Short-term Liabilities Research Articles

The Role of Shadow Banking and the Systemic Risk in the European Financial System

In the aftermath of the 2008 financial crisis, the development of shadow banking has been seen as one of the determinants for the increase of system risk. While diversity within the shadow banking system has been largely overlooked, in this paper we focus on European Monetary Market Funds (MMFs) and Finance Services (FSs) in order to investigate their influence on systemic risk. We evaluate the impact of their accounting and financial variables on systemic risk using the Adrian and Brunnermeier (2016)'s ∆CoVaR measure. The dataset is composed of 476 listed traditional and shadow European banking entities, over the period 2006:12015:4. We find that the size of financial institutions contributes more to systemic risk, in particular for MMFs. Market-to-book value ratio, beta and equity returns volatility play a crucial role in explaining systemic risk for FSs. Finally, for traditional banks, the short-term liability ratio is a key determinant in increasing systemic risk.

Investor Information and Bank Instability During the Euro Crisis

Outside of financial crises, investors have little incentive to produce private information on banks' short-term liabilities held as information-insensitive safe assets. The same does not hold true during crises. We measure daily information production using data from credit default swap spreads during the global financial crisis and the subsequent European debt crisis. We study abnormal information production around major events and interventions during these crises and find that, on average, capital injections reduced abnormal information production while early European stress tests increased it. We also link information production to outcomes: high levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions. In an addendum, we show information production on nonfinancials dramatically increased relative to financials at the height of the COVID-19 crisis, reflecting the nonfinancial nature of the initial shock.

PENGARUH LIABILITAS DAN EKUITAS TERHADAP PROFITABILITAS PADA PT. PRIMARINDO ASIA INFRASTRUCTURE TBK

This study aims to determine the effect of liabilities and equity on profitability. Indicators to measure profitability use Return on Equity (ROE), while liabilities use the ratio of short-term debt to equity (STDE) and shareholder equity using the ratio of prorietary ratio (PR). this research was conducted at PT. Primarindo Asia infrastructure, tbk. This type of research is associative research. The sampling technique used is a non probability sampling technique that is purposive sampling, with the sample used is for 8 years. The analysis technique used in this study is the classic assumption test and multiple regression analysis. Based on the results of the regression analysis shows short-term liabilities, and capital alone has no influence on profitability either partially or simultaneously.

Cash Flow Report RT 05/RW 22 Jakasampurna Village, Bekasi West for the 2020 Period

The importance of the cash flow statement to see changes in net assets is sometimes still not realized by institutions or small organizations. For example, residents of RT 05/RW 22 Jakasampurna Village, West Bekasi. In this paper, a cash flow report for RT 05/RW 22 Jakasampurna Village, West Bekasi will be prepared. With the aim of presenting valid information related to cash disbursements and receipts in the 2020 period. The method chosen is the preparation of cash flow reports directly with data analysis using descriptive methods. The results of the analysis show that the final amount of cash for the 2020 period has increased from the 2019 period with a ratio of 1,207. This means that the value of their current assets includes at least the amount of their short-term liabilities.

Assessment of enterprises liabilities in application conditions of international financial reporting standards

The article considers the peculiarities of accounting assessment of short-term and long-term liabilities of enterprises based on different types of current value. It is established that the IAS and Ukrainian Accounting Standards don’t quite clearly formulate the provisions regarding the assessment at which accounting items should be evaluated when recognized and reflected in the balance sheet. This negatively affects to the quality of the reports provided by enterprises and requires the development of methodologies that specify the application of different types of assessment of enterprises liabilities, depending on the purpose of assessment. The subject of research is the procedures for evaluation the value of the enterprise’s liabilities. The purpose of the article is to solve the problem of enterprises liabilities evaluation at the present stage of accounting development in the context of international financial reporting standards application in Ukraine. The research methods are general scientific, namely: abstraction and concretization – for providing recommendations regarding the correct determination of the fair value of enterprises’ liabilities. It is proved, that the choice of the evaluation type of liabilities depends on the time of their implementation and the results of business negotiations. Recommendations for the correct evaluation of liabilities and disclosure information about them in the financial statements are formulated. It is recommended to reflect in the order of enterprise accounting policy the criteria according to which the discount rate is selected for determining the present value of various types of long-term liabilities. It is expedient to substantiate the materiality of the rate deviation on long-term interest loans in accordance with the terms of the agreements and the market interest rate. Indicators that can be used to determine the risk premium when choosing the discount rate are specified.

