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ASSET & LIABILITY ASSET & LIABILITY MANAGEMENT IN MANAGEMENT IN
COMMERCIAL BANKS COMMERCIAL BANKS
Instructor……Bülent Şenver
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ASSET & LIABILITY MANAGEMENT (ALM)
• DEFINITION
• ALM is continuously arranging and rearranging the assets and liabilities of the bank without infringing the liquidity and safety of the bank and with the purpose of maximizing the bank’s profits.
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LIQUIDITY
• The ability of a bank to fulfill its obligations, and after doing so having enough cash left to do its normal daily banking business.
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SAFETY
• The ability of a bank’s “Share Holder’s Equity” (SHI) to absorb the future possible losses that may arise and after doing so having enough SHI left to run the bank and to comply with the minimum “Capital Requirements”.
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ALM DEVELPOMENT
1950’s 1960’s 1970’s
ASSET
MNG.
LIABILITY
MNG.
ASSET &
LIABILITY
MNG.
LOAN PRODUCTS
DEPOSIT
PRODUCTS
LOAN &
DEPOSIT BOTH
8DeregulationsSC of Accounts
GAAP
Reorganization
Management
Computerization
Office Automation
Personal Training
Internet
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NEW DEVOPLEPMENTS
• 1. Deregulation of Interest Rates
• 2. Deregulation of Foreign Exchange
Operations
• 3. Changes in Laws and Regulations
• 4. Increase in Deposit Interest Rates
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NEW DEVELOPMENTS
• 5. Increase in Deposit Interest Rates
• 6. Change in Deposit Characteristics
• Increase in Term-Deposits
• Decrease in Demand-Deposits
• Increase in Short Terms
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NEW DEVELOPMENTS
• 7. Increase in Personnel Expenses
• 8. Increase in Operating Expenses
• 9. Increase in Technology Investments
• 10. Frequent Changes in Interest Rates
• 11. Increase in Share Capital
Requirements
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NEW DEVELOPMENTS
• 12. Change in Asset Structure
• Increase in Government Bonds
• Increase in Treasury Bills
• Increase in Foreign Exch. Loans
• Increase in Short Term Loans
• Increase in Non-Performing Loans
• Increase in Consumer Loans
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NEW DEVELOPMENTS
• 13. Decrease in S/H Equity Growth
• 14. Increase in Customer Expectations
• 15. New Service Points
• Small Branches
• ATM and POS
• Telephone and Internet Banking
• 16. 24 Hours 365 Days Banking
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1950 1970 1980 1990 2000
SALES FORCE
BRANCH
CALL CENTERINBOUND
CREDITCARD
ATM
TELEPHONEBANKING
PCBANKING
DIRECTMAIL
CALL CENTEROUTBOUND
DEBİTCARD
RELATIONSHIP MANAGEMENT
IN-STOREBRANCH
DATABASEMARKETING
SMART CARD
KIOSK
INTERNETBANKING
SCREEN PHONES
INTERNETATM
VIDEOKIOSK
INTERACTIVETV
SPACESHARING
FRANCHISEBRANCHES
REMOTERELATIONSHIPMANAGEMENT
Kaynak: A.T.Kearney
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FINANCIAL STATEMENTSFINANCIAL STATEMENTS
• 1. BALANCE SHEET
• 2. STATEMENT OF INCOME
• 3. STATEMENT OF SHAREHOLDER’S EQUITY
• 4. SOURCES & USES OF FUNDS STATEMENT
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Balance Sheet Income StatementAssets Liabilities
Loans
Treasury Bills
Interest Income
Interest Expences
Net Interest Income
Deposits
DebtInterest Earning Assests
Interest Bearing Liabiliti
es
Non-Interest Earning Assests
Non-Interest Bearing Liabiliti
esShare Holders’
Equity
Total Assets Total Liabilities=
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Balance Sheet Income StatementAssets LiabilitiesLoans
Treasury Bills
Interest Income
Interest Expence
Net Interest Income
Deposits
DebtInterest Earning Assests
Interest Bearing Liabiliti
es
Non-Interest Earnin
g Assests
Non-Interest Bearing Liabiliti
esShare Holders’
Equity
Total Assets Total Liabilities=
100
80
InterestRate
Assets=
%20
36
InterestRate
Liabilities=
%5
120
609
27353035
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BALANCE SHEET BALANCE SHEET SHOWSSHOWS
• The Financial Position of a Bank
• As at a specific date.
