Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis

Raad Mozib Lalon; Md. Bazlul Kabir

doi:doi:10.11648/j.ijefm.20170501.12

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Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis

Raad Mozib Lalon, Md. Bazlul Kabir

Published in International Journal of Economics, Finance and Management Sciences (Volume 5, Issue 1)

Received: 20 October 2016 Accepted: 2 November 2016 Published: 23 December 2016

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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. This study will also indicate any shortfall of bank in terms of interest rate risk management and offer suitable recommendations. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. 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. Changes in interest rates also affect the underlying value of the bank's assets, liabilities, and off-balance-sheet (OBS) instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of banks.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 5, Issue 1)
DOI	10.11648/j.ijefm.20170501.12
Page(s)	15-23
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Irr, Nim, Nii, Is Gap, Car, Crm, Mcr, Rwa

References

[1]	Rose, Peter. S. Commercial Bank Management. 5th ed. McGraw-Hill Higher Education.
[2]	Rose, P. and Hudgins, S. (2005). Bank Management & Financial Services. 6th ed. McGraw-Hill Higher Education, pp.484-503.
[3]	AmadouSy, IMF Working Paper on Managing the Interest Rate Risk of Indian Banks’overnment Securities Holdings.
[4]	Antonios, A., Huainan, Z., and Bilei, Z. (2009), Corporate debt issues and interest rate risk management: Hedging or market timing? Journal of Financial Markets.
[5]	Basel Committee on Banking Supervision, Bank for International Settlements Press & Communications, CH-4002 Basel, Switzerland.
[6]	BIS(Bank for Interational settlement), 1997, “Principles for the Management and Supervision of Interest Rate Risk,” Basel Committee on Banking Supervision.
[7]	BIS(Bank for Interational settlement), 2003, “Principles for the Management and Supervision of Interest Rate Risk,” Basel Committee on Banking Supervision.
[8]	Bartram, S. (2002), The Interest Rate Exposure of Nonfinancial Corporations. European Finance Review.
[9]	Bessler, W. & Booth, G. G. (1994), ‘An interest rate risk management model for commercial banks’, European Journal of Operational Research.
[10]	Boukrami, L. (2003), The Use of Interest Rate Swaps by Commercial Banks.
[11]	(Electronic) Available: Social Science Research Network. (2003-12-18).
[12]	CAYMAN ISLANDS MONETARY AUTHORITY- 'Statement of Guidance on Interest Rate Risk Management'
[13]	De Nederlandsche Bank N. V. Guidelines on interest rate risk in the banking book, July 2005.
[14]	Heffernan, S., (1996), Modern Banking in theory and practice. New York: John Wiley and Sons.

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APA Style

Raad Mozib Lalon, Md. Bazlul Kabir. (2016). Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis. International Journal of Economics, Finance and Management Sciences, 5(1), 15-23. https://doi.org/10.11648/j.ijefm.20170501.12

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ACS Style

Raad Mozib Lalon; Md. Bazlul Kabir. Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis. Int. J. Econ. Finance Manag. Sci. 2016, 5(1), 15-23. doi: 10.11648/j.ijefm.20170501.12

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AMA Style

Raad Mozib Lalon, Md. Bazlul Kabir. Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis. Int J Econ Finance Manag Sci. 2016;5(1):15-23. doi: 10.11648/j.ijefm.20170501.12

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@article{10.11648/j.ijefm.20170501.12,
  author = {Raad Mozib Lalon and Md. Bazlul Kabir},
  title = {Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {5},
  number = {1},
  pages = {15-23},
  doi = {10.11648/j.ijefm.20170501.12},
  url = {https://doi.org/10.11648/j.ijefm.20170501.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20170501.12},
  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. This study will also indicate any shortfall of bank in terms of interest rate risk management and offer suitable recommendations. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. 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. Changes in interest rates also affect the underlying value of the bank's assets, liabilities, and off-balance-sheet (OBS) instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of banks.},
 year = {2016}
}

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TY  - JOUR
T1  - Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis
AU  - Raad Mozib Lalon
AU  - Md. Bazlul Kabir
Y1  - 2016/12/23
PY  - 2016
N1  - https://doi.org/10.11648/j.ijefm.20170501.12
DO  - 10.11648/j.ijefm.20170501.12
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 15
EP  - 23
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20170501.12
AB  - 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. This study will also indicate any shortfall of bank in terms of interest rate risk management and offer suitable recommendations. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. 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. Changes in interest rates also affect the underlying value of the bank's assets, liabilities, and off-balance-sheet (OBS) instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of banks.
VL  - 5
IS  - 1
ER  -

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Author Information

Raad Mozib Lalon

Department of Banking & Insurance, University of Dhaka, Dhaka, Bangladesh
Md. Bazlul Kabir

Department of Banking & Insurance, University of Dhaka, Dhaka, Bangladesh

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Plain Text BibTeX RIS

APA Style

Raad Mozib Lalon, Md. Bazlul Kabir. (2016). Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis. International Journal of Economics, Finance and Management Sciences, 5(1), 15-23. https://doi.org/10.11648/j.ijefm.20170501.12

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ACS Style

Raad Mozib Lalon; Md. Bazlul Kabir. Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis. Int. J. Econ. Finance Manag. Sci. 2016, 5(1), 15-23. doi: 10.11648/j.ijefm.20170501.12

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AMA Style

Raad Mozib Lalon, Md. Bazlul Kabir. Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis. Int J Econ Finance Manag Sci. 2016;5(1):15-23. doi: 10.11648/j.ijefm.20170501.12

Copy | Download

@article{10.11648/j.ijefm.20170501.12,
  author = {Raad Mozib Lalon and Md. Bazlul Kabir},
  title = {Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {5},
  number = {1},
  pages = {15-23},
  doi = {10.11648/j.ijefm.20170501.12},
  url = {https://doi.org/10.11648/j.ijefm.20170501.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20170501.12},
  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. This study will also indicate any shortfall of bank in terms of interest rate risk management and offer suitable recommendations. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. 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. Changes in interest rates also affect the underlying value of the bank's assets, liabilities, and off-balance-sheet (OBS) instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of banks.},
 year = {2016}
}

Copy | Download

TY  - JOUR
T1  - Interest Rate Risk Management of Commercial Banks in Bangladesh Based on IS (Interest Sensitivity) GAP Analysis
AU  - Raad Mozib Lalon
AU  - Md. Bazlul Kabir
Y1  - 2016/12/23
PY  - 2016
N1  - https://doi.org/10.11648/j.ijefm.20170501.12
DO  - 10.11648/j.ijefm.20170501.12
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 15
EP  - 23
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20170501.12
AB  - 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. This study will also indicate any shortfall of bank in terms of interest rate risk management and offer suitable recommendations. Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can pose a significant threat to a bank's earnings and capital base. 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. Changes in interest rates also affect the underlying value of the bank's assets, liabilities, and off-balance-sheet (OBS) instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of banks.
VL  - 5
IS  - 1
ER  -

Copy | Download