Abstract

The Planning of Optimal Credit Portfolio of a Mixed-Banking Institution

This paper delevops a model for determining the optimal credit portfolio of a mixed-banking institution which aims at profit maximization. The first part works out the chief determinants of the maximum latitude for credits, that is to say, the excess reserves available in the planned period, the possibility of internal offsetting of outpayment dispositions and the principles of the Federal Supervisory Office for the Banking Business on the net worth and liquidity of banks, and explains their quantitative effects in each case with examples. Building up on these findings, a model is developed for simultaneous determination of the optimal credit portfolio. While model variant A includes only one constraint to ensure solvency where internal offsetting is given, this variant is then extended, first by principle I (Model B) and then by Principles II and III (Model C), and finally all restrictions together are included in model variant D. The alternative and combined consideration of the principles of the Federal Supervisory Office enables their impact on the optimal combination of credit alternatives to be explained clearly. Hence the results of the model provide important information for planning credit and loan business.