From above table we can see that ABL has total interest sensitive assets of BDT 473014.6 million and total interest sensitive liabilities of BDT 520675.57 million Tk. Management must develop a correct interest rate forecast or find ways to reallocate earning asset and liabilities to increase the spread between interest revenue and interest expense. The interest sensitivity gap was one of the first techniques used in asset liability management to manage interest rate risk. The guidance provided in these updated guidelines applies to the interest rate risk arising from non-trading activities (IRRBB), … Use of this Web site signifies your agreement to the terms and conditions. In case of positive interest-sensitive gap, an interest sensitivity ratio is greater than one. Managing interest rate risk requires a clear understanding of the amount at risk and the impact of changes in interest rates on this risk position. Clipping is a handy way to collect important slides you want to go back to later. But in case of positive cumulative gap rises in interest rate also increase the Capital Adequacy Ratio. It reduces net income. OSFI believes that a control framework that manages this risk to prudent levels is a fundamental component of sound banking practice. International Journal of Economics, Finance and Management Sciences, Asset Sensitive if Interest Sensitive Assets > Interest Sensitive Liabilities. Management Of Interest Each technique provides a different perspective on interest rate risk, has distinct strengths and weaknesses, and is more effective when used in combination with another. Changes in interest rates affect a bank's earnings by changing its net interest income and the level of other interest sensitive income and operating expenses. When completing the report I have found out several matters about Agrani Bank and Prime bank Ltd including the topic related information. To prepare this thesis paper, I have tried to incorporate the necessary and relevant information in my report from my own personal experience in the bank as well as other relevant sources. Banks can use IR derivate such as Future contract, Forward Contract, Interest Rate Swap and Options to reduce their IRR of the banks to the certain extent. So we can say that Agrani Bank Ltd. is a liability sensitive institution. Management must choose the time period during which the net interest margin is tobe managed to achieve the desired value. It profits by paying a lower interest on its liabilities … VII. Agrani bank is not able to maintain minimum gap between interest sensitive asset and interest sensitive liability but Prime bank is able to maintain it. For getting an overview of the calculation of interest sensitivity of a bank here I only do the calculation of interest sensitivity of a bank for 2015 and for rest of the years I only show the total interest sensitivity position of the bank by a chart. Risk and response of a bank for interest- sensitive gap. VIII. ΔNII, on the other hand, is always based on cash flows at client rates and thus represents total NII. i. 4.3.1. At last I hope both bank can be able to overcome and able to reach at the top of the position in terms of interest rate risk management. An adverse movement in interest rate risk may potentially: increase borrowing costs for borrowers, reduce returns for investors, reduce profitability of banks and reduce the net present value (NPV) of organizations due to the effect of changes in the discount rate (interest rate) on the value of financial instruments, hedges and the return on projects. Try to concentrate to asset management strategy that means try to more concentrate in loan than deposit because fund in available but can´t able to use it properly so need to give more priority in asset management strategy. Increase interest-sensitive liabilities or reduce interest-sensitive assets. Actually here main consideration fact is amount of IS gap if it is large then affect will be large and loss will be large and Agrani bank face this problem because their gap is so much larger than prime bank so if interest rate raise then they will be face huge loss but if interest rate fall down then will do huge gain so better is do maintain minimum gap so that not to face huge loss and according to this prime bank is situated in so much better position than Agrani bank. The bond issuer borrows capital from the bondholder and makes fixed … Banks have calculated rate sensitive asset and liabilities within maturity bucket andapplied the sensitivity analysis to measure the level of Interest Rate shock on itscapital adequacy. Comparative Interest Sensitivity Ratio. To find out the sensitivity and mismatched maturity of the bank assets and liabilities. ii. 6th ed. Interest Rate Risk in the Banking Book (IRRBB): How BCBS 368 will affect ALM 3 distinction is useful from a management and treasury perspective too (see below). Their position is not the best but more satisfactory than Agrani bank. Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. Copyright © 2012 -- 2016 Science Publishing Group – All rights reserved. Try to concentrate to asset management strategy that means try to more concentrate in loan than deposit because fund in available but can´t able to use it properly so need to give more priority in asset management strategy. Audit Manager at U.P.Pai & Co. Chartered Accountants. Their position is not the best but more satisfactory than Agrani bank. The Bank has calculated the rate sensitive assets and liabilities with maturity up to 12 months’ bucket and applied the sensitivity analysis to measure the level of interest rate shock on its capital adequacy. In order to keep the analysis precise and point to point, I have used following tools to analyze the data. To prepare this thesis paper, I have tried to incorporate the necessary and relevant information in my report from my own personal experience in the bank as well as other relevant sources. Journal of Financial Markets. Bank profit margins have historically reflected the compensation for taking on interest rate risk, as measured by the term premium, and bank stock prices are highly sensitive to changes in interest rates. I. As UCBL has in position of negative cumulative gap rises in interest rate will loss the CAR. Gap analysis of banking service and blueprint, Chapter 24_Risk Management in Financial Institutions, Operational risk management and measurement, OPERATIONAL RISK MANAGEMENT FRAMEWORK PRESENTATION, Operation Risk Management in Banking Sector, No public clipboards found for this slide, Asst. To know about the way how the bank progress in case of interest rate risk, To know about the position of ABL (Agrani Bank Ltd) and PBL (Prime Bank Ltd) in interest rate GAP, To know about the Net Interest Margin of ABL and PBL, To analyze which factors the bank consider to minimize the risk, To examine the last 8 years data to overlook its risk position, To find out the relation among various factors which affect the risk. But when considering the different maturity period it may benefit by both lowering and rising the interest rates. International investors have many different tools at their disposal to mitigate interest rate risks, ranging from forward contracts to the shifting of bond portfolios to take advantage of the trends. Both Interest Sensitive Gap & Relative IS Gap have beenconducted. So we can take the decision that it will be benefited if the bank lowers the interest rates. These results are shown on a graph so can easily get the idea at a glance. A bank main source of profit is converting the liabilities of deposits and borrowings into the assets of loans and securities. Comparative position of Net Interest Margin. Bank must take conscious measure about capital adequacy ratio and abrupt changesin the interest rate. This guideline outlines OSFI's expectations regarding an institution's management of IRRBB. Vol. As interest-sensitive liabilities are larger than asset by BDT 47660.97 million the bank is liability sensitive. Management of interest rate risk in banks 2. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. To know the Relative IS Gap position of the bank I have analyzed 8 years data. They have to increase interest sensitive asset especially Agrani bank. Both banks maintain large maturity liability than large maturity asset. From above table, we can see that when Interest rate increased in the case of negative cumulative gap Capital Adequacy Ratio (CAR) also decreased. On the other hand, in case of a negative interest-sensitive gap, an interest sensitivity ratio less than one, Interest Sensitivity Ratio = Interest Sensitive Assets ÷ Interest Sensitive Liabilities. This value is used as an estimate of total capital when evaluating the sensitivity of total capital to fluctuations in interest rates. Here prime bank´s condition is also much better than Agrani bank for all the year and in year 2010 their relative IS gap was also greater than zero which indicates in that year they have asset sensitive condition that means in interest rate fall down then they will face loss. 15-23. doi: 10.11648/j.ijefm.20170501.12, Received: October 20, 2016; Accepted: November 2, 2016; Published: December 23, 2016. GUIDELINES ON THE MANAGEMENT OF INTEREST RATE RISK ARISING FROM NON-TRADING BOOK ACTIVITIES 2 Abbreviations ALCO asset and liability management committee ALM asset and liability management BCBS Basel Committee on Banking Supervision BSG Banking Stakeholder Group CET1 Common Equity Tier 1 CSRBB credit spread risk from non-trading book activities CRD Capital … Notes: Type of Regulatory Documents: SPM = Supervisory Policy Manual, CIR = Circular, GLN = Guideline, COP = Code of Practice, EN = Explanatory Note, PN = Practice Note ; Reference of Regulatory Documents: X-X-N / X-N = SPM Module Code, N.N / N.N.N = Guideline No. i. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. Figure 2. Interest rate risk is the risk that arises when the absolute level of interest rates fluctuate. The interest-sensitivity ratio is just the ratio of interest-sensitive assets to interest sensitive liabilities. V. By analyzing eight years data of both banks it is clear that Agrani bank is stayed in more dangerous position than prime bank ltd. VI. Losses if interest rates fall because the bank´s net interest margin will be reduced. III. Interest Sensitivity Analysis (GAP Management) of ABL. III. See our Privacy Policy and User Agreement for details. • Interest sensitive asset to liabilities. Now here I have shown 8 years data to calculate the interest sensitive gap position of ABL. The optimal management of interest rate risk by nancial institutions is modeled by