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Linking profits to asset-liability management of domestic and foreign banks in the UK

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  • Kyriaki Kosmidou
  • Fotios Pasiouras
  • Jordan Floropoulos

Abstract

This paper employs the statistical cost accounting method on a sample of 36 domestic and 44 foreign banks operating in the UK over the period 1996-2002 to examine the relationship between profits and asset-liability composition. The sample was initially split into high and low profit banks by comparing their operating profit with the industry average. The results show that high profit banks experience considerably lower cost of liabilities for most sources of funding, which can cover any losses from the lower rate of return on assets that they experience compared to their lower profit competitors. The sample was then split into domestic and foreign banks. The operating profit that domestic banks experience appeared to be generated by the loans that they hold on their earning assets portfolio and their fixed assets while the operating profit of foreign banks was generated by all the assets that comprise their portfolios. Turning to liabilities, in both cases customer and short-term funding was found to be more costly than other sources of funding.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310042000293146
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 18 ()
Pages: 1319-1324

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Handle: RePEc:taf:apfiec:v:14:y:2004:i:18:p:1319-1324

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  1. Robert N. McCauley & William R. White, 1997. "The Euro and European financial markets," BIS Working Papers 41, Bank for International Settlements.
  2. William R. White, 1998. "The coming transformation of continental european banking?," BIS Working Papers 54, Bank for International Settlements.
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Cited by:
  1. Olena Havrylchyk & Emilia Jurzyk, 2006. "Profitability of foreign and domestic banks in Central and Eastern Europe: does the mode of entry matter?," LICOS Discussion Papers 16606, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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