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Revamping bank funding for optimal capital allocation
Asset reallocation and strengthening funding sources have emerged in recent years as innovative strategies for banks to enhance their asset quality, maximize their returns and improve their overall financial health.
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A bank is pictured in this undated stock illustration. (Shutterstock/File)
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n the dynamic and ever-evolving landscape of the financial industry, banks continually seek innovative strategies to meet their credit targets and remain competitive. One such strategic approach that has gained significance in recent years is the reallocation of assets and the strengthening of funding.
By effectively managing and reallocating their assets and enhancing their funding sources, banks can improve their financial stability, optimize their resources and ultimately achieve their credit objectives.
The process of asset reallocation involves the strategic redistribution of a bank's resources, such as capital, investments and loans, to enhance its overall performance and profitability. By reassessing and prioritizing their existing assets based on risk, return and liquidity considerations, banks can align their resources more closely with their credit targets and business objectives.
This may involve divesting underperforming assets, investing in higher-yielding opportunities or rebalancing their asset portfolio to ensure optimal returns. Moreover, asset reallocation enables banks to adapt to changing market conditions and regulatory requirements while also mitigating risks and enhancing their capital adequacy.
By diversifying their asset base and optimizing their risk-weighted assets, banks can better withstand economic downturns, navigate market uncertainties and capitalize on growth opportunities.
This strategic agility and resilience are essential for banks to effectively manage credit risks, sustain profitability and foster long-term financial sustainability. The reallocation of liquid assets to support credit growth is reflected in a decrease in the share of securities and an increase in the share of loans.
According to data from the Mandiri Institute, loans and securities still dominate the composition of assets in the banking industry. For loans, the share is expected to increase from 57.80 percent in 2022 to 62.35 percent in 2024, while securities are expected to decrease from 16.77 percent in 2022 to 16.53 percent in 2024.
