:

1) Pool of funds approach. The basis of the method is the idea of combining all of the resources. Then the total funds are allocated among the types of assets (loans, government securities, cash balances, etc.) that are considered appropriate. In the pool of funds approach it does not matter from what source funds are received for a particular active operation, as long as their placement help achieve the objectives of the bank.

This method requires management to the principles of equal liquidity and profitability. Therefore, funds are placed in these types of active operations, which fully comply with these principles. At the same time, this method does not contain clear criteria for the allocation of funds by category of assets, does not solve the dilemma of "liquidity-profitability" and depends on the experience and intuition of bank management.

2) Assets allocation or conversion funds approach. In managing the assets by the pool of funds approach too much attention is given to liquidity and are not considered different liquidity requirements with respect to demand deposits, savings deposits, time deposits and fixed assets. According to many bankers this deficiency is the cause of the increasing reduction in the rate of profit. Over time, time and savings deposits require less liquidity than demand deposits, and are growing more rapidly. The approach of assets allocation, known as well as the approach of conversion funds can overcome the limitations of the pool of funds approach./17, p.201/

The main advantage of this method is to reduce the share of liquid assets and investing additional funds into loans and investments, thus increasing profit margins. This model involves the creation of several "profit centers" (or "liquidity facilities") within the bank because placement of each of these centers is realized independently of the location of other centers.

However, this method has drawbacks reducing its effectiveness. The basis of allocation of the various "profit centers" put the velocity of the different types of deposits, but it may not be a close link between the rate of treatment of contributions of a group and fluctuations in the total deposits of the group.

Other deficiencies relate to the both methods: the pool of funds approach and the method of assets allocation. Both methods have focused on the liquidity reserve requirements and the possible seizure of deposits, paying less attention to the need to meet the demands of customers for credit. But it is well known that as both deposits and loans grow.

From the position of interest rate risk management method of assets allocation is cautious. In this case, the passive side is still considered to be constant and to avoid interest rate risk is provided by linking more closely the terms of asset allocation with their funding on terms, i.e. liabilities. With fast variability of interest rates using the method of assets allocation does not help optimize profits.

Since banks are considered as subjects who buy funds and lend them on the basis of percentage difference between the interest rates of purchase and sale, the term "management spread" is becoming more popular in banking practice.

In order to manage interest rate risk asset allocation method is most useful in a stable environment, as its successful use depends on three things:

- A relatively small variation in interest rates;

- The composition of liabilities is quite stable and easy to predict;

- Most of the raised funds consist of interest bearing demand deposits, i.e. balances on the settlement and current accounts of enterprises, organizations and individuals.

With realizing of both of these conditions the bank's managers could consider the passive side of the balance as a stable specified value and give more value to assets. In the method of asset allocation increase in liquidity is ensured by adjusting the structure of assets and the level of profitability of the bank is maintained at a given level of control over the spread.

Disadvantages of the method of asset allocation revealed a more frequent fluctuation in interest rates, so that the value of assets is potential subject to change. This situation led to the loss of revenues from lower asset prices and the emergence of liquidity risk.

Theory of liability management, developing and complementing the policy of liquidity management of commercial banks, based on the following two statements: The first - a commercial bank can solve the problem of liquidity by attracting new money by buying them in the capital market. The second - a commercial bank can provide its liquidity by resorting to extensive borrowing of funds from the Central Bank or a correspondent bank, as well as to loans obtained on the Eurocurrency market.

In the 60 years of the last century, funding sources have become less stable, the amount of free cash flow decreased with an increase in the demand for loans. In these circumstances, bank managers have to save on cash balances, i.e. maximize their cut, and in order to meet the growing demand for credit banks appealed to the management of its obligations, i.e. liabilities.

However, in the 1970s, due to rising inflation and the decline in production banks have started to pay more attention to the management of both sides of the balance sheet.

Technology co-regulatory assets and liabilities is called asset and liability management (ALM). The meaning of ALM is that it combines used for decades certain management practices (assets, liabilities and spread) in a single coordinated process. Thus, the main task of ALM - is coordinated management of all bank statements, and not its individual parts./14/

Also the following two methods should be noted:

1) A balanced approach of the asset-liability management. In recent years, many banks have moved to an integrated strategy that includes methods of separating and combining sources of funds to provide more flexibility. This approach combines the advantages of the previously mentioned methods, while smoothing out a number of shortcomings.

The methods considered are the verbal model. They provide an understanding of the problems of planning, relationship factors, portfolios and their parameters (indicators), but do not provide the computational procedure that allows the planner to calculate indicators of the plan portfolios: The total of investments, risk, liquidity, income, expenses, etc. But these models are useful in one way, it provides material and contains a statement of the problem for the development of constructive econometric models and computer programs as tools for managers.

3) Management with scientific methods and operations research. This method involves a scientific approach to solving management problems using advanced mathematical methods and computers to study the interaction of elements in complex models. This approach requires setting goals, establishing links between different elements of the problem, identify the variables under and beyond the control of management, evaluation of possible behavior of uncontrollable variables and identifying the internal and external constraints that govern the actions of management. The method of scientific management attempts to answer three questions: "what is the problem?", "What are the options to solve it?", "What is the best option?".

Bank management should consider this method as a way of improving decision-making, which brings the management of assets and liabilities to a new, more efficient level.

We should note that the high efficiency of the chosen strategy is only achieved in the way of proper selection of method of the asset and liability management.