• As of Dec. 31,1998
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BALANCE SHEETBALANCE SHEETEQUATIONEQUATION
• 100 =
• ASSETS =• Equals
• = 100
• LIABILITIES• + Plus• SHAREHOLDER’S
EQUITY
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ASSET CLASSIFICATIONASSET CLASSIFICATION
N O N IN T ER EST EAR N IN GASSET S
IN T ER EST EAR N IN GASSET S
TOTALASSETS
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LIABILITY LIABILITY CLASSIFICATIONCLASSIFICATION
IN T ER EST B EAR IN GLIAB ILIT IES
N O N IN T ER EST B EAR IN GLIAB ILIT IES
TOTALLIABILITIES
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BALANCE SHEET AssetsBALANCE SHEET Assets• Liquid Assets 150• Loans 400• Marketable Securities 200• Investment Securities 50• Fixed Assets 100• Accrued Interest 70• Other Assets 80• Total Assets 1050
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BALANCE SHEET LiabilitiesBALANCE SHEET Liabilities
• Deposits 400• Bank Borrowings 150• Accrued Expenses 100• Other Liabilities 80• Bonds Issued 70• Shareholder’s Equity 250• Total Liabilities & S/HE 1050
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SHAREHOLDER’S EQUITYSHAREHOLDER’S EQUITY
• Share Capital 100
• Legal Reserves 30
• Retained Earnings 50
• Revaluation Surplus 20
• Share Premiums 10
• Net Income 40
• Total S/H Equity 250
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BALANCE SHEETBALANCE SHEETDOES NOT SHOWDOES NOT SHOW
• Interest Rates• Interest Sensitivity• Due Dates• Foreign Currency
breakdown• Collateral
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STATEMENT OF INCOMESTATEMENT OF INCOMESHOWSSHOWS
• The results of operations of a bank.
• For the period between two dates.
• For the year endedDec. 31 , 1998
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TOTAL INCOMETOTAL INCOME
N ETIN TER ESTIN C O M E
N ETN O N -IN TER EST
IN C O M E
TOTALIN C OM E
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NET INTEREST INCOMENET INTEREST INCOME
IN TER ESTIN C O M E
(+)
IN TER ESTEXPEN SE
(-)
N ETIN TER ESTIN C OM E
31time
$interest income
interest expense
net interest income
net interest income
+
-
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NET INTEREST INCOMENET INTEREST INCOME
INTERESTEARNINGASSETS
B/S
IN TER ES TIN C O M E
P/L
IN TER ES TBE AR IN G
LIA B ILITIE SB /S
IN TER ES TEX PEN SE
P/L
N ETIN TER ES T
IN C O M E
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NET NON-INTEREST NET NON-INTEREST INCOMEINCOME
N O NIN TER ESTIN C O M E
(+)
N O NIN TER ESTEXPEN C E
(-)
N ETN ON -IN TER EST
IN C OM E
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STATEMENT OF INCOMESTATEMENT OF INCOME• Interest Income 1000
• Interest Expense (700)• Net I.Income 300• Non Interest Income 220• Operating Expenses (450)• Pre-Tax Profit 70• Tax Provision (30)• Net Income 40
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ANALYSIS OF PROFITANALYSIS OF PROFIT
PROFIT FROMBANKING OPERATIONS
(NET OPERATING INCOM E)(NOI)
PROFIT FROMEXTRAORDINARYTRANSACTIONS
(PEXT)
PROFIT FROMSECURITY
TRANNSACTIONS(PST)
NETPRO FIT
(NP)
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CAMEL RISKS
• Capital Capital AdequacyAdequacy
• Asset QualityAsset Quality
• ManagementManagement
• EarningsEarnings
• LiquidityLiquidity
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BANKING RISKSBANKING RISKS
• 1.2.3.4.5.CAMEL
• 6. Credit Risk
• 7. Interest Rate Risk
• 8. Interest Rate Sensitivity Risk
• 9. Foreign Exchange Availability Risk
• 10. F/X Position Risk
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BANKING RISKSBANKING RISKS
• 11. Accounting & Reporting Risk
• 12. Computer Risk
• 13. Capital Market Operations Risk
• 14. Money Market Operations Risk
• 15. Country (Sovereign) Risk
• 16. Pricing Risk
• 17. Market Risk
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BANKING RISKSBANKING RISKS
• 18. Theft Risk
• 19. Fraud & Defalcations Risk
• 20. Natural Disasters
• 21. Strategic Risk
• 22. Fiduciary Risk
• 23. Transaction Risk
• 24. Regulatory/Compliance
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BANKING RISKS
• 25. Reputation Risk
• 26. Large Loans/Deposits Risk
• 27. Concentration Risk
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RATIO ANALYSISRATIO ANALYSIS
• Balance Sheet__________________Balance Sheet
• Income Statement________________Balance Sheet
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RATIO ANALYSISRATIO ANALYSIS
• What is the
• LEVEL ?
