Beruflich Dokumente
Kultur Dokumente
99.75 89.38
515.57
Current Year
$82
64
450
200
450
150
Previous Year
$80
66
425
195
425
125
What has been happening to the banks net interest margin? What do you think caused the
changes you have observed? Do you have any recommendations for New Comers management
team?
Net interest margin (NIM) = Net interest income/Total earning assets
Where,
Net interest income = Net interest revenues - Net interest expenses
Total earning assets = Loans + Investments
NIM (Current) = ($82-64)/ (450 + 200) = 18/650 = 0.028 or 2.77%
NIM (Previous) = ($80-66)/ (425 + 195) = 14/620 = 0.0226 or 2.26%
NIM (Two years ago) = ($78-68)/ (400 + 200) = 10/600 = 0.0167 or 1.67%
The net interest margin has been increasing over the years. As interest revenues and expenses as
well as the banks assets have increased consistently over the years, there has been a constant
increase in the net interest margin. If the bank can further cut down on its interest expenses and
increase its assets in the next years, the net interest margin will increase at a higher rate.
7-8
The First National Bank of Dogsville finds that its asset and liability portfolio contains
the following distribution of maturities and repricing opportunities:
Loans
Securities
Interest-sensitive assets
Transaction deposits
Time accts.
Money market borrowings
Interest-sensitive liabilities
Coming
Week
$200.00
21.00
Next 30
Days
$300.00
26.00
Next 31-90
Days
$475.00
40.00
More Than
90 Days
$525.00
70.00
$320.00
100.00
136.00
$ 0.00
290.00
140.00
$ 0.00
196.00
100.00
$ 0.00
100.00
65.00
When and by how much is the bank exposed to interest rate risk? For each maturity or repricing
interval, what changes in interest rates will be beneficial and which will be damaging, given the
current portfolio position?
Coming
Week
$200
21
$221
Next 30
Days
$300
26
$326
Next 31-90
Days
$475
40
$515
More Than 90
Days
$525
70
$595
Transaction
deposits
Time Accts.
Money Mkt. Borr.
Total IS Liab.
$320
100
136
$556
290
140
$430
196
100
$296
100
65
$165
GAP
335
104
+219
+430
Cumulative GAP
335
439
220
+210
Loans
Securities
Total IS Assets
First National has a negative gap in the nearest period and therefore would benefit if interest
rates fall. In the next period it has a slightly negative gap and would therefore benefit of interest
rate rise. However, its cumulative gap is still negative. The third period is positive gap and hence
the bank would benefit if interest rates rise. In the final period the gap is positive and the bank
would benefit if interest rates rise. Its cumulative gap is slightly positive and also shows that
rising interest rates would be beneficial to the bank overall.
7-9
Sunset Savings Bank currently has the following interest-sensitive assets and liabilities
on its balance sheet with the interest-rate sensitivity weights noted.
Interest-Sensitive Assets
Federal fund loans
Security holdings
Loans and leases
Interest-Sensitive Liabilities
Interest-bearing deposits
Money-market borrowings
$ Amount
$ 50.00
50.00
350.00
$ Amount
$ 250.00
90.00
What is the banks current interest-sensitive gap? Adjusting for these various interest rate
sensitivity weights what is the banks weighted interest-sensitive gap? Suppose the federal funds
interest rate increases or decreases 50 basis points. How will the banks net interest income be
affected (a) given its current balance sheet makeup and (b) reflecting its weighted balance sheet
adjusted for the foregoing rate-sensitivity indexes?
Dollar IS Gap
= $110
Weighted IS Gap 1 $50 1.20 50 1.45 350 0.75 $250 0.95 $90
a.)
Using the regular IS Gap; net income will change by plus or minus $550,000
b.)
Relative IS Gap
Interest-Sensitivity Ratio
=
=
ISA
ISL
ISA ISL
Bank Size
=
$400
$325
$75
$500
= 0.15
= 1.23
Here, the interest sensitivity gap is positive and asset sensitive as the interest sensitive assets are
greater than interest sensitive liabilities. Sparkle Savings Association, being an asset sensitive
financial firm, will have a positive relative IS gap and an interest-sensitivity ratio greater than 1.
In case of a positive IS gap, there will be a gain in net interest income if the market interest rates
are rising. For a positive IS gap, there will be a loss in net interest income, if the market interest
rates are falling.