Abstract
In repressed financial markets, banks faced little or no price competition, and experienced high profitability. Deposit interest rates were fixed and so were interest rates for some loans granted through government directed credit programmes. Rates on these loans ensured a positive and attractive interest spread. Rates on other loans were not fixed by the authorities and banks also recorded substantial spreads that were not competed away because of market entry restrictions. The supply of investment securities for savers and investors was limited, and the markets for these securities were shallow. Exchange control regulations restricted the freedom of banks to operate in foreign currencies, and fixed exchange rates isolated them, to a large measure, from exchange rate risks. With interest and exchange rates fixed, and the central bank providing discounting facilities in the event of a liquidity crisis, the major risk to be managed was credit risk. But even in this area, risk was minimized by the government directed or supported credit programmes. In fact, risks were low and returns were high for banks operating in repressed financial markets.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Author information
Authors and Affiliations
Copyright information
© 1997 Wilbert O. Bascom
About this chapter
Cite this chapter
Bascom, W.O. (1997). Managing Asset and Liability Risks. In: Bank Management and Supervision in Developing Financial Markets. Palgrave Macmillan, London. https://doi.org/10.1057/9780230372399_8
Download citation
DOI: https://doi.org/10.1057/9780230372399_8
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-39441-8
Online ISBN: 978-0-230-37239-9
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)