• What is the
• TREND ?
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RATIO ANALYSISRATIO ANALYSIS
• 1. Capital Adequacy
• 2. Asset Quality
• 3. Management
• 4. Earnings & Efficiency
• 5. Liquidity
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RATIO ANALISISCAPITALCAPITAL ADEQUACYADEQUACY
• “The Capital of a Bank protects the Bank against unexpected future losses.”
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RATIO ANALYSISCAPITAL ADEQUACYCAPITAL ADEQUACY
• 1.
• Shareholders’ Equity ------------------------------------
• Total Assets
• The ability of the present Capital to support the further growth of Assets
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RATIO ANALYSISCAPITAL ADEQUACYCAPITAL ADEQUACY
• 2.
• Shareholders’ Equity ------------------------------------
• Risk Weighted Assets
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RATIO ANALYSISCAPITAL ADEQUACYCAPITAL ADEQUACY
• 3.
• Shareholders’ Equity ------------------------------------
• Risk Weighted Assets + RW Contingent Liabilities
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RATIO ANALYSISCAPITAL ADEQUACYCAPITAL ADEQUACY
• 4.
• Total Debt ------------------------------------
• Shareholder’s Equity
• The ability to raise additional Debt Capital
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RATIO ANALYSISCAPITAL ADEQUACYCAPITAL ADEQUACY
• 5. Financial Leverage :
• Total Assets ------------------------------------
• Shareholder’s Equity
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RATIO ANALYSISCAPITAL ADEQUACYCAPITAL ADEQUACY
• 6. Capital Formation Rate :
• Retained Net Income (RNI) --------------------------------------------------
• Average Shareholder’s Equity• RNI = Net Income - Dividends to be paid• The internal growth of Equity Capital
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 1.
• Loans --------------------------------
• Total Assets
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 2. Non Performing Loans =
• a) Loans past due more than 90 days
• b) Loans not accruing interest
• c) Loans with low interest rates
• d) Loans on which repayment terms have been renegotiated.
•
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 3. Non Performing Loans -------------------------------------
• Total Loans
• Indicates how much of the loan portfolio is non performing.
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 4. Reserves for Non Performing Loans ----------------------------------------------
• Non Performing Loans
• Indicates the ability of the loan loss reserve to absorb potential losses from currently non performing loans.
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 5. Loan Loss Provision -------------------------------------
• Average Loans
• Shows current income reduction in anticipation of loan losses.
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 6. Net Charge - Offs -------------------------------------
• Average Loans
• Shows current income reduction in anticipation of loan losses.
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 7.
• Interest Earning Assets -------------------------------------------------
• Total Assets
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RATIO ANALISISASSETASSET QUALITYQUALITY
• 8.
• Non Interest Earning Assets -------------------------------------------------
• Total Assets
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• “A Bank with no profit is like a human body with no blood.”
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THE PRIMACY OF THE PRIMACY OF EARNINGSEARNINGS
• A bank can not sustain itself long without a positive cash flow.