MD&A Disclosure of Critical Accounting Policies and Financial Reporting Risk: Evidence From Restatements

In this study, I examine whether management discloses areas with higher financial reporting risk as critical accounting policies (CAPs) and how investors react to restatements of areas previously disclosed as CAPs. Through CAPs, management annually discloses the accounting policies that it views as most crucial to the portrayal of the firm’s financial condition and results and require its most difficult, subjective, and/or complex judgments. I find that CAPs covering four areas are predictive of subsequent restatements: revenue, derivatives, accruals and short-term liabilities, and capitalization of expenditures. In tests of investor reactions to restatements, I find that cumulative abnormal returns to restatements are more severe (negative) when the areas restated were previously disclosed as CAPs. Collectively, these findings support that management discloses area-specific financial reporting risk through CAPs in some, but not all, areas and that investors view restatements of CAP areas as more egregious than restatements of non-CAP areas.

ANALISIS PENERAPAN PSAK NO. 45 TENTANG PELAPORAN KEUANGAN ORGANISASI NIRLABA PADA UTD KABUPATEN PEKALONGAN

Financial reporting as a decision-making aid must be recognized by all parties from all aspects, both forprofit organizations and non-profit organizations. The purpose of financial reports is to provide relevant information to meet the interests of organizational members, creditors and other parties who provide 
 resources to non-profit organizations. This study aims to describe the preparation of the financial statements of the PMI Pekalongan Regency Blood Transfusion Unit as a non-profit organization with reference to PSAK No. 45. The location of this study is UTD PMI Regency, with research subjects Staff of the Finance and 
 Administration Sub Division of Blood Transfusion Unit of PMI Pekalongan Regency.Data collection techniques used are through observation, documentation and interviews. The data analysis method used in this research is descriptive qualitative, by comparing theory and practice in the preparation of organizational financial reports. The results showed that overall, UTD PMI Pekalongan Regency has referred to the provisions of PSAK No. 45 regarding the financial reporting of non-profit organizations, but 
 there is 1 indicator in the financial statements of UTD PMI Pekalongan Regency that is not in accordance with PSAK No. 45, namely the classification of liabilities that have not been grouped into short-term and long-term liabilities.
 
 Keywords: Application of PSAK No. 45, Financial Reporting, Nonprofits,

Analisis Modal Kerja Dalam Meningkatkan Profitabilitas Pada PT. Kereta Api Indonesia DIVRE I Sumut

This study aims to determine and analyze how the net working capital at PT. Kereta Api Indonesia DIVRE I Sumut Tbk, in increasing profitability at PT. Kereta Api Indonesia DIVRE I Sumut Tbk, This research was conducted using a descriptive research method with the variables used are working capital using net working capital and profitability using Return on Investment (ROI) and Return on Equity (ROE). This research was conducted at PT. Kereta Api Indonesia DIVRE I Sumut Tbk using quantitative data types and research data sources, namely secondary data in the form of financial statements of PT. Kereta Api Indonesia DIVRE I North Sumatra Tbk. While the data collection techniques through documentation. Based on the research results net working capital of PT. Kereta Api Indonesia DIVRE I Sumut Tbk experienced a decrease due to the increase in current assets not proportional to the increase in current liabilities in the form of trade payables, bank loans and other financial institutions, advances from employers, unearned income, accrued expenses, bonds payable, debt retention , sukuk payables and other short-term liabilities while the factor is because long-term debt has matured so that it becomes short-term debt. This is the cause of disruption to the profitability of PT. Kereta Api Indonesia DIVRE I Sumut Tbk, namely the decline in profit after tax due to cost of revenue, joint venture profits, operating expenses, finance expenses, and income tax expenses increased, while the fact was that interest on bank loans and income taxes increased drastically