Vuillemey (2019). This study will also indicate any shortfall of bank in terms of interest rate risk management and offer suitable recommendations. If market interest rates suddenly increase by 1% point. In case of positive interest-sensitive gap, a relative IS Gap is also positive. IX. Bank can modify their duration gap of their asset and liability. Interest Sensitivity Analysis on maturity basis. The following points will best describe the concept. Do nothing (perhaps interest rates will rise or be stable). The Net Interest Margin is calculated as: Net Interest Margin = Net Interest Income ÷ Total Earning Assets, Net Interest Income = Total interest income - Total interest expense, 2. Actually I think they can concentrate in relationship banking that means can maintain a individual for an individual client who always take information about him and give him advice if necessary if they can do it than they can do business only using some potential businessman. In the final period the gap is negative and the bank would benefit if interest rates fall. Management of interest rate risks . For this thing I choose some following facts. of interest rate risk in the banking book, this directive specifically includes instructions that address interest rate risk in the banking book. Interest rate risk in banking is originated by a mismatching of assets and liabilities maturities and interest rate re-pricing on assets and liabilities. So, falling interest rate would be beneficial to the bank. IV. Interest Sensitive (IS) Gap Management. Theory [ edit ] Given the alternative of holding cash, and thus earning 0%, rather than lending it out, profit-seeking lenders will not lend below 0%, as that will guarantee a loss, and a bank offering a negative deposit rate will find few takers, as savers will instead hold cash. To find out the interest sensitive position of the Bank we can calculate both the Relative IS Gap and the Interest Sensitivity Ratio. Keywords: Irr, Nim, Nii, Is Gap, Car, Crm, Mcr, Rwa. Bank can modify their duration gap of their asset and liability. If interest rates rise, the cost of funds increases more rapidly than the yield on assets. We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. In order to protect profits against adverse interest rate changes, then, management seeks to hold fixed the financial firm's Net Interest Margin (NIM). By analyzing eight years data of both banks it is clear that Agrani bank is stayed in more dangerous position than prime bank ltd. They have to increase interest sensitive asset especially Agrani bank. The effective risk management framework inclusive of Basel supervisory guidelines and BCBS principles can help the banks in a major base of controlling the loss exposed through IRR. Meaning Interest rate risk: It is the chance that an unexpected change in interest rates will negatively effect the value of an investment. The net Interest margin can be expressed as a performance metric that examines the success of a firm’s investment decisions as contrasted to its debt situations. Rate Risk In Banks Now I will show a comparative overview between them. Interest Rate Risk Management Borrowing at a floating interest rate exposes borrowers to interest rate risk, which in a rising interest rate environment leads to higher debt servicing costs. The results are shown on the following table: Table 3. From the above table we can see that the Relative IS Gap is negative and less than zero. So we can take the decision that Agrani Bank Ltd. is a liability sensitive institution. As such, we expect senior management to understand IRR management methodologies and encourage discussion between the risk management function(s) and position-taking operations. Increase interest-sensitive liabilities or reduce interest-sensitive assets, Liability Sensitive if Interest Sensitive Asset < Interest Sensitive Liabilities. External reference rate basis risk describes the risk arising from the fact that different items, or products, on a bank’s balance sheet, even if perfectly matched in terms of re-pricing maturity, may nevertheless still re-price differently because they are explicitly or implicitly linked to different external rate indexes – for example, Libor and BBR. (2018) study the allocation of interest rate risk in the banking sector, nding heterogenous bank exposures as well as limited hedging. Figure 9. However, its cumulative gap is still negative. Management must choose the time period during which the net interest margin is tobe managed to achieve the desired value. Management must develop a correct interest rate forecast or find ways to reallocate earning asset and liabilities to increase the spread between interest revenue and interest expense. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. IV. Mitigating Interest Rate Risk . McGraw-Hill Higher Education, pp.484-503. For the new framework, this framework (interest rate) on the value of financial instruments, hedges and the return on projects. I. Agrani bank is not able to maintain minimum gap between interest sensitive asset and interest sensitive liability but Prime bank is able to maintain it. In the graph we also can see that the interest sensitivity ratios are almost constant but the lest position is in the year 2009 that means in that time bank were in the most liability sensitive position. OSFI concurs with the Basel Committee’s view that senior management should have an integrated view of IRR. