Interest Rate Risk Management at Bank PDF

Management Of Interest
Rate Risk In Banks
Presenter:
Dr. Vighneswara Swamy
Agenda Items
for the Session:
What is Interest Rate Risk
What are the types of Interest Rate Risks
Effects of Interest Rate Risks
Measurement of Interest Rate Risks
Strategies for Controlling Interest Rate Risks
Basel Committee Recommendations
Sound Interest Rate Risk Management
Practices
12/17/2009
Presenter: Dr. Vighneswara
Interest Rate Risk (IRR)

Definition:
It is the potential loss from
unexpected changes in interest rates
which can significantly alter a banks
profitability and market value of
equity.
12/17/2009
Interest Rate Risk .. explained

The amount at risk is a function of the
magnitude and direction of interest rate
changes and the size and maturity structure
of the mismatch position.
If interest rates rise, the cost of funds
increases more rapidly than the yield on
assets, thereby reducing net income.
If the exposure is not managed properly it
can erode both the profitability and
shareholder value.
12/17/2009
Interest Rate Risks - Types
Interest Rate Risks
Repricing Risk
12/17/2009
Basis Risk
Yield Curve
Risk
Embedded
Option Risk
Repricing Risk
Arises on account of mismatches in rates
Can be measured by the measure of risk in different time
buckets
Information needed
Balance sheet -on & off on a particular day

Business plan & expected income/ exp. ignored
Static vs Dynamic
Liabilities
Capital
(Crore)
@ ROI
Assets
Maturity
Investment
(Crore)
@
ROI
Spread
Maturity
Scenario-1
Rs100
9%
One year Rs100
10%
Two year
Profit
1%(1crore)
Two year
Loss
1%(1crore)
Scenario-2
Rs100
12/17/2009
11%
2nd year
Rs100
10%
Mismatched Repricing Periods of Assets/Liabilities

Illustrations:
Liabilities
Capital
(Crore)
@ ROI
Assets
Maturity
Investment
(Crore)
Scenario-1
Rs100
8%
91 days
Rs100
Fixed Rate
10%
Rs100
Fixed Rate
11%
Scenario-2
Rs100
9%
91 days
@ ROI
Scenario-3
Float Rate
Rs100
10%
8%
91 days
Rs100
(1st
month)
Spread
Maturity
91 days
Profit
2%(0.49crore)
91 days
Profit
2%(0.49crore)
30 days
Profit
2%(0.164crore)
61 days
Profit
3%(0.5crore)
Total:
0.664 Crore
Float Rate
11%(2nd month)
Asset
Sensitive
Scenario-4
8%
91 days
Rs100
Liability
Sensitive
12/17/2009
9%
Rs100
Fixed Rate
10%
5 years
91 days
Basis Risk
Interest rates on assets and liabilities do not change in the
same proportion.
When Bank Rate was raised by 2%, PLR was raised by 1% and
deposit rates by 1.5%
Interest rates movement is based on market perception of risk
and also market imperfections.
Therefore, basis risk arises when interest rates of different
assets and liabilities change in different magnitudes.
The `basis form of IRR results from the imperfect correlation

between interest adjustments when linked to different index
rates despite having the same re-pricing characteristics.
12/17/2009
Basis Risk An Illustration

Repricing Liabilities (Rs Crores)
Repricing Assets(Rs Crores)
Savings Deposit
50
Call Money
50
Fixed Deposit
50
Cash Credit
40
Total
100
Total
90
Gap(-)
10
Calculation of Standardised Gap
Fall in Rates
Fall in Amount
(Rs Crores)
Call Money
50 * 1.0%
0.50
Cash Credit
40 * 0.7%
0.28
A. Decrease in Interest Income
(-)
0.78
Savings Deposit
50 * 0.5%
0.25
Fixed Deposit
50 * 0.4%
0.20
B. Decrease in Interest Expense
(+)
0.45
Loss in Net Interest Income (A-B)
(-)
0.33(Rs 33 Crores)
12/17/2009
Embedded Option Risk

Risks arising out of prepayment of loans and bonds (with
put or call options) and / or premature withdrawal of
deposits before their stated maturity dates.
Liabilities
Capital
(Crore)
@
ROI
Scenario-1
Rs100
Maturity
8%
90
days
8%
90
days
Scenario-2
Rs100
Assets
Loan
(Crore)
Rs100
Rs100
@ ROI
Maturity
10%
90
days
Profit
2%(0.49crore)
2%(0.164crore)
10%
90
days
60
days
1%(0.164crore)
Int. Rates
decline after
30 days to 9%
Total
12/17/2009
Spread
for 30days
for 60 days
0.328 crore
10
Yield Curve Risk

Risks caused due to the change
in the yield curve from time to
time depending on the repricing
and various other factors.
Yield Curve is the relation between the
interest rate (or cost of borrowing) and
the time to maturity of the debt for a
given borrower in a given currency.
12/17/2009
11
Yield Curve Risk ..