• Earnings are essential to :
• 1.Absorb loan losses
• 2.Finance internal growth of capital
• 3.Attract investors to supply capital
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 1. Return on Assets ( ROA )
• Net Income --------------------------------------------
• Total Average Assets
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 2. Return on Equity ( ROE )
• Net Income --------------------------------------------
• Average Shareholder’s Equity
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 3. Return on Equity ( ROE )
• ROE = ROA * Equity Multiplier
• ROE = ( NI / AST ) * ( AST / SHEQ )
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 4.
• Interest Income --------------------------------------------
• Average Interest Earning Assets
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 5.
• Net Interest Income --------------------------------------------
• Average Total Assets
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 6.
• Interest Income on Loans --------------------------------------------
• Average Total Loans
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 7.
• Total Operating Expense -------------------------------------------------
• Total Operating Income
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 8. Efficiency Ratio
• Non Interest Expense ----------------------------------------------------
• Net Interest Income + Fees Commissions
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 9. Break Even Ratio
• Total Expenses - Non Interest Income
----------------------------------------------------
• Total Average Interest Earning Assets
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 10. Net Free Funds Ratio
• Non Paying Liabilities - Non Earning Assets --------------------------------------------------
• Interest Earning Assets
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 11. Interest Rate Sensitivity Gap :
• Interest Rate Sensitive Assets ( minus )
• Interest Rate Sensitive Liabilities
• Shows the net amount to be effected by the future change of interest rates in the market
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RATIO ANALISISEARNINGSEARNINGS && EFFICIENCYEFFICIENCY
• 12. Interest Rate Sensitivity Gap Ratio :
• Interest Rate Sensitive Assets -------------------------------------------------
• Interest Rate Sensitive Liabilities
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RATIO ANALYSISLIQUIDITYLIQUIDITY
• “Inadequate Liquidity of a Bank may cause an accident similar to an airplane crash !”
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RATIO ANALISISLIQUIDITYLIQUIDITY
• 1.
• Loans -------------------------
• Deposits
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RATIO ANALISISLIQUIDITYLIQUIDITY
• 2.
• Liquid Assets -------------------------
• Deposits
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RATIO ANALISISLIQUIDITYLIQUIDITY
• 3.
• Liquid Assets --------------------------------
• Deposits + Borrowings
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RATIO ANALISISLIQUIDITYLIQUIDITY
• 4.
• Assets Due for the Period -----------------------------------------
• Liabilities Due for the Period
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RATIO ANALISISLIQUIDITYLIQUIDITY
• 5. Net Large Liabilities -----------------------------------------
• Net Earning Assets
• Both numerator & denominator are net of short-term assets.
• Measures the extent to which net earning assets would be effected by the loss of a bank’s large liabilities.
87
RATIO ANALISISLIQUIDITYLIQUIDITY
• 6. Liquid Assets -----------------------------------------
• Large Liabilities
• Measures the assets readily available to cover a loss of large liabilities.
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RATIO ANALISISLIQUIDITYLIQUIDITY
• 7. Core Deposits -----------------------------------------
• Earning Assets
• Indicates the extend to which earning assets are funded by those deposits considered stable and not subject to interest rate disintermediation.
89
RATIO ANALISISLIQUIDITYLIQUIDITY
• 8. Brokered Deposits -----------------------------------------
• Earning Assets
• Measures the extent to which a bank is funding assets with high-priced and volatile brokered deposits.
90
MATURITY ANALISISMATURITY ANALISIS
Days 0-10 10-30 30-60 60-90 Cash 100 200 300 50 Loans 200 500 200 100 300 700 500 150 Deposit 400 300 800 20 Borrow 150 200 200 30 550 500 1000 50
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MATURITY ANALYSISMATURITY ANALYSIS
Days 0-10 10-30 30-60 60-90
Asset 100 500 1000 2000Liab 300 200 1500 700
Short - -200 -500Long + +300 1300
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OFF - BALANCE SHEET OFF - BALANCE SHEET RISKRISK
• 1. Loan Commitments -----------------------------------------
• Average Assets
• Shows the extent of a bank’s obligation to make loans.