Assessment of Financial Performance of Agricultural Cooperative Unions: The Case of West Harerghe Zone, Oromia Region, Ethiopia

Financial statement analysis involves comparing cooperative union performance and evaluating trends in the unions’ financial position over time. Managers use financial statement analysis to identify situations demanding attention; potential lenders use financial analysis to determine whether the union is creditworthy; and stockholders use financial analysis to help predict future earnings, dividends, and free cash flow. This study is conducted on Assessment of Financial performance of Agricultural Cooperative unions: the Case of West Harerghe zone, Oromia region, Ethiopia. The general objective of this study was to evaluate financial performance of agricultural cooperative union. For this study, the researchers used both primary and secondary sources of data taken from purposively selected two cooperative unions (i.e. Burka Galeti and Chercher Oda bultum) since they do have audited financial statements out of five unions found in western Haraghe. The study also used FGD and interview with fiancé managers and employees of the union for further explanation. Based on the financial statement analysis the researchers found that the agricultural cooperatives are efficient and effective in asset utilization, activity and debt equity management ratios. However, the financial statement analysis showed that the current asset ratio is below the industry standard that cannot cover its short term liabilities form its current asset section of the balance sheet. Moreover, the profitability ratio of the unions revealed that the agricultural cooperative unions are efficient to make profit but the margin of profit is below 25% that cannot make the union successful to cover all the incidental costs that are borne within short and long-term periods. The OLS model revealed that quick, fixed asset turnover, total asset turnover, inventory turnover and gross profit margin ratios are significantly and positively affecting ROA. As a result, the researchers recommend that the agricultural cooperative unions are expected to improve its effective and efficient management of the day to day activities of the union. Furthermore, the unions are expected to higher managers who have the caliber to manage each and every activities of the union and who are visionary to bring success for the unions.

PENGARUH STRUKTUR UTANG, PERINGKAT KREDIT, DAN STRUKTUR MODAL TERHADAP IMBAL JASA AUDIT

Introduction: The purpose of this study is to empirically examine any effect of short-term debt structure, credit ratings, and capital structure on the audit fee. The sample used in this study are the companies listed in the PT Pemeringkat Efek Indonesia (Pefindo) and the Indonesia Stock Exchange. Methods: Data were analyzed using linear regression.The independent variables in this study are the proportion of short-term debt, credit ratings, and capital structure. Dependent variable is audit fee. This research uses the control variables representing firm size, its complexity, and risk. Number of assets and current assets to total assets ratio represent the size of the company. Number of business segments and the proportion of export sales to total sales represent the complexity of the company. Risk represented by the ratio of short-term liabilities to total assets, short-term liabilities to total assets ratio, quick ratio, and return on assets. Results: Hypothesis testing shows that the proportion of short-term debt does not significantly influence audit fee. Ratings have a negative impact on the audit fees of listed companies in Indonesia's credit rating. Capital structure does not significantly influence audit fee. Conclusion and suggestion: This study has limitations that are audit fee is measured by the natural logarithm of the nominal value of professional fees expense presented in the financial statements of the company and there is a possibility of mediating variables such as risk governance and audit, in examining impact of the proportion of debt and capital structure on audit fee.