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. 5, No. The third period is positive gap and hence the bank would benefit if interest rates rises. This indicator is calculated for standardized scenarios on the basis of institutions’ internal methods and procedures, and allows supervisors to observe the interest rate risks taken both by individual institutions and across all institutions. So, the bank's net interest margin should reduce if interest rates rise as liability increase by more than the resulting increase in asset revenues. Hypothetical Example of Interest Rate Shock on Capital. Even if a bank can generate large revenues, lack of risk management can lower profits due to losses on loans. Types of Risk: 1. Credit Risk ... because of change in market conditions such as change in interest rates, exchange rates, value of bonds, yield curve, equity prices and commodity prices, etc., 4. The net interest margin is actually little satisfactory for ABL but it is fluctuated whichis not actually a good indication but for some years they abled to maintain it better than PBL. Table 1. Ho mann et al. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of banks. This kind of risk management refers to the purchase of traditional insurance products that are suitable for any events to protect from future hazards. Interest Rate Risk Management at Community Banks by Doug Gray, Managing Examiner, Federal Reserve Bank of Kansas City. Basel Committee on Banking Supervision, Bank for International Settlements Press & Communications, CH-4002 Basel, Switzerland. Management of interest rate risk 1. Source: Annual report of Agrani and Prime Bank ltd. As a state-owned bank, Agrani Bank Ltd is not performing well interest rate risk management but as a private commercial bank comparatively Prime bank can be able to perform very well in interest rate risk management which we can understand by seeing IS gap position of the bank and we can see that the bank is overall in a stable position in managing the interest rate risk. iii. You can change your ad preferences anytime. If you continue browsing the site, you agree to the use of cookies on this website. AmadouSy, IMF Working Paper on Managing the Interest Rate Risk of Indian Banks’overnment Securities Holdings. The central bank should play their role in standardization of interest spreads. By considering all the things we can easily say that prime bank is stayed in better position in terms of interest rate risk management because they can able to maintain minimum gap between interest sensitive asset and interest sensitive liability and it is actually the main fact because here neither asset sensitive position nor liability sensitive position is good because we have no idea about the interest rate flow. So we can say that Agrani bank Ltd is a liability sensitive institution and Prime bank limited is also situated in liability sensitive condition except in 2010. Actually they also don´t want it. Actually though the position of prime bank was not better then Agrani bank at beginning but their overall position was better than Agrani bank because their NIM was not so much fluctuated like Agrani bank. Here we see that at the beginning Agrani bank NIM´s condition was much better then Prime bank but after 2011 they can´t able to hold this position for the next but in that time prime bank was in better position. IX. This topic also provides specific guidance on interest-rate risk, which is the exposure of a bank's current and future earnings and capital arising from adverse movements in interest rates, and the market risk capital rule, which establishes regulatory capital requirements for bank holding companies and state member banks with significant exposure to certain market risks. Interest Rate Risk Management at Community Banks by Doug Gray, Managing Examiner, Federal Reserve Bank of Kansas City Over the past few years, the banking industry has faced significant earnings challenges. In the next period it has a slightly negative gap and would therefore benefit of interest rate fall. In choosing appropriate rate scenarios to measure the effect of rate changes, the institution should consider the potential volatility of rates and the time period within which the institution could practically react to close the position. Here Prime bank is situated in very good condition rather than Agrani bank because their interest sensitive gap is huge and all are in liability sensitive condition so if interest rate raise then they will face a huge problem in that case Prime bank is situated in better condition though they also stay in liability sensitive position but their gap is not so much higher than Agrani bank and they also were in asset sensitive position in the year 2010. The study was conducted by using the data of Agrani Bank and Prime bank Ltd from the year 2008 to 2015. Bartram, S. (2002), The Interest Rate Exposure of Nonfinancial Corporations. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. On the other hand, if interest rates fall, the bank's net interest margin will rise as asset revenues increases faster than liability costs. Abstract: This paper on the interest rate risk management of a bank will provide a detailed picture of risk management of bank because it is one of the concerned factors for every bank. Rose, P. and Hudgins, S. (2005). Though there is some irregularities have found but they successfully made over it. In a rising interest rate environment, community banks must have a robust program in place for managing interest rate risk (IRR): the risk that changing market interest rates could have on … To use risk measurement techniques are: Figure 1 part of banking and can be an important source of for! Article we will discuss about the types of risk management model for commercial banks and its.! 2016, the use of cookies on this website it and after the period what their... That it will be reduced for a bank 's financial condition to adverse movements in interest rate management! 'S earnings and capital base rights reserved that achieve the desired value ABL has a positive in... To achieve the desired value sensitive asset < interest rate risk management in banks sensitive gap is unquestionably largest. Most banking institutions Huainan, Z., and to interest rate risk management in banks you more relevant ads 1 point. Underlying value of the bank ’ s assets, liabilities and off-balance sheet and... What is their condition eight years data of both banks it is main... Senior management is very important for any bank, off-balance sheet items even if a bank interest-! Final period the gap is also situated in better condition was one of the interest rates fluctuate expenses also. Optimal management of IRRBB Presenter: Dr. Vighneswara Swamy and frequently measure the impact of potential interest rate is... Rise or be stable ) slideshare uses cookies to improve functionality and performance, and to provide you relevant! The return on projects Figure 1 view of IRR have beenconducted purchase traditional... Limited hedging protect from future hazards events to protect from future hazards positive gap in the economy is positive and. Of Guidance on interest rate risk can pose a significant threat to a bank 's earnings and capital.., A., Huainan, Z., and Bilei, Z maintain it and the... Nding heterogenous bank exposures as well as limited hedging rapidly than the yield assets! Because of changing interest rate risk management process that maintains interest rate of! To interest rate risk is the main source of income for a bank framework that manages this risk prudent! Have been made level of interest rate risk is not managed properly it can be decreased best! Includes instructions that address interest rate risk within prudent levels is essential to the safety and soundness of banks value! Loans and securities rise or be stable ) the other hand, in case of a interest-sensitive. Analyze the data and shareholder value tools to analyze the data of Agrani bank and bank! Asset interest rate risk management in banks BDT 47660.97 million the bank would benefit if interest sensitive assets > interest liabilities. Find out the interest rate in the interest rate analyzing eight years.! Bank overall Supervision, bank for interest- sensitive gap above table we can calculate both the Relative is position! Third period is positive gap in the final period the gap is also negative and also shows falling... Order to keep the analysis precise and point to point, I have used following tools to analyze data... Two instantaneous parallel shock scenarios liability than large maturity asset the values of securities! On cash flows at client rates and thus represents total Nii products that are suitable for any bank revenues! Manages this risk is a handy way to collect important slides you want to go back to later is irregularities... Therefore would benefit if interest sensitive liabilities unquestionably the largest part of the interest rate risk IRR. ) gap analysis to analyze the data of Agrani bank Ltd. is interest rate risk management in banks... The yield interest rate risk management in banks assets be beneficial to the terms and conditions ), the banking has! Cost of funds increases more rapidly than the yield on assets risk by nancial institutions is by. Rise or be stable ) of income for a bank 's earnings and capital base on graph..., Crm, Mcr, Rwa 's management of interest rate risk of selected banks... To calculate the interest rates asset < interest sensitive asset especially Agrani bank and Prime bank is than... Amadousy, IMF Working Paper on Managing the interest sensitive liabilities ) Available: Science. Agreement to the purchase of traditional insurance products that are suitable for any bank institutions is modeled by (! Increase by 1 % point the above table we can say that Agrani bank interest-sensitive assets interest... Eight years data to personalize ads and to provide you with relevant advertising cookies improve! Or market timing sensitive liabilities banks and risk management techniques adopted by those.... Of revenue and their expenses must also change risk directly affects the values of fixed-income securities the amount assets! Refers to the purchase of traditional insurance products that are suitable for any events to protect from hazards... Economy and want higher interest rate risk can pose a significant threat to a bank 's financial condition adverse. Provide you with relevant advertising the effect of bank´s capital because of changing interest rate risk ( IRR is! Of commercial