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OFF - BALANCE SHEET OFF - BALANCE SHEET RISKRISK
• 2.Contingent Liabilities & Commitments ----------------------------------------------------
• Average Assets
• Shows the extent of a bank’s commitments & contingent liabilities.
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RISKS
I manage
Assets!% rates,
due dates...
I manage Liabilities
% rates,due dates...
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A & L Match
• Amounts• Currency• Due Dates• Interest Rates• Interest Sensitivity• Volatility
97
Foreign Exchange Position
• USA $ Short Position• $Liabilities>$Assets
• USA $ Long Position• $Assets>$Liabilities
98
F/X Position Strategy
Increasing
F/X Rates
Decreasing
F/X Rates
Long Position
YES NO
Short Position
NO YES
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Interest Rate Sensitivity
• Interest Rate Sensitive Assets/Liabilities
• IRSA/L are such assets and Liabilities whose interest rates will change before their due dates when there is a change in market interest rates.
100
Interest Rate Sensitivity
Interest Rate Sensitive
Assets & Liabilities
Interest Rate
Non-Sensitive
Assets & Liabilities
VARIABLE RATES FIXED RATES
101
Interest Rate Sensitivity Gap
• IRS GAP =
• (IRSA – IRSL)
• Positive Gap• IRSA>IRSL
• Negative Gap• IRSL>IRSA
102
Interest Rate Sensitivity Strategy
Interest Rates
Will Increase
Interest Rates
Will Decrease
Positive
IRS GAP YES NO
Negative
IRS GAP NO YES
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INCREASING INTEREST MARGIN
• Interest Income…………..200
• Interest Expense…………( 50 ) ----------
• INTEREST MARGIN….. 150 ----------
105time
$
interest income
interest expense
net interest income
net interest income
+
-
106
INCREASING THE INCREASING THE INTEREST MARGININTEREST MARGIN
B A N K S TR A TE G Y TO
IN C R E A S ES IZ E
C H A N G EIN TE R E S TS P R E A D
A L TE RA S S E T/L IA B IL ITY
M IX
IN C R E A S E TH EIN TE R E S T M A R G IN
107
INCREASING THEINCREASING THEINTEREST MARGININTEREST MARGIN
• BANK STRATEGY
• Increase Size
• ACTION
• 1.Expand Assets• 2.Reduce Fixed Assets• 3.Increase Equity Base
108
INCREASE THEINCREASE THEINTEREST MARGININTEREST MARGIN
• BANK STRATEGY
• ChangeInterest Spread
• ACTION
• 1.Re-Price Asset Portfolio
• 2.Re-Price Liability Portfolio
109
INCREASE THEINCREASE THEINTEREST MARGININTEREST MARGIN
• BANK STRATEGY
• AlterAsset / LiabilityMix
• ACTION• 1.Plan Taxes• 2.Reduce Liquidity• 3.Increase
Aggressiveness• 4.Change Asset Yield
Sensitivity• 5.Change Liability
Cost Sensitivity
110
INCREASE THEINCREASE THEINTEREST MARGININTEREST MARGIN
• BANK STRATEGYIncrease Size
• ACTIONExpand Assets
• IMPLEMENTATION• 1.Offer new Products
and Services• 2.New Loans/Deposits• 2.Open new Branches• 3.Expand Promotion
Budget• 4.Reduce Interest
Spread
111
EXPAND ASSETSEXPAND ASSETS
• REPERCUSSION• 1.Increase operating
Expenses• 2.Need for Capital• 3.F/A Regulations• 4.Decrease Capital
Ratio• 5.Reduce ROA
• IMPLEMENTATION• 1.Offer new Products
and Services• 2.New Loans/Deposits• 3.Open new Branches• 4.Expand Promotion
Budget• 5.Reduce Interest
Spread
112
INCREASE THEINCREASE THEINTEREST MARGININTEREST MARGIN
• BANK STRATEGYIncrease Size
• ACTIONIncreaseEquity Base
• IMPLEMENTATION• 1.Reduce Dividend
