Seetanah B, Thakoor P

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2013 Cambridge Business & Economics Conference ISBN : 9780974211428

Interest Rate Risk Management:

Evidence from Mauritian Commercial Banks

Seetanah B and Thakoor P

University of Mauritius

Abstract

!is s"ud# e$amines in"eres" ra"e ris% managemen" and ro'ides insig!" in"o "!e in"eres" ra"e

ris% managemen" goa(s) o(icies and erce"ions in commercia( ban%s* !e resu("s s!o+ "!a" a((

ban%s "a%e a s#s"ema"ic aroac! "o in"eres" ra"e ris% managemen"* !is researc! !as a(so

demons"ra"ed "!a" effec"i'e managemen" of in"eres" ra"e ris% is of ma,or concern "o accoun"an"s)

"reasurers) regu(a"ors and go'ernmen"s* I" +as found "!a" a(( "!e ban%s !a'e c(ear goa(s and

o(icies for "!eir in"eres" ra"e ris% managemen") +i"! (imi"s of"en se" b# "!e Board of -irec"ors

and "!e o(ic# are re'ie+ed annua((#* !e findings of "!is researc! demons"ra"e "!a" "!ere are a

number of o(ic# im(ica"ions for regu(a"ors* .or e$am(e "!e /one"ar# o(ic# Commi""ee

mee"s on a uar"er(# basis "o ad,us" reo ra"e and "!e a(( "!e commercia( ban%s mus" ro'ide

in"eres" ra"e e$osure reor"s "o Ban% of /auri"ius on a uar"er(# basis* I" +as a(so found "!a"

Base( Commi""ee eua((# "rea" in"eres" ra"e ris% as a significan" ris% in "!e ban%ing boo% and as

a resu(" of +!ic! ban%s are reuired "o "a%e in"eres" ra"e ris% in"o considera"ion +!i(e comu"ing

cai"a(* (( ban%s !a'e a(so im(emen"ed an in"erna( measuremen" s#s"em "o assess a(( ma"eria(

in"eres" ra"e ris%* 'era(( "!e resu("s sugges" "!a" in"eres" ra"e ris% managemen" is an imor"an"

ar" of corora"e ac"i'i"ies and "!a" "!e bes" rac"ice in ris% managemen" o(ic# and be!a'iour

!as become comre!ensi'e*

1. Introduction

Background

In"eres" ra"e ris% arises from "!e fac" "!a" "!e asse"s and (iabi(i"ies of a ban% usua((# reac"

differen"(# "o in"eres" ra"e mo'emen"s rian"is) 19995* !e imor"ance of ruden" in"eres" ra"e

ris% managemen" !as been !eig!"ened b# c!anges in ban%s6 come"i"i'e en'ironmen") roduc"s

and ser'ices* !e in"eres" ra"e ris% en'ironmen" for ban%s +as s"ab(e in "!e as" due "o

regu(a"ion of ban%ing ac"i'i"ies and "!us "!e oera"iona( en'ironmen" +as no" conduci'e "o ris%

"a%ing* f"er (ibera(ia"ion of "!e ban%ing sec"ors in "!e (a"e 19806s and ear(# 19906s and inorder "o earn sufficien" re"urns in "!e ne+ come"i"i'e en'ironmen") mos" ban%s "oo% on

e$"ensi'e ris%s* In"eres" ra"es !a'e become 'er# 'o(a"i(e recen"(# and ban%s !a'e become more

e$osed "o suc! 'o(a"i(i"# as a resu(" of "!e c!anging c!arac"er of "!eir (iabi(i"ies* ccording "o

udson e" a( 20005 "!e ris%s no+ reuire increased a""en"ion and considera"ion due "o "!e 'er#

'o(a"i(e na"ure of in"eres" and e$c!ange ra"e mo'emen"s* In"eres" ra"e ris% is regarded b# a

number of au"!ors suc! as effernan 1995) Bessis 20025 and Sin%e# 20025 as one of "!e

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mos" rominen" financia( ris%s faced b# a ban%* In"eres" ra"e ris% managemen" is b# no means a

ne+ "rend in ban%ing ac"i'i"ies*

Se'era( fac"ors !a'e con"ribu"ed "o "!e recen" rominence of in"eres" ra"e ris% in commercia(

ban%s* !ese fac"ors inc(ude "!e !ig! 'o(a"i(i"# of in"eres" ra"es) "!e drama"ic increase in "!e use

of corora"e deb" "!roug! s!or"er;"erm borro+ing) and "!e em!asis on ris%) inc(uding financia(ris% in "!e Combined Code and urnbu(( >uidance* !is !as (ed "o grea"er "ransarenc# of

corora"e ris% and ris% managemen" rac"ices in re(a"ion "o e$"erna( mar%e"* ?ecen" #ears !a'e

seen a ro(ifera"ion in "!e use of ne+ and com(e$ financia( ins"rumen"s /a((in e" a() 20015

suc! as s+as) fu"ures) o"ions and for+ards "o manage financia( ris%s and in"eres" ra"e ris% is

robab(# "!e mos" imor"an" of a(( "!e financia( ris%s*

" "!is oin") i" is imor"an" "o no"e "!a" ban% in"eres" ra"e ris%I??5 is managed b# a number of

in"erna( commi""ees* ne suc! commi""ee is "!e asse" and (iabi(i"# commi""ee @C5) +!ose

ro(e is manage a ban%As in"eres" ra"e ris% b# rimari(# focusing on "!e "#e) 'o(ume and ma"uri"#

s"ruc"ure of financia( ins"rumen"s in c!anging economic en'ironmen"s /ee%) 19875* !e@C is resonsib(e for "!e formu(a"ion of "!e basic borro+ing and (ending s"ra"eg#) and