The effect of the financing structure on the return on the market share in Saudi companies An Empirical Study: أثر هيكل التمويل على عائد السهم السوقي في الشركات السعودية: دراسة تطبيقية

The study aimed to identify the influence of the financing structure on the return of the market share in Saudi corporations/companies. The study applied the descriptive-analytical approach, and the study population consisted of some joint-stock companies in the Saudi stock market, where the study sample consisted of (75) companies in five productive sectors where concentration was made on the following sectors: (basic materials, long-term commodities, energy, food production, capital goods). Method of the comprehensive survey was used for all companies. The data was analyzed using the Panel Data method through the STATA program. The study concluded several findings, the most important of which are that short-term debt (liabilities) have a negative impact on the return on the market share, as increasing short debts (liabilities) lead to a decrease in the return on the market share, and that long-term debt (liabilities) have no effect on the return on the market share, and equity has a negative impact on the return on the market share, as the increase in financing through equity leads to a decrease in the return on the market share. The study recommended the necessity of diversification between sources of financing and not limited to debt and long & short-term liabilities only. It also recommended conducting such a study on other sectors or conducting it on the whole market which may result in improving results, and also recommends expanding the time period more than five years, which may lead to improve results.

RESEARCH OF THE FINANCIAL CONDITION AND PROBABILITY OF BANKRUPTCY OF THE AGRICULTURAL COMPLEX OF UKRAINE

Introduction. The effective functioning of the agro-industrial complex is ensured by the coordinated work of enterprises of different types of economic activity that are part of it, so it will be important to study their condition. Given the instability of the macroeconomic situation, which today is characterized by uncertainty and risk, the activities of agriculture ensure food security of the state, performing an important social function, so it needs research. The main purpose of the article is to analyze the current state of enterprises of the agro-industrial complex of Ukraine. Results. The article examines the current state of enterprises of the agro-industrial complex of Ukraine. The probability of their bankruptcy is analyzed. Preliminary analysis of the structure of economic assets and sources of their formation allowed to identify the most critical problems in the financial well-being of these enterprises, which may affect the rhythm of their work in the future and lead to bankruptcy. At most enterprises of the agro-industrial complex, the share of current assets in their total volume exceeds the normative values. This is evidence of inefficient use of capital and the formation of excessive balances of working capital at various stages of turnover, in particular, in the form of receivables. The general tendency of financing economic activity at the enterprises of agrarian and industrial complex, in the conditions of insufficient volumes of own capital, is attraction of short-term, instead of long-term obligations. This leads to a loss of balance sheet liquidity and may lead to an insolvency crisis in the future. The financing of economic activity was due to short-term liabilities in the amount, and the share of equity in trade in food and agricultural raw materials and live animals is traditionally low. Thus, the financial stability of these activities is too low. Uncovered losses of previous periods led to a complete loss of equity in the production of fertilizers and agrochemical products. Conclusions. Based on the results of the study, it is established that today the driving force of this sector of the economy are medium-sized enterprises, which are also characterized by the best level of financial well-being. Keywords: enterprises of agro-industrial complex, probability of bankruptcy, rhythmic work, food security.