pay out• 2.Offer Dividend
reinvestment• 3.Sell Stock• 4.Establish Employee
Stock Ownership PL
113
INCREASE EQUITY BASEINCREASE EQUITY BASE
• REPERCUSSIONS• 1.Hurt shareholders
• 2.Double taxation S/H3.Reduce ability to leverage ROA, dilution of earnings
• 4.Continued Employee Expectations
• IMPLEMENTATION• 1.Reduce Dividend
pay out• 2.Offer Dividend
reinvestment• 3.Sell Stock• 4.Establish Employee
Stock Ownership PL
114
INCREASE INTEREST INCREASE INTEREST MARGINMARGIN
• BANK STRATEGYChange Interest Spread
• ACTIONRe-price Portfolio
• IMPLEMENTATION• 1.Increase rates on
Loans• 2.Compound return
more frequently• 3.Reduce rates on
Deposits• 4.Compound cost less
frequently
115
REPRICE PORTFOLIOREPRICE PORTFOLIO
• REPERCUSSIONS• 1.Lose business
Loan quality decrease• 2.Increase operations
Client dissatisfaction• 3.Lose business
Liquidity problem• 4.Increase operations
Client dissatisfaction
• IMPLEMENTATION• 1.Increase rates on
Loans• 2.Compound return
more frequently• 3.Reduce rates on
Deposits• 4.Compound cost less
frequently
116
INCREASE INTEREST INCREASE INTEREST MARGINMARGIN
• BANK STRATEGY• Alter Asset/Liability
Mix
• ACTION• Reduce Liquidity
• IMPLEMENTATION
• 1.Minimize cash• 2.Minimize due from• 3.Sell Securities &
Bonds• 4.Increase short term
Deposits
117
REDUCEREDUCE LIQUIDITYLIQUIDITY
• REPERCUSSION
• 1.Liquidity Risk
• 2.Lose correspondent
• 3.Incur book losses
• 4.Increase volatility of deposits
• IMPLEMENTATION
• 1.Minimize cash• 2.Minimize due from• 3.Sell Securities &
Bonds• 4.Increase short term
Deposits
118
INCREASE INTEREST INCREASE INTEREST MARGINMARGIN
• BANK STRATEGY• Alter Asset/Liability
Mix
• ACTION• Increase
Aggressiveness
• IMPLEMENTATION• 1.Increase loan/deposit
ratio• 2.Increase highest
yielding loans• 3.Increase highest
yielding securities
119
INCREASE INCREASE AGGRESSIVENESSAGGRESSIVENESS
• REPERCUSSION• 1.Increase need for
capital• 2.Increase loan losses
• 3.Increase security losses
• IMPLEMENTATION• 1.Increase loan/deposit
ratio• 2.Increase highest
yielding loans• 3.Increase highest
yielding securities
120
INCREASE INTEREST INCREASE INTEREST MARGINMARGIN
• BANK STRATEGY• Alter Asset/Liability
Mix
• ACTION• Change Asset Yield
Sensitivity
• IMPLEMENTATION• 1.Increase S/T &
variable rate assets if rates will increase
• 2.Decrease S/T & variable rate assets if rates will decrease
121
CHANGE ASSET YIELD CHANGE ASSET YIELD SENSITIVITYSENSITIVITY
• REPERCUSSION• 1.Wrong estimate of
interest movement, thereby reducing interest spread
• IMPLEMENTATION• 1.Increase S/T &
variable rate assets if rates will increase
• 2.Decrease S/T & variable rate assets if rates will decrease
122
INCREASE INTEREST INCREASE INTEREST MARGINMARGIN
• BANK STRATEGY• Alter Asset/Liability
Mix
• ACTION• Change Liability
Cost Sensitivity
• IMPLEMENTATION• 1.Decrease S/T &
variable rate liabilities if rates will increase
• 2.Increase S/T & variable rate liabilities if rates will decrease
123
CHANGE LIABILITY COST CHANGE LIABILITY COST SENSITIVITYSENSITIVITY
• REPERCUSSION• 1.Wrong estimate of
interest movement, thereby reducing interest spread
• IMPLEMENTATION• 1.Decrease S/T &
variable rate liabilities if rates will increase
• 2.Increase S/T & variable rate liabilities if rates will decrease