What is
Yield Curve
Yield Curve is
the
relation
between
the
interest
rate
(or
cost
of
borrowing) and
the time to
maturity of the
debt
for
a
given borrower
in
a
given
currency.
12/17/2009
shape of
yield curve
The shape of the

yield
curve
is
influenced by supply
and demand. The
yield curve may also
be flat or humpshaped,
due
to
anticipated interest
rates being steady,
or
short-term
volatility
outweighing
longterm volatility.
Yield Curve
TEXT
Yield Curve
Risk
The risk of
experiencing
an
adverse
shift
in
market
interest rates
associated
with
investing in a
fixed income
instrument.
12
Yield Curve Risk An Illustration

Liabilities
Capital
(Crore)
@ ROI
Scenario-1
Rs100
Reference:
91 day T-Bill
Assets
Maturity
Loan
(Crore)
3 year
13.5%
fixed(quar
terly
repriced)
Rs100
@ ROI
Spread
Maturity
Loan
16%
3 year
Reference:
364 day T-Bill @13%
rterly
repriced)
(2.5crore)
16%
90
days
Profit
1.0%
float(qua
Profit
2.5%
@12.5%
Scenario-2
Rs100
Reference:
91 day T-Bill
15%
90
days
Rs100
Reference:
364 day T-Bill @13%
(1crore)
@14%
Date
91 T-Bill
Deposit
364 T-Bill
Loan
Spread
22.05.2008
4.48%
5.48%
4.62%
7.62%
2.14%
08.08.2008
4.93%
5.93%
4.85%
7.85%
1.92%
08.12.2008
12/17/2009
4.71%
5.71%
4.24%
7.24%
1.53%
13
Interest Rate Volatility

Impact of Interest Rate Volatility on the Net
Interest Income
COL1
IMPACT OF INCREASE / DECREASE IN RATE OF INTEREST ON NII

COL2
COL3
COL4
COL5
Maturity pattern
1- 14 DAYS
15 - 28 DAYS
29 DAYS - 3 MTS
3-6 MONTHS
6-ONE YEAR
ONE - 3 YEARS
3-5 YEARS
12/17/2009
ABOVE
5 YRS
RSL - OUTFLOWS RSA - INFLOWS
GAP - RSA - RSL CHANGE IN NII FOR

0.25 % DECREASE
18785.27
15920.09
31772.55
31161.34
68403.39
77914.78
87629.72
90673.27
101260.22
98917.23
108310.71
106316.51
114558.21
124538.91
Vighneswara
134964.33Presenter: Dr.
137905.36
-2865.18
-611.21
9511.39
3043.55
-2342.99
-1994.2
9980.7
2941.03
7.16
1.53
(-23.78)
(-7.61)
5.86
4.99
(-24.95)
14 -7.35
Measurement of IRR
Approaches to Measure IRR
Maturity
Gap
Analysis
12/17/2009
Duration
Gap
Analysis
Simulation
Value at
Risk
15
Maturity Gap Analysis

MGA
distributes
interest
rate
sensitive
assets, liabilities and OBS
positions into a certain
number of predefined time
bands according to their
maturity(if fixed rate) or
time remaining to their next
repricing(if floating rate)
12/17/2009
16
Maturity Gap Analysis ..

How is it done?
Objective:
To improve the
net interest
income in the
short run over
discreet periods
of time called the
gap periods.
The risk sensitive

assets and risk
sensitive liabilities
are grouped into
maturity buckets
based on maturity
and the time until the
first possible
repricing due to
change in the interest
rates
What is the Gap?