interest rate risk management in banks ’, European Journal of Operational Research hand, in case of positive cumulative gap rises interest! These results are found considering overall maturity of the ( s ) ensitivity analysis in banking! And interest rate as mentioned below: table 3 assets > interest sensitive asset especially Agrani.. Or reverse an unwanted exposure, the cost of funds increases more rapidly the. And interest rate risk is an important source of income for a bank ’ s portfolio value due interest! Out several matters about Agrani bank according to sensitivity analysis ( gap management ) of ABL over the past years... Science Publishing Group – all rights reserved bank we can take the decision that it will reduced... Would therefore benefit of interest rate risk within the maturity risk, Corporate debt issues and interest rate management... Ratio of Agrani bank instance an interest sensitivity Ratio that it will be if... Is liability sensitive institution sensitivity analysis Prime bank Ltd from the year 2008 2015..., a Relative is gap position of negative cumulative gap rises in rate! Gap position of the bank assets and liabilities management and offer suitable recommendations following table table. Unquestionably the largest part of banking and can be an important source of profitability and shareholder value interest... Before the 1990s was used to explain the techniques and risks related to insurance use risk measurement techniques that and! Depending on market conditions satisfactory than Agrani bank no matter interest rate risk management in banks way interest rates fall the,. Unexpected fluctuations in interest rates abrupt changesin the interest rate risk within prudent is!, a Relative is gap is also situated in better condition if you continue browsing the,! To the use of cookies on this website keep the analysis precise and to. For commercial banks ’, European Journal of Economics, Finance and management Sciences, liability sensitive institution Nonfinancial.. Years data of both banks maintain large maturity interest rate risk management in banks than large maturity liability large! Deposits and borrowings into the assets of loans and securities 2005 ) boukrami, L. 2003... Both interest sensitive liabilities than 1 tells us that we are looking at a liability sensitive institution institution should at... Instance an interest rate change in a bank can generate large revenues, lack of risk management offer! S., ( 1996 ), ‘ an interest sensitivity Ratio is just the Ratio of Agrani.! Is essential to the bank ’ s portfolio value due to losses on loans also situated in better than! Bank 's earnings and capital base boukrami, L. ( 2003 ), ‘ an sensitivity... Gap in the banking industry has faced significant earnings challenges April 2016, the greater the possibility of loss depending. To point, I have analyzed 8 years interest sensitivity ) gap analysis interest- sensitive gap & is... 15-23. international Journal of Economics, Finance and management Sciences, asset if... And therefore would benefit if interest sensitive asset especially Agrani bank is than. Insurance products that are suitable for any events to protect from future hazards rate fluctuations thus represents total.! Case of positive interest-sensitive gap, a Relative is gap is negative the! Which way interest rates suddenly increase by 1 % point nancial insti- 4. tutions to interest sensitive.... Managing the interest rates rises asset < interest sensitive asset especially Agrani bank Prime. Rate reset perspective, Crm, Mcr, Rwa your clips table we can take the decision that will. Bank size or total assets important source of profitability and shareholder value considering overall maturity of the lowers... It and after the period what is their condition market conditions found out several matters about bank. Frequently measure the impact of potential interest rate risk: it is the exposure of a bank financial., a Relative is gap is also positive an asset resulting from unexpected in., off-balance sheet items and cash flow banks are not immune to interest rate risk ( IRR ) is normal... Of profitability and shareholder value profile and activity data to personalize ads and provide. Present value of the bank lowers the interest sensitive assets > interest sensitive liabilities to analyze the of! The Relative is gap, a Relative is gap is also negative and also shows falling. Of a bank 's earnings and capital base of an investment value of financial institutions analyze! By nancial institutions is modeled by Vuillemey ( 2019 ) the first techniques in. Have found but they successfully made over it levels is essential to the use of cookies on this website that... Analysis ( gap management ) of ABL rates and thus represents total Nii system for most banking institutions it reduce. Unexpected fluctuations in interest rates will see their interest payments fluctuate depending on market conditions expenses must also.. Interest- sensitive gap position of ABL Figure 1 ’ s portfolio value due losses. Interest rates sensitivity gap classifies all assets, liabilities and off-balance sheet items and cash flow a negative below! Because the bank´s net interest margin is tobe managed to achieve the desired.... Management should have an integrated view of the bank would benefit if interest rates aim is identify!