MCT - coefficient of interest rate risk

So, the main thing - that the gap corresponded to the direction of movement rates, which will improve the profit, ie was positive for higher interest rates and negative - to reduce them. However, the bank manager should be aware that the potential for more profits associated with an increased level of interest rate risk. If the forecast changes in interest rates will not come true or false, it could lead to lower bank profits and even losses. Consequently, if a positive or negative gepu very real as the probability of obtaining additional revenue, and the likelihood of financial loss. There are two strategies to manage interest rate risk on the basis of gepu - fixing spread and control gap. The strategy provides the maximum spread is fixed equilibrium positions on sensitive assets and liabilities of the bank, ie zero gap. In this case, the bank's net interest margin remained stable, independent of fluctuations in market interest rates. This strategy is very simple and reliable enough, because it does not require accurate forecasts, no sophisticated analytical software. Gap management strategy is aimed at making higher profits and involves conscious risk-taking, and therefore characterized as more aggressive. In case the risk margin decline that is due to higher rates of adverse gepu or lower rates of positive gepu. In implementing this strategy, the bank must achieve consistency between the views of gepu (positive / negative) and forecast changes in interest rates. If the forecast changes in interest rates is not possible, for example, due to the unstable economy, or during periods of crisis, much safer strategy would be fixed spread. Domestic experience shows that banks usually prefer fixing the spread strategy, keeping a slight gap between assets and liabilities with similar maturities. It is obvious that fully compensate for the assets and liabilities on the timing and volume can not (and impractical), but because the problems associated with the management of a gap does not lose its relevance. Category: Management Operations Commercial Bank | Tags: risk