"!erefore affec"s a(( ban% di'isions*

Ban%s norma((# !a'e o(icies for in"eres" ra"e ris% managemen" aro'ed b# "!e Board of

-irec"ors and "!e o(ic# ref(ec"s "!e ris% ae"i"e of "!e coman#* @imi"s on "!e amoun" of

funding are a(so se" b# "!e Board of -irec"ors* !en de"ermining "!eir in"eres" ra"e o(ic#) "!e

direc"ion of in"eres" ra"es and "!e magni"ude of in"eres" ra"e c!anges are considered*

Aims and objectives

i"! "!e recen" focus on "!e use and abuse of financia( deri'a"i'es) media a""en"ion on "!e

financia( +e((;being of organisa"ions !as (arge(# ignored "!e manageria( rac"ices of corora"e

financia( ris%) ar"icu(ar(# in"eres" ra"e ris%* !is s"ud# "ries "o bridge "!is ga* !roug! "!e use

of a ues"ionnaire sur'e# sen" "o "!e commercia( ban%s in /auri"ius) "!e s"ud# e$amined a

number of %e# issues re(a"ing "o "!e managemen" of in"eres" ra"e ris%* In ar"icu(ar) "!e s"ud#

soug!" "o address:

i5 !e ro(e of "!e differen" commi""ees name(# ?is% /anagemen" Commi""ee) ?is%

/anagemen" .orums) udi" Commi""ee and "!e ?is% /anagemen" -i'ision "o+ards ris%managemen")

ii5 +!a" are "!e arame"ers "!a" mus" be inc(uded in "!e ris% managemen" o(ic# and

+!e"!er "!e# are com(ied +i"! and a(so !o+ "!e# are romu(ga"ed +i"!in "!e

organia"ion)

iii5 "!e "oo(s used "o manage in"eres" ra"e ris%) +!e"!er "!e in"eres" ra"e measuremen" s#s"em

asses a(( ma"eria( in"eres" ra"e ris% and +!e"!er "!e under(#ing assum"ions of "!e s#s"em

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are c(ear(# unders"ood b# managemen" and ris% managers* I" a(so assess +!e"!er ban%s

measure "!eir 'u(nerabi(i"# "o (oss under s"ressfu( mar%e" condi"ions and a(so brea%do+n

of %e# assum"ions*

i'5 "!e fac"ors "o be considered +!en assessing "!e uan"i"# and ua(i"# of in"eres" ra"e ris%*

Proosed Met!odolog"

!e rimar# da"a ga"!ering +as in "!e form of a sur'e# ues"ionnaire* !e ues"ionnaire !ad

four sec"ions +i"! eac! sec"ion !a'ing 12;1 ues"ions* !e ues"ionnaire !ad ues"ions* 12

ues"ionnaires +ere dis"ribu"ed among "!e commercia( ban%s in /auri"ius* !e comanies "!a"

!ad no" resonded "o "!e ues"ionnaire +ere aroac!ed "o #ie(d a be""er resonse ra"io* !e

"o"a( number of resonses +as 80) #ie(ding a resonse ra"e of roug!(# 4D* (( "!e resonden"s

!a'e ans+ered a(( ues"ions* /issing da"a +as on(# in "!e form of no ,ob "i"(e ro'ided b#

resonden"* S"a"is"ica( ac%age of Socia( Sciences SSS5 !as been used "o ana(#e "!e da"a

co((ec"ed and 'arious "es"s +ere erformed*

#tructure of Paer

n ou"(ine is as fo((o+s: In sec"ion 2)+e ro'ide a brief re'ie+ of "!e re(a"ed (i"era"ure* Sec"ion

3 discusses "!e me"!odo(og# frame+or% and ana(#se "!e resu("s and sec"ion 4 conc(udes*

$. Related %iterature

!e Bas(e Commi""ee defined in"eres" ra"e ris% as "!e 'u(nerabi(i"# of a ban%6s financia(

condi"ion "o ad'erse mo'emen"s in in"eres" ra"es* C!anges in in"eres" ra"e affec" earnings) 'a(ue

of asse"s) (iabi(i"# off;ba(ance s!ee" i"ems and cas! f(o+* s s"a"ed b# ?on .e(dman and ason

Sc!mid") in"eres" ra"e ris% is (i%e "!e b(ood ressure for ban%s and is 'i"a( for "!eir sur'i'a(F*

!e mo'emen" of in"eres" ra"e affec"s a ban%6s reor"ed earnings and boo% cai"a( b# c!anging

Ne" in"eres" income)

!e mar%e" 'a(ue of "rading accoun"s and o"!er ins"rumen"s accoun"ed for b# mar%e"

