The essence of the effect of the gap

Negative Gap indicates that the bank more liabilities sensitive to interest rate than similar assets: an increase in interest rates causes a decrease in net income and CHPM, since an increase in the cost of liabilities occurs to a greater extent than the proceeds of assets, reduction in interest rates leads to an increase in CHPM due to a decrease in interest expense. A positive gap indicates that the bank's assets more sensitive to interest rate than liabilities: increase in interest rates leads to an increase in net profit and CHPM as interest income on bank assets will grow to a greater extent than the cost of borrowing, lower interest rates causes a loss of net income and lower CHPM as interest income on assets declining faster than liabilities related to interest expense. If the bank has a zero gap are sensitive to interest rate assets and liabilities are equal and the same interest rate changes have no effect on interest income. And the positive and negative gap provides the potential for a greater margin than in the case of zero gepu. Gap is a measure of interest rate risk to the bank within the fixed time interval. Regardless of whether positive or negative gap, the greater the absolute value gepu, the higher the interest rate risk the bank takes over and shifts more of its margin. If the beginning of the period of time refers to the future, the gap is called periodic, if the beginning of the period coincides with the current time, the gap is called cumulative. Periodic gaps show the time of potential changes to income, depending on changes in interest rates. Category: Management Operations Commercial Bank