Effect of Asset-Liability Management on Bank Profitability: Evidence from Afghanistan Banking Sector

Abstract

Much research has been carried out in various nations to examine the effect of ALM (Asset-liability Management) on Bank profitability. In developing nations, this issue of banks' profitability has attained relatively little attention. Existing literature, in the context of the Afghan commercial bank industry, has only related banks' endogenous factors and exogenous factors to banks' profitability and has not explicitly generated a clear relationship between balance-sheet both sides components (ALM) and the value of the bank. This paper attempted to find out the impact of Asset- liabilities components (AML), and macroeconomic factors on the banks' profitability, in the Afghanistan banking sector's context keeping control variables in place. The research was empirical in nature and the study period was between 2011 and 2021. The research population in Afghanistan consists of twelve commercial banks. The annual audited balance sheet, income statements of the commercial banks, national statistics, and World Bank dataset served as the source of secondary data. Random effect and fixed effect regression analysis was employed to analyze the data. The research accepts that there is a link between the majority of the categories of assets and liabilities, macroeconomics as their coefficients are confirmed to be statistically significant.Much research has been carried out in various nations to examine the effect of ALM (Asset-liability Management) on Bank profitability. In developing nations, this issue of banks' profitability has attained relatively little attention. Existing literature, in the context of the Afghan commercial bank industry, has only related banks' endogenous factors and exogenous factors to banks' profitability and has not explicitly generated a clear relationship between balance-sheet both sides components (ALM) and the value of the bank. This paper attempted to find out the impact of Asset- liabilities components (AML), and macroeconomic factors on the banks' profitability, in the Afghanistan banking sector's context keeping control variables in place. The research was empirical in nature and the study period was between 2011 and 2021. The research population in Afghanistan consists of twelve commercial banks. The annual audited balance sheet, income statements of the commercial banks, national statistics, and World Bank dataset served as the source of secondary data. Random effect and fixed effect regression analysis was employed to analyze the data. The research accepts that there is a link between the majority of the categories of assets and liabilities, macroeconomics as their coefficients are confirmed to be statistically significant.