'a(ue5)and

"!er in"eres" sensi"i'e income and e$enses*

!erefore) "!e ob,ec"i'e "o manage in"eres" ra"e ris% is "o main"ain earnings) imro'e "!e

caabi(i"#) abi(i"# "o absorb o"en"ia( (oss and "o ensure "!e adeuac# of "!e comensa"ion

recei'ed for "!e ris% "a%en and effec" ris% re"urn "rade;off* In"eres" ra"e ris% managemen" can be

done b# e'a(ua"ing "!e 'u(nerabi(i"# of ban%6s or"fo(ios "o "!e ris% of f(uc"ua"ions in mar%e"

in"eres" ra"es*

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C!anges in in"eres" ra"es affec" a ban%6s under(#ing economic 'a(ue* !is arises from (ong "erm

in"eres" ra"e gas* c!ange in ra"es affec"s "!e 'a(ue of a ban%6s asse"s) (iabi(i"ies) and in"eres";

ra"e;re(a"ed off ba(ance s!ee" con"rac"s because "!e resen" 'a(ue of fu"ure cas! f(o+s is

c!anged rian"is) 19995* -iscoun"ed cas! f(o+ ma# be used "o ca(cu(a"e "!e mar%e" 'a(ue of an

asse" or (iabi(i"#* rise in in"eres" ra"e +i(( increase "!e discoun" ra"e on "!e cas! f(o+s and

reduce "!e mar%e" 'a(ue of "!a" asse" or (iabi(i"#* /isma"c!es in ma"uri"ies of (onger "erm asse"

"!an (iabi(i"ies "oge"!er +i"! a rise in in"eres" ra"es +ou(d resu(" in a decrease in "!e 'a(ue of "!e

ban%6s asse"s more "!an "!e 'a(ue of i"s (iabi(i"ies* !is is a(so confirmed b# Saunders 20005*

Rate C!ange of rates %ender Borro&er

E'isting E'osure

(loating Rate ?a"e rises

?a"e decreases

G

;

;

G

(i'ed Rate ?a"e decrease

?a"e increase

;

G

G

;

G >ain

H; @oss

ab(e 1: E$osure "o in"eres" ra"es* Source: Bessis 20025

Banking Activities and Interest rate risk

!e in"eres" ra"e ris% rofi(e of a ban% is affec"ed e'er# "ime i" under"a%es a financia(

"ransac"ion* Eac! ban% mus" decide on "!e (e'e( and degree of in"eres" ra"e ris% "!e# are +i((ing

"o "a%e based on "!eir ris% rofi(e* Some ban%s see% "o minimie "!eir in"eres" ra"e ris% e$osure

b# ma"c!ing "!e ma"uri"ies and rericing da"es of "!eir asse"s and (iabi(i"ies +!i(e o"!er ban%s

+!o are +i((ing "o assume a grea"er (e'e( of in"eres" ra"e ris% "a%e in"eres" ra"e osi"ions*

!e inefficien" managemen" of in"eres" ra"e ris% can con"ribu"e "o "!e o"en"ia( inso('enc# of a

ban% Bessis 20025* Some ban%s ma%e use of a fund "ransfer ricing s#s"em "o iso(a"e "!e

in"eres" ra"e ris% managemen" and osi"ioning in "!e "reasur#* "!ers ban%s a((o+s indi'idua(

rofi" cen"ers or business (ines manage "!eir in"eres" ra"e ris% b# "a%ing osi"ions +i"!in

secified (imi"s*

ban% s!ou(d consider "!e effec" of in"eres" ra"e ris% on ne" income and ne" in"eres" income in

order "o fu((# assess "!e con"ribu"ion of non in"eres" income and oera"ing e$enses "o "!e

in"eres" ra"e ris% e$osure from an earnings ersec"i'e* n "!e o"!er !and) from a cai"a(ersec"i'e) a ban% s!ou(d consider !o+ in"ermedia"e "+o "o fi'e #ears5 and (ong;"erm more

"!an fi'e #ears5 osi"ions ma# affec" "!e ban%6s fu"ure financia( erformance as "!e 'a(ue of

ins"rumen"s +i"! in"ermedia"e and (ong "erm ma"uri"ies can be sensi"i'e "o in"eres" ra"e c!anges*

I" is imor"an" for a ban% "o moni"or and con"ro( "!e (e'e( of "!ese e$osures* Bessis 20025

describes ban% ris% managemen" as a se" of o(icies and rac"ices "!a" a((o+ a ban% "o measure)

moni"or and con"ro( i"s ris% osi"ion*

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n in"eres" ra"e ris% rofi(e and s"ra"eg# mus" be de'e(oed b# eac! ban% b# "a%ing in"o accoun"

"!e ban%6s (iuidi"#* ban% +i"! sufficien" and s"ab(e sources of (iuidi"# ma# be be""er ab(e "o

+i"!s"and s!or" "erm earnings ressure arising from ad'erse in"eres" ra"e mo'emen"s*

=asanen e" a( 19975 sugges" "!a" an effec"i'e ris% managemen" rocess is "!e resu(" of effec"i'e

board and senior managemen" o'ersig!" of "!e ban%6s in"eres" ra"e ris% ac"i'i"ies) aroria"es"affing and a comre!ensi'e ris% managemen" rocess "!a" inc(udes "!e fo((o+ing e(emen"s:

ri""en o(icies and rocedures designed "o con"ro( "!e na"ure and amoun" of in"eres"

ra"e ris%* !is +as suor"ed b# -!anani e" a( 2005 and Bessis 20025* !e o(icies

mus" inc(ude in"eres" ra"e ris% (imi"s and (ines of resonsibi(i"# and au"!ori"#*

roria"e ris%;measuremen") moni"oring and reor"ing s#s"em

In"erna( and e$"erna( re'ie+ and audi" of %e# e(emen"s of "!e ris%;managemen" rocess

I" is "!e resonsibi(i"# of "!e board and senior managemen" "o unders"and "!e na"ure and (e'e( ofin"eres" ra"e ris% being under"a%en b# "!e ban% in (ine +i"! "!e ban%6s business s"ra"egies and