Deleveraging，Bank-Enterprise Relationship and Enterprises’ Debt Structure

The overall debt ratio of China’s economy has risen sharply in recent years, which implies greater financial risks. Therefore, deleveraging is imperative. Deleveraging policy will affect the corporate debt structure, reduce the proportion of corporate financial debt financing, and increase the proportion of corporate operating debt financing. The bank-enterprise relationship will also affect the corporate debt structure, but contrary to the deleveraging policy, it will increase the proportion of corporate financial debt financing and reduce the proportion of corporate operating debt financing. These characteristics incur important theoretical and policy questions: Would deleveraging and the bank-enterprise relationship conflict with each other on the corporate debt financing structure? What is the concrete manifestation of such conflict if it exists?Taking China’s A-share listed companies from 2003 to 2016 as samples, the study finds that: (1) Deleveraging will reduce the proportion of financial liabilities and increase the proportion of operating liabilities. (2) The bank-enterprise relationship will increase the proportion of financial liabilities and long-term liabilities, and reduce the proportion of operating liabilities and short-term liabilities. (3) During the deleveraging period, compared with enterprises without bank-enterprise relationship, the proportion of operating liabilities and short-term liabilities is lower for enterprises with bank-enterprise relationship; while during the period of credit easing, the bank-enterprise relationship has no significant influence on the corporate debt structure.This paper may have the following contributions: (1) It systematically investigates the differential impact of deleveraging and bank-enterprise relationship on corporate debt structure and examines the possible conflict between them. Deleveraging would increase the use of operating liabilities and reduce the proportion of financial liabilities; while the effect of bank-enterprise relationship on corporate debt structure is the opposite. It is helpful for us to have an insight into the impact of deleveraging and bank-enterprise relationship on corporate debt financing structure. (2) It identifies the macro-policy conditions under which the bank-enterprise relationship could work. It is true that the bank-enterprise relationship can bring financing facilities to enterprises, but such financing facilities only exist in the period of easy credit. During the deleveraging period, it cannot increase the total amount of corporate debt financing, which suggests that the bank-enterprise relationship has limitations, and enterprises need to keep sober all the time, not to rely too much on this relationship form. (3) It also has some enlightenment to the development of China’s financial market. From the perspective of debt structure, the proportion of operating liabilities far exceeds that of financial liabilities, and the proportion of short-term liabilities far exceeds that of long-term liabilities. Moreover, according to the historical statistical charts made in this paper, the above gap has an accelerating trend of expansion by years. This shows that China’s financial market fails to play an adequate financial function in serving the real economy, which leads to enterprises having to seek an expedient measure to occupy the operating liabilities for a long time. Therefore, financial regulators should consider how to solve the problems of structural debt financing for enterprises.

Dynamic capital structure under changing market conditions in the oil industry: An empirical investigation

We study dynamics of capital structure in the oil sector, which has witnessed dramatic changes in the market conditions, such as significant changes in the price of oil, crucial reforms in legislation, and reduced access to credit over the last decade. Our analysis is focused on testing the main predictions of the tradeoff, pecking order, and market conditions models under a changing market environment. Our main contribution is to incorporate firms' heterogeneities related to indebtedness levels, share issues, long-term and short-term indebtedness within the capital structure analysis through the use of quantile regression as well as considering time dynamics. We identify general patterns in the sector, such as a preference in the oil industry for financing changes in investment through the issuance of new debt (mostly long-term debt). Generally, we find a changing capital structure across time and firms’ indebtedness characteristics. For example, oil firms with relatively high growth rates of new debt issuance are much more sensitive to changes in investment than firms with relatively lower rates of new debt issuance in a given year. Our results stress the importance of considering both time and cross-sectional asymmetries when explaining funding mechanisms adopted by a firm. Our study emphasizes the importance of time-varying aggregate factors on capital structure choices made by energy firms and therefore highlights the importance of policies that impact funding available for energy firms, independently of the idiosyncrasies that characterize their capital structure decisions. It also shed light on the importance of policies such as the establishment of anticyclical capital buffers in the energy industry.

Banking Relationship Ties to Firm Performance: Evidence from Food and Beverage Firms in Vietnam

This paper is aimed at analyzing the effects of banking relationship on performance of Vietnamese firms in Food and Beverage (FB (ii) positive relation of short-term liabilities ratio and ROA/ROE, as FB (iii) foreign ownership had negative relationship with ROA& ROE. Foreign investors did not have significant roles in most F&B firms. Third, long-term borrowing from banks, state ownership and ages all insignificantly correlated with firm performance. Recommendations to F&B firms include: (1) Reduce the short-term loans and fixed assets investment, while increase the cheap equity funding sources via shareholders (2) Be selective in working with banks to have better fees and interest saved with banks. (3) Utilize other short-term liabilities, including payables and advances – the low-cost funding sources. F&B firms have good bargaining powers in requesting advances from their clients. (4) Have smart buy-in strategies on foreign ownership.