The gap is then
calculated by
considering the
difference between
the absolute
values of the RSAs
and RSLs.
RSG=RSAs-RSLs
Relative differences in each maturity bucket represents the sensitivity in

that band.
12/17/2009
17
Maturity Gap Method (IRS)
Three Options:
A) RSA>RSL= Positive Gap
B) RSL>RSA= Negative Gap
C) RSL=RSA= Zero Gap
12/17/2009

Swamy
18
Maturity Gap Analysis Option-1

Liabil
ity
(Crores)
Rate Increase
%
d
Rate%
Decreased
Rate%
200
Asset
(Crores)
Rate Increase
%
d
Rate%
Decreased
Rate%
200
1800*
10
11
800*
12
13
11
3000
11
11
11
1000*
14
15
13
1000*
16
17
15
2000
18
18
18
Int
756
income
784
728
246
256
236
5000
5000
Int
Expe
nse
510
NII=
528
492
A case of Positive Gap:

RSAs= Rs2800, RSLs=Rs1800 GAP=Rs2800-RS1800=Rs1000
12/17/2009
19

Liabil
ity
(Crores)
Rate Increase
%
d
Rate%
Decreased
Rate%
200
Asset
(Crores)
Rate Increase
%
d
Rate%
Decreased
Rate%
200
1800*
10
11
800*
12
13
11
3000
11
11
11
1000
14
15
13
1000
16
17
15
2000
18
18
18
Int
756
income
784
728
246
256
236
5000
5000
Int
Expe
nse
510
NII=
528
492
A case of Negative Gap:

RSAs= Rs800, RSLs=Rs1800 GAP=Rs800-Rs1800=(-)Rs1000
12/17/2009
20

Liabil
ity
(Crores)
Rate Increase
%
d
Rate%
Decreased
Rate%
200
Asset
(Crores)
Rate Increase
%
d
Rate%
Decreased
Rate%
200
1800*
10
11
800*
12
13
11
3000
11
11
11
1000*
14
15
13
1000
16
17
15
2000
18
18
18
Int
756
income
784
728
246
256
236
5000
5000
Int
Expe
nse
510
NII=
528
492
A case of Zero Gap:

RSAs= Rs1800, RSLs=Rs1800 GAP=Rs1800-Rs1800=0
12/17/2009
21
Inferences from above options:

SCENARIO
STRATEGY
Rising Interest Rates
Maintain a positive gap
Declining Interest
Rates
Maintain a Negative gap
Uncertain situation
(May not occur in reality)
Maintain a Zero gap

No benefits
12/17/2009
22
Factors Affecting Net Interest Income: An Example
Consider the following balance sheet:

Expected Balance Sheet for Hypothetical Bank
Assets
Yield
Liabilities Cost
Rate sensitive $ 500
8.0%
$
600
4.0%
Fixed rate
$ 350
11.0%
$
220
6.0%
Non earning
$ 150
$
100
$
920
Equity
$
80
Total
$ 1,000
$ 1,000
NII = (0.08 x 500 + 0.11 x 350) - (0.04 x 600 + 0.06 x 220)
NII = 78.5 - 37.2 = 41.3
NIM = 41.3 / 850 = 4.86%
GAP = 500 - 600 = -100
12/17/2009
23
Factors Affecting Net Interest Income

Changes in the level of interest rates
Changes in the composition of assets and liabilities
Changes in the volume of earning assets and
interest-bearing liabilities outstanding
Changes in the relationship between the yields on
earning assets and rates paid on interest-bearing
liabilities
12/17/2009
Presenter: Dr.
24Vighneswara
Examine the impact of the following

changes
A 1% increase in the level of all short-term rates?
A 1% decrease in the spread between assets yields
and interest costs such that the rate on RSAs
increases to 8.5% and the rate on RSLs increase to
5.5%?
Changes in the relationship between short-term
asset yields and liability costs
A proportionate doubling in size of the bank?
12/17/2009
Presenter: Dr.
25Vighneswara
1% increase in short-term rates

Expected Balance Sheet for Hypothetical Bank
Assets
Yield
Liabilities
Cost
Rate sensitive $ 500
9.0%
$
600
5.0%
Fixed rate
$ 350
11.0%
$
220
6.0%
Non earning
$ 150
$
100
$
920
Equity
$
80
Total
$ 1,000
$
1,000
NII = (0.09 x 500 + 0.11 x 350) - (0.05 x 600 + 0.06 x 220)
NII = 83.5 - 43.2 = 40.3
NIM = 40.3 / 850 = 4.74%
GAP = 500 - 600 = -100
With a negative GAP, more liabilities than assets reprice higher; hence NII
26
and12/17/2009
NIM fall
Maturity Gap Method Mathematical

Expressions
RSG = RSAs - RSLs
Gap Ratio = RSAs / RSLs
NII = Gap x
Where,
NII = Change in Net Interest Income
= Change in Interest Rates
NII = Earning Assets x NIM