"!us se" in (ace mec!anisms "o manage "!e ris%* Bou%rami 20035 s"a"es "!a" i" is "!e

resonsibi(i"# of "!e ban% managers are "o manage and e(imina"e ris% in +a# "!a" ma$imises

s!are!o(der 'a(ue* !e board of direc"ors mus" ensure "!a" "!e (e'e( of in"eres" ra"e ris% is

main"ained a" ruden" (e'e(s and is suor"ed b# adeua"e cai"a(* !e in"eres" ra"e ris%

managemen" rocesses 'ar# deending on "!e sie and com(e$i"# of "!e ban%*

Board of direc"ors usua((# de(ega"e resonsibi(i"# for es"ab(is!ing secific in"eres" ra"e ris%

o(icies and rac"ices "o a commi""ee of senior managers* !is commi""ee is of"en referred "o as

"!e sse"@iabi(i"# /anagemen" Commi""ee @C5* !e @C usua((# manages "!e s"ruc"ureof "!e ban%6s business and "!e (e'e( of in"eres" ra"e i" assumes* I" is resonsib(e for ensuring "!a"

measuremen" and reor"ing s#s"em adeua"e(# ref(ec" and communica"e re(e'an" and "ime(#

informa"ion concerning "!e (e'e( and sources of "!e ban%6s e$osure* oacim 20075

recommends "!a" @C mee"ings s!ou(d be conduc"ed freuen"(# in order "o correc"(# moni"or

"!e in"eres" ra"e ris% e$osure* !e


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e$and +!i(e in"eres" ra"es are rising) commercia( (oan demand ma# increase +!i(e residen"ia(

mor"gage (oan gro+"! and rea#men"s s(o+*

C!anges in "!e genera( (e'e( of in"eres" ra"es a(so affec" "!e 'o(ume of fee;re(a"ed income* .or

e$am(e) as in"eres" ra"es rise) "!e 'o(ume of residen"ia( mor"gage (oan dec(ines resu("ing in

(o+er mor"gage origina"ion fees* -ec(ines in "!e mar%e" 'a(ues of cer"ain ins"rumen"s ma#reduce near;"erm earnings +!en accoun"ing ru(es reuire c!arging suc! dec(ines "o curren"

income* !is is referred "o as rice ris%* @arge ban%s +i"! (o" of "rading ac"i'i"ies norma((# !a'e

seara"e measuremen" and (imi" s#s"em "o manage "!is ris%*

Economic Persective

!e economic ersec"i'e e'a(ua"es "!e sensi"i'i"# of "!e under(#ing 'a(ue "o c!anges in

in"eres" ra"es* I" focuses on !o+ "!e economic 'a(ue of "!e ban% asse"s) (iabi(i"ies and in"eres";

ra"e;re(a"ed off ba(ance s!ee" ins"rumen"s c!ange +i"! mo'emen"s in in"eres" ra"es* !e

economic 'a(ue of "!ese ins"rumen"s eua(s "!e resen" 'a(ue of "!eir fu"ure cas! f(o+s* !ec!ange "o a ban%6s economic 'a(ue can be es"ima"ed b# e'a(ua"ing c!anges in "!e resen" 'a(ue

of "!e con"rac"s "!a" resu(" from a gi'en c!ange in in"eres" ra"es*

In con"ras" "o "!e earnings ersec"i'e) "!e economic ersec"i'e can ro'ide a more

comre!ensi'e measuremen" of in"eres" ra"e ris%* !e need "o consider "!e economic

ersec"i'e of in"eres" ra"e ris% is due "o "!e gro+ing com(e$i"# of ban%6s roduc"s and

in'es"men"s*

Caital Ade)uac"

(( na"iona( ban%s are reuired "o main"ain adeua"e cai"a( for "!e ris%s "!e# under"a%eCo((ins e" a() 1995* i"! regard "o in"eres" ra"e ris%) regu(a"ors ad'ise "o e'a(ua"e +!e"!er "!e

ban% !as an earnings and cai"a( base "!a" is sufficien" "o suor" "!e ban%6s (e'e( of s!or" and

(ong "erm in"eres" ra"e ris% e$osure*

*edging &it! +erivative Contracts

!e rocess of !edging is defined b# Ei"emann e" a( 20015 as "!e "a%ing of a osi"ion)

acuiring ei"!er cas! f(o+) an asse") or a con"rac" "!a" +i(( rise or fa(( in 'a(ue "o offse" a fa(( or

rise in "!e 'a(ue of "!e e$is"ing osi"ion*F number of au"!ors suc! as Sin%e#20025) .aure

2005) and >orn"on e" a( 1995 'ie+ !edging as a ero sum game +!ere "!e amoun" of ris%

!edged b# one ar"# is boug!" b# ano"!er ar"# +i"!in "!e financia( s#s"em* =#"e 20025 a(so

s"a"es "!a" b# e(imina"ing or a" (eas" reducing (oss) !edging a(so e(imina"es or reduces an# gain

"!a" mig!" be ob"ained from an increase in "!e 'a(ue of an e$is"ing asse"*

Some ban%s use off;ba(ance s!ee" deri'a"i'es as an a("erna"i'e "o o"!er in'es"men"s +!i(e o"!ers

use "!em "o manage "!eir earnings or cai"a( e$osures* !e use of off;ba(ance s!ee" deri'a"i'es

b# ban%s is main(# "o ac!ie'e "!e fo((o+ing ob,ec"i'es:

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@imi" do+nside earnings e$osures

reser'e uside earnings o"en"ia(

Increase #ie(d

/inimie income or cai"a( 'o(a"i(i"#

("!oug! deri'a"i'es can be used "o !edge in"eres" ra"e ris%) "!e# e$ose a ban% "o basis ris%

because "!e sread re(a"ions!i be"+een cas! and deri'a"i'e ins"rumen"s ma# c!ange* .or

e$am(e) a ban% using in"eres" ra"e s+as "o !edge i"s reasur# no"e or"fo(io ma# face basis

ris% because "!e sread be"+een "!e s+a ra"e and "reasuries ma# c!ange*

edging "!roug! "!e use of deri'a"i'es ma# resu(" in comanies a#ing (ess "a$ as comared

+i"! "!ose "!a" do no" manage "!eir in"eres" ra"e ris% managemen" .roo" e" a(*) 19935*

Risk Measurement

ccura"e and "ime(# measuremen" of in"eres" ra"e ris% is essen"ia( for roer ris% managemen"

and con"ro(* ban%6s ris% measuremen" s#s"em s!ou(d be ab(e "o assess a(( ma"eria( in"eres" ra"e

ris% e$osure* I" s!ou(d a(so enab(e managemen" "o iden"if# ris%s arising from "!e ban%6s

rou"ine and ne+ businesses* !e na"ure and mi$ of "!e business (ines and in"eres" ra"e ris%

c!arac"eris"ics of ac"i'i"ies +i(( dic"a"e "!e "#e of measuremen" s#s"em reuired* Suc! s#s"em

+i(( 'ar# from ban% "o ban%*

>u e" a( 2005 ad'oca"e "!e use of simu(a"ion for s"ress "es"ing "o uan"if# "!e effec" of

differen" in"eres" ra"e scenarios on income and cai"a(* !erefore) "!e ris% measuremen" s#s"ems!ou(d be ab(e "o e'a(ua"e "!e effec" of s"ressfu( mar%e" condi"ions on "!e ins"i"u"ion* S"ress

"es"ing s!ou(d be designed "o ro'ide informa"ion on "!e %inds of condi"ions under +!ic! "!e

ins"i"u"ion6s s"ra"egies or osi"ions +ou(d be mos" 'u(nerab(e* S"ress scenarios mig!" inc(ude

abru" c!anges in "!e "erm s"ruc"ure of in"eres" ra"es) re(a"ions!is among %e# mar%e" ra"es

basis ris%5) (iuidi"# of %e# financia( mar%e"s or 'o(a"i(i"# of mar%e" ra"es*

E'er# ris% measuremen" s#s"em 'aries in "!e degree "o +!ic! "!e# ca"ure 'arious comonen"s

of in"eres" ra"e e$osure and "!e# a(so !a'e some (imi"a"ions* Ban%s genera((# use a 'arie"# of

s#s"ems "o fu((# ca"ure a(( of "!eir sources of in"eres" ra"e e$osure* !e "!ree mos" freuen"(#

used ris% measuremen" s#s"ems "o uan"if# in"eres" ra"e ris% e$osure are rericing ma"uri"# gareor"s) ne" income simu(a"ion mode(s and economic 'a(ua"ion or dura"ion mode(s* !e

fo((o+ing "ab(e summaries "!e "#es of in"eres" ra"e e$osures "!a" "!ese measuremen"

"ec!niues address:

,able $: Interest Rate Risk Models

-a Reort Earnings Economic aluation

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#imulation

S!or";erm Earnings

E$osure Jes Jes >enera((# does no"

dis"inguis! s!or";

"erm accoun"ing

earnings from

c!anges in economic

'a(ue

@ong;erm E$osure

Jes @imi"edK Jes

?ericing ?is% Jes Jes Jes

Basis ?is% @imi"edK Jes @imi"edK

Jie(d Cur'e ?is% @imi"edK Jes Jes

"ion ?is% @imi"edK @imi"edK Jes

K!e abi(i"# of "!ese "#es of mode(s "o ca"ure "!is "#e of ris% +i(( 'ar# +i"! "!e

so!is"ica"ion of "!e mode( and "!e manner in +!ic! ban% managemen" uses "!em*

Ban%s +i"! significan" o"ion ris% ma# su(emen" "!ese mode(s +i"! o"ion ricing or /on"e

Car(o mode(s* Bu" "!e cos" of de'e(oing o"ions ricing mode(s +ou(d ou"+eig! "!e benefi"s

of "!e mode(s for sma(( ban%s* Suc! ban%s s!ou(d use "!eir da"a and measuremen" s#s"ems "o

iden"if# and "rac% roduc"s "!a" ma# crea"e significan" o"ion ris% in a "ime(# and meaningfu(

manner* roduc"s "!a" crea"e o"ion ris% inc(ude non ma"uri"# deosi"s) (oans and securi"ies +i"!

rea#men" and e$"ension ris%) and e$(ici" and embedded cas on ad,us"ab(e ra"e (oans* Ban%

managemen" s!ou(d unders"and !o+ suc! o"ions ma# a("er "!e ban%6s in"eres" ra"e e$osure

under 'arious in"eres" ra"e en'ironmen"s*

/anagemen" s!ou(d ensure "!a" "!e measuremen" s#s"em is adeua"e "o assess ma"eria( in"eres"

ra"e ris% irresec"i'e of "!e "#e and (e'e( of com(e$i"# of "!e measuremen" s#s"em* In order "o

comu"e and uan"if# ris% e$osure) a(( ris% measuremen" s#s"em reuire a ban% "o ga"!er and

inu" da"a) ma%e assum"ions abou" ossib(e fu"ure in"eres" ra"e en'ironmen"s and cus"omer

be!a'ior* !ese s"es need "o be re'ie+ed b# in"erna( or e$"erna( audi"ors "o assess "!e

adeuac# of "!e s#s"em*

Interest Rate Risk Monitoring and Reorting

n accura"e) informa"i'e and "ime(# managemen" informa"ion s#s"em is fundamen"a( "o informmanagemen" abou" in"eres" ra"e ris% e$osure and suor" com(iance +i"! board o(ic#* !e

reor"ing of ris% measures s!ou(d be regu(ar and comarison of curren" e$osure +i"! o(ic#