The Determinants of Capital Structure and Optimization: Evidence from the Power Sector

The optimal capital structure differs between companies and depends on the nature of the business, the characteristics of the business, etc. Usually when business income is higher, there is a reduction in business risk, while, on the other hand, higher profits and accumulated profits lead to an increase in investments and debt. In the research 10 companies of the power sector, representing the stock exchange index ERS 10 were examined. The following dependent variable was used: short term debt to total liabilities (STDTL). The following independent variables were used: current ratio (CR), return on capital employed (ROCE), earning before interest taxes depreciation (EBITDA), return on assets (ROA), return on equity (ROE), the tangibility of assets (TOA), firm size (FS) and gross domestic product growth (GDP growth). The research period covered the years from 2008-2018 on a semi-annual basis. The total number of observations was 220. The main objective of the paper is to determine explanatory factors that influence the changes in short-term indebtedness and profitability of 10 companies within the power sector of Republika Srpska entity that constitute the stock exchange index ERS 10 in the period 2008-2018 on a semiannual basis (a total of 220 observations). The dependent variable is a short term debt to total liabilities (STDTL) while independent variables are as follows: current ratio (CR), return on capital employed (ROCE), earnings before interest, taxes and depreciation (EBITDA), return on assets (ROA), return on equity (ROE), the tangibility of assets (TOA), firm size (FS) and GDP growth.

Population size and transport company efficiency – Evidence from Czech Republic

The obligation to ensure transport accessibility of a territory in the Czech Republic is mandated by law. Services provided in the area of transport fall under the group of collectively- provided public goods and that is the reason for economic investigation of transport companies. These services cannot be provided efficiently with an eye on the profitability principle. The aim of this paper is to evaluate efficiency of management of 18 transport companies using a selected multi-criteria method. For this purpose, Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) is chosen in combination with the Coefficient of Variance method (CV) as an objective method for determining the weight of indicators. Analysis by means of CV-TOPSIS technique is carried out in 2006 and 2016 using 5 indicators, such as sales or short-term liabilities. Based on the results, authors can aver that the number of residents, i.e. number of the users of transport services, is not a significant factor that would affect evaluation of transport companies' efficiency in the Czech Republic. At the same time, transport companies in larger cities provided public transport less efficiently. In other words, with the growth of population, the transport company's economic efficiency decreased significantly, irrespective of the size of the territory for which the service of public transport was provided.

Indebtedness and Liquidity in Agriculture: A Long-term Sectoral Evidence from Turkey

Being indebted and the liquidity shortfalls could be the base for recreating debt in the circumstances of unavailable trade credit. Accessing to bank credit or other liabilities is rather a function of liquidity for all types of businesses. Excluding equities, we hereby aim to reveal a sectoral evidence by the help of other liabilities side contributors and liquidity indicators on to what extend a firm regenerates debt in the long-run depending on the general liquidity criteria. Therefore, we try to explore a sector specific long-term evidence on the agriculture sector in Turkey. The real sector statistics feed the study in terms of data. Data curation consists of calculating data series as averages of three years aggregate balance sheet totals in the agriculture sector of Turkey for the time span of 1996 and 2016. The methodology follows a path as testing regressions for the variables, presenting interchangeably significant results, affirming the assumptions of the regressions, tests on unit root and cointegration along with causalities. The findings of the study confirm self-creating reasons of being indebted with the impact of liquidity. The study represents three models which have total debt to total assets ratio, short-term bank credits to short-term liabilities ratio, and long-term bank credits to total assets ratio as dependent variables respectively. We have analyzed the effects of current ratio, acid-test or quick ratio and cash and cash equivalents ratio which are listed as leading liquidity indicators. Cash and cash equivalents and current ratio have been found significant on the liabilities in the early trials of regressive test models. However, except current ratio liquidity indicators all together failed in predicting. The results eventually confirm the importance of eminent liquidity criteria, both current ratio and acid-test ratio are significant on the selected variables of liabilities as an evidence for the agriculture sector of Turkey in the long-run. Nevertheless, acid-test ratio has rather strong and enduring effects. Since cash and cash equivalents have been determined as stationary at a different level, they could therefore have insignificant impact on being indebted for longer periods than time span of the study. Yet the creditors would better not to directly add a liquidity indicator in their decision process of creditability in a sector. Nonetheless, the novelty of the study also ensures that predicting total debt and bank credits of both short and long run might require the same liquidity indicators along with other liability side contributors which do not necessarily or directly consider the shareholders’ equities in a sector specific atmosphere.