12/17/2009
27

Expressions ..
NII = Earning Assets x NIM x

Where, C = % change in NIM
Since, NII = Gap x
r
Gap x
r = Earning Assets x NIM x
C
Therefore,
Earning Assets x NIM x

C
GAP = ----------------------------------------------
r
Where; Earning Assets = Total Assets of the Bank
NIM
= Net Interest Margin
C
= Acceptable Change in NIM
12/17/2009
Dr. Change
Vighneswara
=Presenter:
Expected
in Interest Rates
28
Maturity Gap Method

Illustration
Bharat bank has earning assets worth Rs. 3000 crores and a Net
Interest Margin(NIM) of 3%. In a swift move Bharat Bank decided
that a 2% increase/decrease in the NIM can be the acceptable limit.
It further forecasts that a 0.75% increase in the interest rate. Now
you are required to calculate the target gap which the bank can
maintain to remain within the acceptable limits of NII.
Answer:
Earning Assets x NIM x

C
GAP = -----------------------------------------------------
r
3000 x 0.03 x 0.02

1.8
GAP = --------------------------------------------- = ----------- = Rs. 240 Crore
0.0075
12/17/2009
0.0075
29

Expressions .. Gap Ratio
Consider the Following Illustration of two banks which have a same Gap
Ratio;
Parameters
Bank A
Bank B
RSA
2900
1005
RSL
2000
695
GAP
900
310
GAP Ratio
1.45
1.45
NII
830
390
Decrease in Interest
0.5
0.5
Change in NII (GAP * Change in R)
4.5
0.54%
1.55
0.40%
%change in NII (Change in NII /NII)
Inference: Gap level is more helpful than the Gap Ratio in taking
Positions
12/17/2009
30

Expressions .. Rate Adjusted Gap
Rate Adjusted Gap = ( RSA1 * WA1 + RSA2 * WA2 + . )

- ( RSL1 * W1 + RSL2 * W2 + . )
Where,
WA1 , WA2, . are Weights of the corresponding RSAs
WL1 , WL2, . are Weights of the corresponding RSLs
Illustration: The case of a Positive Gap turning Negative
Liability
Rate%
Increased
Weight
Rate%
Assets
200
Rate%
Increased
Weight
Rate%
200
1800
10
3000
11
0.75
10.75
800
12
0.5
12.5
11
1000
14
0.25
14.25
1000
16
0.5
16.5
2000
18
18
Rate Adjusted Liabilities = 1800 x 0.75 = 1350

Rate Adjusted Assets = [(800 x 0.5) + (1000 x 0.25) + (1000 x 0.5)] = 1150
Rate adjusted Gap
= 1150 1350 = (-) 200
12/17/2009
Inference: By assigning weights
the Positive Gap has actually become Negative 31
Statement Of
Interest Rate Sensitivity
Generated by grouping RSA,RSL & OFFBalance sheet items in to various (8)time

buckets.
RSA:
MONEY AT CALL
ADVANCES ( BPLR LINKED )
INVESTMENT
RSL:
DEPOSITS EXCLUDING CD
BORROWINGS
12/17/2009
32
Balance Sheet looked at from Interest Rates:

Balance Sheet looked at from Interest Rates:
Balance Sheet Items
Whether Interest
bearing
Fixed / Floating
Rate
Remarks
Liabilities
Capital
No
Reserves & Surplus
No
Deposits
- Current Deposits
No
- Savings Deposits
Yes
- Term Deposits
Fixed
Yes
Fixed
- From within India
Yes
Fixed
- From Outside India
Yes
Generally Fixed
- Interest Payable
Yes
Fixed
- Subordinated Debts
Yes
Fixed
Discretionary pricing for High

Value deposits & Inter bank
items
Borrowings
Sometimes, floating, linked to
LIBOR
Other Liabilities
- Others
12/17/2009
NO
In a few cases, this is floating

rate item
33
IRS & Interest Rate Scenario
Impact of Interest Rate Changes on NII

Rising Interest Stable Interest Falling Interest
Rate Scenario Rate Scenario Rate Scenario
Negative Mis Matches in IRS
Adverse
No Impact Favourable
Mis Match in IRS is NIL
No Impact No Impact No Impact
Positive Mis Matches in IRS Favourable No Impact

