Tunisian bank asset-liability management: A canonical correlation analysis

Abstract

The aim of this paper is to analyze asset-liability management behaviour in Tunisian banks between 2000 and 2014. The liberalization process in the Tunisian economy coupled with global developments exposed banks for various kinds of risks (interest rate risk, liquidity risk, exchange risk, operational risk etc...) which have a direct impact on their profitability and efficiency. Then asset liability management is one of a most important tool for decision making that sets out to maximize stakeholder value and an instrument to measure the sustainability of the financial sector in a country. A sample consisting of public, private, and foreign banks operating in the Tunisian territory was considered and the multivariate statistical technique, canonical correlation analysis has been used to capture the nature and strength of the relationship between the assets and liabilities in these banks. Assets analyzed were subdivided into fixed assets, liquid assets, short-term loans, long-term loans, short-term securities and long-term securities; and liabilities into net worth, borrowings, short-term deposits and long-term deposits. From the analysis, different degrees of the association have been found among various constituents of assets and liabilities and among banks. In most cases, there has been a poor and judicious matching of assets and liabilities in terms of their explicit cost and revenue as well as their maturity and liquidity. It is further observed that most Tunisian banks were asset-managed: these banks were actively managing assets and liabilities and were dependent on how well the assets are managed.