(imi"s s!ou(d a(so be reor"ed* >enera((# "!e I?? e$osure reor" is submi""ed "o "!e board on a

uar"er(# basis* -eending on "!e ban%6s (e'e( of ris% and "!e (i%e(i!ood of i"s (e'e( of ris%

c!anging significan"(#) reor"s on "!e I?? rofi(e ma# be submi""ed "o managemen" more

freuen"(#*

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10/40


a (imi" based on ne" in"eres" income* Sin%e# 20025 iden"ifies ne" in"eres" income and "!e ne"

in"eres" margin as "!e rimar# sse" @iabi(i"# /anagemen" "arge" 'ariab(es +!ose 'ariabi(i"#

mus" be minimied*

Ban%s +i"! significan" non in"eres" income and e$enses i"ems "!a" are sensi"i'e "o in"eres" ra"es

norma((# s!ou(d consider a more bo""om;(ine;orien"ed "arge"ed accoun") suc! as ne" income orearnings er s!are*

Caital/At/Risk 0EE %imits

!e sie and com(e$i"# of "!e under(#ing osi"ions s!ou(d be ref(ec"ed in "!e ELE (imi"s of a

ban%* .or ban%s +i"! fe+ !o(dings of com(e$ ins"rumen"s and (o+ ris% rofi(es) (imi"s on

a((o+ab(e !o(dings or rericing misma"c!es in in"ermedia"e and (ong "erm ins"rumen"s ma# be

sufficien"* " more com(e$ ins"i"u"ions) more e$"ensi'e (imi" s"ruc"ures ma# be necessar#*

@imi"s "o res"ric" ossib(e (osses of economic 'a(ue or cai"a( s!ou(d be es"ab(is!ed b# ban%s

"!a" !a'e significan" in"ermedia"e and (ong "erm misma"c!es or com(e$ o"ions osi"ions*

-a %imits

!e ga mode( is "!e "radi"iona( measure of "!e "o"a( effec" of in"eres" ra"e c!anges on

robabi(i"# used b# ban%s according "o Bou%rami 20035 and i" is a(so one of "!e sim(es"

"ec!niues used b# ban%s as er Bas(e Commi""ee* !is +as confirmed b# effernan 1995

and >u e" a( 2005 +!o described ga ana(#sis as "!e easies" and mos" common(# used

in"eres" ra"e ris% measuremen" "oo(* >a ma"uri"# or rericing5 (imi"s are designed "o reduce "!e

o"en"ia( e$osure "o a ban%6s earnings or cai"a( from c!anges in in"eres" ra"es* !is is

suor"ed b# eme( e" a( 19995 +!o s"a"es "!a" ma"c!ing gas a""em"s "o s"abi(ie earnings*

!e (imi"s con"ro( "!e 'o(ume or amoun" of rericing imba(ances in a gi'en "ime eriod*

!ese (imi"s of"en are e$ressed b# "!e ra"io of ra"e;sensi"i'e asse"s ?S5 "o ra"e;sensi"i'e

(iabi(i"ies ?S@5 in a gi'en "ime eriod* ra"io grea"er "!an one sugges"s "!a" "!e ban% is asse";

sensi"i'e and !as more asse"s "!an (iabi(i"ies sub,ec" "o rericing* !e earnings of a ban% +i(( be

reduced b# fa((ing in"eres" ra"es a(( o"!er fac"ors being cons"an"* n ?S?S@ ra"io (ess "!an

one means "!a" "!e ban% is (iabi(i"# sensi"i'e and "!a" i"s earnings +i(( be reduced b# rising

in"eres" ra"es* "!er ga (imi"s "!a" ban%s use are ga;"o;asse"s ra"ios and ga;"o;eui"# ra"ios*

ban% "!a" re(ies so(e(# on ga measures "o con"ro( i"s in"eres" ra"e e$osure s!ou(d e$(ain "o i"s

senior managemen" and board "!e (e'e( of earnings and cai"a( a" ris% "!a" are im(ied b# i"s ga

e$osures*

Emirical Evidence

In une 2012) i" +as re'ea(ed "!a" Barc(a#s +as submi""ing muc! (o+er ra"e "!an "!e @ondon

In"erban% ffered ?a"e @IB?5 +i"! a Ban% of Eng(and* !is resu("ed in a fine of


11/40


40 mi((ion for "r#ing "o maniu(a"e a %e# ban% in"eres" ra"e +!ic! inf(uences "!e cos" of (oans

and mor"gages* !is occurred because Barc(a#s "raders (ied "o ma%e "!e ban% (oo% more secure

during "!e financia( crisis and a(so "o ma%e rofi" b# +or%ing +i"! "raders a" o"!er ban%s*