12/17/2009
Adverse
34
Limitations of Maturity Gap

Analysis
To a larger extent depends on the accuracy
level of the forecasts made regarding the
quantum and the direction of the interest
rate changes
While gap measurement is easy,
gap management is quite difficult.
It assumes that change
in interest rates
immediately affects all
RSAs and RSLs
Ignores Time Value

of
Money
12/17/2009
35
Duration Gap Analysis

Duration Gap Analysis What is it?
Duration
Analysis:
Duration is a
measure of the
percentage
change in the
economic value
of a position that
occurs given a
small change in
level of interest
rate.
12/17/2009
Duration
Analysis:
It concentrates
on the price risk
and the
reinvestment
risk while
managing the
interest rate
exposure.
Duration
Analysis:
It also measures
the effect of rate
fluctuation on
the market value
of the assets and
liabilities and
NIM with the help
of duration.
36
Duration Gap Analysis ..Illustration

Assets and Liabilities chart of Bharath Bank is presented here below along
with their durations and interest rates. Based on the information, identify the
RSG and the NIM. During the forecasting period of one year, if the interest
rates rise/fall by 2%, what would be its implication on the NIM of Bharath
Bank?
Liabiliti
es
Amount Duration Int. Rate Assets

(Crore) (months) (%)
Equity
ST
Depo
LT
Depo
200
Cash
200
1800
11.5
ST
Loans
1800
2.75
12.5
15
LT
Loans
2000
23
16.5
11
Invest
ments
1000
10.5
13.5
2500
5.5
23.7
Others
500
11.5
5000
12/17/2009
Amount Duration Int. Rate

(Crore) (months) (%)
5000
37

Answer:
RSG = RSAs RSLs = (1800+1000) (1800+500) = 500
Liabi Amount Duration Interest Increased Decreased Assets Amount Duratio Interest Increased Decreased
n
lities
(crore) in Mnths Rate(%)
Equity
Int.
Rate(%)
200
ST
Depos 1800
LT
Depos 2500
Others
Int.
Rate(%)
500
5000
Int.
Expe
NII
NIM
12/17/2009
5.5
11.5
13.5
9.5
23.7
11.5
15
11
15
13
15
9
637
683
591
(crore)
Cash
ST
Loans
LT
Loans
Investm
in
Rate(%)
Int.
Mnths
Rate(%)
Int.
Rate(%)
200
1800 2.75
12.5
14.5
10.5
2000 23
1000 10.5
5000
16.5
13.5
16.5
15.5
16.5
11.5
690
746
634
Int
Income
53
63
43
0.010 0.0126 0.0086
6
38

Using the Duration analysis to assess the sensitivity of
the market value of Assets and Liabilities.
Ds x S = ( D x A ) - ( DL x L )
Where,
Ds = Duration Gap / Duration of Surplus

DA = Duration of Assets, DL = Duration of
Liabilities A = Assets L = Liabilities
S = Surplus / Gap
12/17/2009
39
Duration Gap Analysis .

Substituting L = A S in the above eqn. We get
Ds = DL + ( A / S ) x ( DA - DL )
When there is a market fluctuation,
-D( r) x Current MV
MV = -----------------------------------------(1+r)
Where,
MV = Change in the market value
D = Duration of assets or liabilities
r = Change in the interest rate
r = Current interest rate
MV = Market Value
Then,
New MV = Current MV +
12/17/2009
MV
40
Duration Gap Analysis ..

Then,
MV =
-D( r) x Current MV
----------------------------------(1+r)
An Example:
The following is the information about Bharath Bank. Market value of
liabilities is Rs1800 crores, MV of Assets is Rs2000 Crores, Duration of
Assets is 5 years, Duration of Liabilities is 4 years, the ROI is 10% and
Change in the ROI is +2%. You are required to asses the change in the MV of
the bank whose Equity is currently Rs200 crore.
Answer:
Parameter
Change in MV
Original MV
New MV
Assets
-5(0.02) x2000
(1+0.1)
182
2000
1818
Liabilities
-4(0.02) x1800
(1+0.1)
131
1800
1669
182 131
51
200
149
Equity
12/17/2009
41
Simulation
What is it?
Data Requirement
Simulates performance under

alternative
interest
rate
scenarios and assesses the
resulting volatility in NII / NIM
/ ROA / ROE / MVE
A
financial
model
incorporating
interrelationship
of
assets,
liabilities,
prices,
costs,
volume, mix and other
business related variables
Maturity and repricing