Liquidity risk in the Saudi banking system: Is there any Islamic banking specificity?

This paper examines the liquidity risk of Islamic and conventional banks (referred to as IBs and CBs, respectively) by looking at the impact of bank-specific variables on three complementary liquidity risk measures in the Saudi banking system, in which both types of banks operate. Applying the least squares dummy variable corrected (LSDVC) approach over the period from the first quarter of 2008 to the second quarter of 2018, our analysis suggests that the liquidity risk indicators for IBs have been affected in a different way to those of CBs: (i) Using the financing-to-deposits indicator, larger IBs typically have on average a narrower funding gap than smaller ones. The largest CBs, meanwhile, have more vulnerable funding structures than the largest IBs. Islamic and CBs that are more oriented toward traditional intermediation activities have a wider funding gap. (ii) In terms of the interbank ratio indicator, IBs with stronger capital may need to rely more on interbank funding and may be more likely to be net borrowers than the less-capitalized IBs. CBs that can secure more net interest income tend to have better liquidity positions than IBs. (iii) In terms of the liquidity-ratio indicator, IBs with stronger capital tend to hold less liquid assets as a proportion of their short-term liabilities than smaller ones. Moreover, we show an opposing behavior for the two types of banks for capital ratio and ROA. If CBs are better capitalized and realizing more revenue on assets, they tend to have a greater liquidity ratio than IBs with the same characteristics.

ВПЛИВ РИЗИКУ НЕДОСКОНАЛОГО УПРАВЛІННЯ АКТИВАМИ ТА ПАСИВАМИ БАНКУ НА ПОКАЗНИКИ ЛІКВІДНОСТІ

A great difficulty in finding an effective resolution to the basic problem in banking — achieving an optimal balance between profitability and liquidity — encourages economists to propose new approaches to getting such balance. The following methods were used in the study: theoretical generalization and comparison in defining the substance of bank asset and liability management; a systemic approach in considering asset and liability management as interconnected elements of a single system; tabular display of data. From our point of view, the bank’s asset formation system should be based on a clear definition of sources of resources for each asset. This will not allow the bank to lose liquidity on the one hand, and to link the value of liabilities to the return on assets on the other. Our approach to asset and liability management is based on the maintenance of cash flows in a bank based on the principle of distribution of fundraising sources between their uses: Call deposits are primarily used in Liquid assets (non-profitable assets). Sold securities are primarily used in Acquired securities. Fixed-term deposits are primarily used in Loans to customers. Acquired interbank credit are primarily used in Issued interbank credit. Shareholders’ equity primarily used in Fixed assets. Bank creditors are primarily used in Bank debtors (non-profitable assets) The negative difference between one fundraising source and its use should be covered by the positive difference between another fundraising source and its use based on the substance of balance sheet. In doing so, it is necessary to adhere to the principle of formation of the riskiest assets out of the most stable liabilities. When calculating the bank’s liquidity ratios, attention should be paid not only to the balance sheet figures obtained from accounting data, but also to the risks associated with the formation of long-term assets out of short-term liabilities (especially funds provided to the bank for management rather than for storage). If accumulated call deposits were used to fund a loan or another portfolio of long-term assets, it is proposed to add the sum of these funds to the total liabilities on call when calculating absolute liquidity ratio. This will counteract the concept of acceptable absolute liquidity.