Asset-Liability Management and Liquidity Trap (Case Study: Credit Institute for Development)

Document Type: Original Article

Authors

1 Department of Finance, Kish International Branch, Islamic Azad University, Kish Island, Iran (Corresponding Author)

2 Department of Finance and Economic, Sciences and Research Branch, Islamic Azad University, Tehran, Iran

3 Department of Finance, Kish International Branch, Islamic Azad University, Kish Island, Iran

4 Department of Finance and Economic, Central Tehran Branch, Islamic Azad University, Tehran, Iran

Abstract

An increase in the ability to timely meet commitments which will be due in the near future is a prerequisite for the survival of banks. Hence, the correct and optimal management of liquidity is an important affair that banks should perform. The present study aimed mainly to test the management of asset-liability and liquidity trap in the Credit Institute for Development. The research is applied in terms of the method and survey in terms of the type. The key ratios in the prediction of liquidity trap were identified through interviews with the experts in the area of asset-liability management. Then, a researcher-made comparison (paired) questionnaire was used through the ISM technique to investigate the relationships of these ratios. Finally, the conceptual model was extracted and the degree of influence of the variables was determined by the power of influence and the power of dependence. The indicators of asset-liability management were raised as the independent variable, and the financial ratios related to liquidity trap as the dependent variable. The Ginger’s causality test was used to assess the hypotheses and perform the statistical analysis, applying the Eviews software. The research results revealed that the immediate ratios of cash funds to volatiledeposits, cash assets to short-term debts, volatiledeposits to total deposits, macro deposits to total deposits, demand deposits to total deposits, liquidity coverage, and loan to deposit are most closely related to the prediction of liquidity trap. In addition, among the indicators of asset-liability management, the ratios of capital adequacy, VaR, and cash and current debt to current assets had a significant effect on the liquidity trap of the Credit Institute for Development.

Keywords