>ordon e" a( 20115 made a sur'e# "o ana(#e ris% managemen" goa(s) o(icies and erce"ions

of ris% managers in businesses and organia"ions around "!e +or(d* !is resu("ed in a broadunders"anding of "!e curren" s"a"e of corora"e ris%) suc! as in"eres" ra"e) foreign e$c!ange and

commodi"#* !e# a(so find "!a" firms use a mi$ of financia( and oera"iona( me"!ods "o manage

"!eir ris%s* !e# fa'oured o'er "!e coun"er ins"rumen"s re(a"i'e "o e$c!ange "raded ones and

for+ard con"rac"s +ere found "o be "!e mos" ou(ar deri'a"i'e ins"rumen"* !e# no"iced "!a"

"!e ou(ari"# of o"ions and o"ion combina"ions seems "o !a'e decreased re(a"i'e "o "!e

e'idence in some ear(ier sur'e#s*

-e(is e" a( 20115 ub(is!ed an ar"ic(e on in"eres" ra"es and ban% ris% "a%ing in "!e ourna( of

Ban%ing and .inance and found "!a" (o+;in"eres" ra"es indeed increase ban% ris% "a%ing

subs"an"ia((#* !e imac" of in"eres" ra"es on ris% asse"s is diminis!ed for ban%s +i"! !ig!ereui"# cai"a( and is am(ified for ban%s +i"! !ig!er off;ba(ance s!ee" i"ems*

i((iamson 20085 conc(uded "!a" "!e asse" and (iabi(i"# commi""ee of a ban% is "!e in"erna(

commi""ee c!arged +i"! "!e du"# of managing "!e ban%6s in"eres" ra"e ris% e$osure "!roug! "!e

use of 'arious !edging s"ra"egies and ins"rumen"s* e fur"!er s"a"ed "!a" i" is 'i"a( for eac!

organia"ion "o !a'e a +ri""en and documen"ed in"eres" ra"e ris% o(ic# and an aroria"e

measuremen" s#s"em* !is +as a(so suor"ed b# Bessis 20025*

-!anani e" a( 2005 +ro"e a reor" on in"eres" ra"e ris% managemen" rac"ices of eric! and =ar,a(ainen s"ud# on "!e In"eres" ?a"e ?is% /anagemen" in (arge

finis! Non;.inancia( Comanies* !e resu("s s!o+ "!a" mos" comanies "a%e a s#s"ema"ic

aroac! "o in"eres" ra"e ris% managemen") +!ic! is bes" i((us"ra"ed b# "!e fac" "!a" "!e ma,ori"#

of firms !a'e a +ri""en in"eres" ra"e ris% managemen" o(ic#* !is is a(so suor"ed b# "!e

resu("s of Erns" & Joung 20045 on "!e in"eres" ra"e ris% managemen" of mos"(# Bri"is!comanies) as +e(( as +i"! "!e resu("s of Bodnar e" a(* 19985 on


12/40


re"urns) ii5 "!e (e'e( of in"eres" ra"e ris% "a%en b# ban%s is direc"(# re(a"ed "o (iuidi"# and

in'erse(# re(a"ed "o manageria( ua(i"# and ban% sie) iii5 deri'a"i'e usage reduces e$osure or

!as a margina( imac" on e$osure and i'5 deri'a"i'e users as a grou !a'e (o+er mean and

median e$osure "!an non users*

n"onios 20095 s"udied corora"e deb"s and in"eres" ra"e ris% managemen" and found "!a" firmscan !edge i"s in"eres" ra"e e$osure b# issuing deb") "!e 'a(ue of +!ic! mo'es in an oosi"e

direc"ion from "!e 'a(ue of i"s asse"s as in"eres" ra"e 'aries*

n in'es"iga"ion on "!e mode(s of In"eres" ?a"e ?is% /anagemen" for commercia( ban%s b#

Bess(er e" a( 19945 s!o+ed "!a" "!e mode(s name(# assis" commercia( ban%s in managing i"s

e$osure "o in"eres" ra"e ris% and "!e a(ica"ion of "!e mode( "o an i((us"ra"i'e en'ironmen"

indica"es "!a" for (arger in"eres" ra"e c!anges "!e o"ion s"ra"eg# ro'ides ro"ec"ion agains"

in"eres" ra"e ris% "!an "!e s!or" fu"ures osi"ion* ccording(# ean"# 20015) in"eres" ra"es (a# a

significan" ro(e in de"ermining roduc" cos"s and earning caaci"ies for ban%s) businesses and

go'ernmen" organia"ions* Ban%s) in ar"icu(ar) re(# on in"eres" ra"e ca(cu(a"ions as a +a# "ode"ermine rofi" and (osses o'er "!e course of "ime* In"eres" ra"e ris% managemen" aroac!es

a((o+ ban%s "o con"ain o"en"ia( ris%s and redic" "!e "#es of effec"s in"eres" ra"e c!anges +i((

!a'e o'er differen" eriods of "ime*

-riga 20105 confirmed "!a" financia( in"ermedia"ion of"en e$oses ban%s "o in"eres" ra"e ris%s

b# crea"ing misma"c!es in "!e ma"uri"# s"ruc"ure and re;ricing "erms of "!eir asse"s and

(iabi(i"ies* !e in"eres" ra"e ris% is a(ong +i"! "!e (iuidi"# ris% a fundamen"a( ris% associa"ed "o

"!e managemen" of ban% resources* Bo"! "#es of ris% are caused b# "!e uncer"ain"# regarding

"!e +a# deosi"ors ma# +i"!dra+ "!eir in'es"men"s in case of in"eres" ra"e 'aria"ion) on one

