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    13-Interest Rate Risk Management

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    SANCHI610
    This document discusses an introduction to market risk and interest rate risk. It defines market risk as losses from movements in market prices, including interest rate risks. Interest rate risk is the potential impact on net interest income, net interest margin, or market value of equity from unexpected interest rate changes. The document discusses measuring and managing interest rate risk through methods like gap analysis and derivatives. It also outlines types of interest rate risks and India's interest rate system for deposits and loans.

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    13-Interest Rate Risk Management

    Uploaded by

    SANCHI610
    110 views13 pages
    This document discusses an introduction to market risk and interest rate risk. It defines market risk as losses from movements in market prices, including interest rate risks. Interest rate risk is the potential impact on net interest income, net interest margin, or market value of equity from unexpected interest rate changes. The document discusses measuring and managing interest rate risk through methods like gap analysis and derivatives. It also outlines types of interest rate risks and India's interest rate system for deposits and loans.

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    Interest Rate Risk Management

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    This document discusses an introduction to market risk and interest rate risk. It defines market risk as losses from movements in market prices, including interest rate risks. Interest rate risk is the potential impact on net interest income, net interest margin, or market value of equity from unexpected interest rate changes. The document discusses measuring and managing interest rate risk through methods like gap analysis and derivatives. It also outlines types of interest rate risks and India's interest rate system for deposits and loans.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    110 views13 pages

    13-Interest Rate Risk Management

    Uploaded by

    SANCHI610
    This document discusses an introduction to market risk and interest rate risk. It defines market risk as losses from movements in market prices, including interest rate risks. Interest rate risk is the potential impact on net interest income, net interest margin, or market value of equity from unexpected interest rate changes. The document discusses measuring and managing interest rate risk through methods like gap analysis and derivatives. It also outlines types of interest rate risks and India's interest rate system for deposits and loans.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 13

    Session no.

    13
    Introduction to Market risk
    & Interest rate risk

    March 9, 2017 2
    Revisit Risk Type

    March 9, 2017 3
    Market risk
    Losses in on and off balance sheet
    items arising from movement in
    market prices
    Main market risks are
    Commodity price risks
    Interest rate risks
    Exchange rate risks
    Liquidity risks
    Equity price risks

    March 9, 2017 4
    Interest rate risk- defined

    Potential impact on Net Interest Income (NII) or


    Net Interest Margin (NIM) or Market value of
    Equity (MVE) by unexpected changed in interest
    rate

    March 9, 2017 5
    Interest rate risk management

    .and bank profitability

    and anticipating the behavior of


    interest rates

    .and measure and management of risk

    March 9, 2017 6
    Bank profitability

    Impact on Net interest income (spread)

    Impact on Net interest margin (NIM)

    Impact on Market Value of Equity of


    bank (MVE)

    March 9, 2017 7
    .behavior of interest rates
    Earning perspective meaning that impact of
    changes of interest rates on net interest
    income
    Economics value perspective that look at
    long term economic viability of the bank i.e.
    sensitivity of bank net worth to the changes in
    interest rates.
    Assessing extent of banks interest rate risk is by
    any perspective is not a simple exercise as each
    asset has different risk and return characteristics,
    pricing, periods etc.

    March 9, 2017 8
    .and Measuring and
    managing the risk

    Traditional gap method

    Duration gap method

    Interest rate derivatives

    Liquidity management
    March 9, 2017 9
    Type of Interest rate risks

    Main interest rate risks are:


    Mismatch or Gap risk or re-pricing risk
    Basis risk
    Embedded option risk
    Reinvestment risk
    Non-paying liabilities like current
    deposits, remittance floats etc.,

    March 9, 2017 10
    Interest rate system in India
    Liability side (deposits)
    Interest deregulation by RBI
    Major banks still paying 4% in savings bank
    and paid quarterly on daily balance basis
    Term deposit rates varies as per interest
    rate view of individual banks and paid
    quarterly
    Floating interest fixed deposit rate
    Attempted by many banks linked to MIBOR
    or other bench mark rates but not
    successful - Market not yet developed

    March 9, 2017 11
    Interest rate system in India

    Assets side ( Loan and advances)


    Fixed and floating rates
    Floating rate loans are linked to base
    rate, MIBOR , LIBOR etc.
    Spread is decided as per credit rating
    Fixed rate loan carries reset clause

    March 9, 2017 12
    Thank You

    March 9, 2017 13

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