Financial positioning of commercial banks and its implications to bank management

Abstract

The development of the banking industry which was spurred by competition and deregulation and reregulation has led the commercial banks to reposition their assets and liabilities. In this paper we examine three stages of banking development. In the early stage, where competition was low, banks lending activities were expected to be largely in the liquid loans such trade and bsuiness financing. At this stage banks relied significantly on the traditional source of funds, current and savings deposits. Interest rates were also low and less volatile as such the performance was stable. In the second stage of where competition was increasing, banks were expected to diversify the source of funds to include significant concentration in the fixed deposits where pricing or interest rates offered was the decision criteria. Since competition was expected to concentrate mainly in the deposit market therefore changes in lending activities would be slow. Finally, in the later stage where competition intensified and the government began to implement on deregulation measures, banks were expected to reposition their assets and libilities in order to sustain their performance. At this stage major changes in the assets and libilities structure were expected.