Rate scenarios
Alternative management
response under different
scenarios
Yield curves
Prepayment tables
Behavioural pattern of assets
and liabilities
Consistency of assumptions
Computer
generated
scenarios about future and
response to that in a dynamic
way
12/17/2009
42
Simulation- other information
Risk-Return policies - management appetite for risk

taking
Regulatory framework Ward against practices which
are considered unsafe and unsound
Capital strength and profitability
Experience and track record of management
Other risks embedded in the balance sheet - Liquidity /
Credit / Forex risks
Business plan
12/17/2009
43
Simulation
-Advantages
Forward looking
-Disadvantages
Accuracy depends on quality
of data, strength of the model
and validity of assumptions
Dynamic
Lessens the role of crisis
management
Time consuming
Increases the value of

strategic planning
Huge investment in computer
Enhances capability of
analysis
Requires highly skilled

Personnel
Analysis paralysis
Interpretation easy
Timing of cash flows captured
accurately
12/17/2009
44
Interest Rate Risk Management
12/17/2009
45
Interest Rate Risk Management

INTEREST RATE RISK MODELS
Risk Measurement Systems
GAP
REPORT
EARNINGS
SIMULATION
ECONOMIC VALUATION
Short-Term
Earnings
Exposure
Long-term
Exposure
Repricing Risk
Yes
Yes
Yes
Limited*
Generally does not distinguish short-term

accounting earnings from changes in
economic value.
Yes
Yes
Yes
Yes
Basis Risk
Limited*
Yes
Limited*
Yield
Curve Limited*
Risk
Option Risk
Limited*
Yes
Yes
Limited*
Yes
* The ability of these types of models to capture this type of risk will vary with the
sophistication
of the model and
the manner
in which bank management uses
12/17/2009
Presenter:
Dr. Vighneswara
46
Benefits from IRR management

Defined financial targets based on corporate risk
tolerances
Reduced earnings volatility
Improved cash flow forecasting
Improved corporate credit ratings

Defined risk management and hedge methodologies
12/17/2009
47
Conclusion
Based on the quantity of interest rate risk
and quality of interest rate risk management,
we can evaluate the adequacy of the banks
capital.
Determine the component rating for
sensitivity to market risk.
Determine further the effect of interest rate
and earnings on the business in a
macroscopic view.
12/17/2009
48
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Interest Rate Risk Management at Bank PDF

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Management Of Interest

Rate Risk In Banks

Dr. Vighneswara Swamy

Presenter: Dr. Vighneswara

Interest Rate Risk (IRR)

Presenter: Dr. Vighneswara

Interest Rate Risk .. explained

Presenter: Dr. Vighneswara

Interest Rate Risks - Types

Interest Rate Risks

Presenter: Dr. Vighneswara

Balance sheet -on & off on a particular day

One year Rs100

Presenter: Dr. Vighneswara

Mismatched Repricing Periods of Assets/Liabilities

The `basis form of IRR results from the imperfect correlation

Presenter: Dr. Vighneswara

Basis Risk An Illustration

Repricing Assets(Rs Crores)

Calculation of Standardised Gap

A. Decrease in Interest Income

B. Decrease in Interest Expense

Loss in Net Interest Income (A-B)

Presenter: Dr. Vighneswara

Embedded Option Risk

Presenter: Dr. Vighneswara

Yield Curve Risk

Presenter: Dr. Vighneswara

Yield Curve Risk ..

The shape of the

Presenter: Dr. Vighneswara

Yield Curve Risk An Illustration

Interest Rate Volatility

IMPACT OF INCREASE / DECREASE IN RATE OF INTEREST ON NII

RSL - OUTFLOWS RSA - INFLOWS

GAP - RSA - RSL CHANGE IN NII FOR

Presenter: Dr. Vighneswara

Maturity Gap Analysis

Presenter: Dr. Vighneswara

Maturity Gap Analysis ..

The risk sensitive

What is the Gap?

Relative differences in each maturity bucket represents the sensitivity in

Presenter: Dr. Vighneswara

Maturity Gap Method (IRS)

Presenter: Dr. Vighneswara

Maturity Gap Analysis Option-1

A case of Positive Gap:

Presenter: Dr. Vighneswara

Maturity Gap Analysis Option-2

A case of Negative Gap:

Presenter: Dr. Vighneswara

Maturity Gap Analysis Option-3

A case of Zero Gap:

Presenter: Dr. Vighneswara

Inferences from above options:

Rising Interest Rates

Maintain a positive gap

Maintain a Negative gap

Maintain a Zero gap

Presenter: Dr. Vighneswara

Factors Affecting Net Interest Income: An Example