!and) and b# "!e uncer"ain"# "!a" in'o('es "!e in"eres" ra"e aid b# "!e commercia( ban% "o i"s

cus"omers in order "o a""rac" and %ee funds in form of deosi"s) on "!e o"!er !and* !e in"eres"

ra"e ris% e$resses "!e (oss regis"ered b# "!e ban% because of "!e une$ec"ed e'o(u"ion of "!e

in"eres" ra"e*

Sinne# ub(is!ed an ar"ic(e in M.inance on managing in"eres" ra"e ris% and conc(uded "!a"

a(mos" a(( firms are e$osed "o in"eres" ra"e ris%) bu" i" can manifes" i"se(f in differen" +a#s*

roer resonse "o "!is ris% can on(# come fo((o+ing a fu(( unders"anding of "!e con"e$" of "!e

firm and i"s s"ra"eg#) a(ong +i"! a fu(( e'a(ua"ion of "!e ris%* .irms s!ou(d genera"e a +e((

"!oug!" ou" %e# erformance indica"or and "!en a(# one or more of "!e man# "oo(s a'ai(ab(e

in "!e mar%e" "o "ransfer in"eres" ra"e ris%*

@#don 20105 +as of "!e 'ie+ "!a" in"eres" ra"e ris% affec"s "!e 'a(ue of bonds more direc"(#

"!an s"oc%s) and i" is one of "!e (arges" ris%s "o a(( bond!o(ders* /oreo'er "!e "o"a( 'a(ue of a

sim(e in'es"men" can be affec"ed b# rising or fa((ing in"eres" ra"es* e sugges"ed "!a" e$c!ange

"raded funds can !e( "o mi"iga"e "!is from !aening* !e adeuac# and effec"i'eness of an

ins"i"u"ion6s I?? managemen" rocess and "!e (e'e( of i"s I?? e$osure are cri"ica( fac"ors in

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"!e regu(a"ors 20125 e'a(ua"ion of an ins"i"u"ion6s sensi"i'i"# "o c!anges in in"eres" ra"es and

cai"a( adeuac#* I?? managemen" s!ou(d be an in"egra( comonen" of an ins"i"u"ion6s ris%

managemen" infras"ruc"ure* /anagemen" s!ou(d assess "!e need "o s"reng"!en e$is"ing I??

rac"ices b# incorora"ing "!e suer'isor# e$ec"a"ions and managemen" "ec!niues*

C us"ra(ia 20085 issued a guide for unders"anding and managing in"eres" ra"e ris%* !e# are

of "!e 'ie+ "!a" before using financia( ins"rumen" "o manage in"eres" ra"e ris%) "!e organia"ions

s!ou(d de'e(o a o(ic# af"er de"ermining "!e ris% ae"i"e of %e# s!are!o(ders suc! as

direc"ors*

ccording "o ?ag!a'an 20035) "!e ob,ec"i'e of in"eres" ra"e ris% managemen" is "o main"ain

earnings) imro'e "!e caabi(i"#) abi(i"# "o absorb o"en"ia( (oss and "o ensure "!e adeuac# of

"!e comensa"ion recei'ed for "!e ris% "a%en and effec" ris% re"urn "rade;off* e fur"!er s"a"ed

"!a" managemen" of in"eres" ra"e ris% aims a" ca"uring "!e ris%s arising from "!e ma"uri"# and

re;ricing misma"c!es and is measured bo"! from "!e earnings and economic 'a(ue ersec"i'e*

2. Met!odolog" and Anal"sis

Met!odolog"

In "!e re'ious c!a"er) "!e 'arious researc! and findings of differen" au"!ors !a'e been

considered* I" !as been found "!a" in"eres" ra"e ris% managemen" is fundamen"a( for ban%s and

"!e ban%s !a'e ado"ed 'arious ris% managemen" "ec!niues "o mi"iga"e "!ose ris%s*

Researc! 3bjectives

Ban%s are sensi"i'e "o mo'emen"s in in"eres" ra"es and due "o !ig! (e'e( of come"i"ion among

ban%s ris% managemen" !a'e become fundamen"a( since i" !a'e an ad'erse effec"s on i"s

earnings* !erefore "!ere is a need for "!e ban%s "o be (eading in a(( asec"s and "!is can be

ac!ie'ed on(# b# roer ris% managemen"* !us "!e main ob,ec"i'es be!ind "!is s"ud# are as

fo((o+s:

-e"ermining +!e"!er ban%s are sensi"i'e "o in"eres" ra"e ris%

ssess "!e ro(e of "!e differen" commi""ees

Imor"ance of in"eres" ra"e ris% managemen" o(ic#

.ac"ors "o be inc(uded in "!e ris% managemen" o(ic#

!e"!er "!e o(ic# is aro'ed b# "!e board of direc"ors

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!e"!er (imi"s) c!anges "o o(ic#) mode(s and me"!odo(ogies "o manage in"eres" ra"e

ris% is re'ie+ed annua((# b# board of direc"ors

o find ou" "!e in"erna( measuremen" s#s"em assess a(( ma"eria( in"eres" ra"e ris% and "!e

assum"ions of "!e s#s"em are unders"ood b# "!e ris% managers

o assess +!e"!er ban%s measure "!eir 'u(nerabi(i"# "o (oss under s"ressfu( mar%e"

condi"ions

o find ou" +!e"!er "!e board of direc"ors is in'o('ed in ris% con"ro( rocess

o assess +!e"!er "!e ban% com(# +i"! "!e in"erna( o(icies and rocedures concerning

in"eres" ra"e ris%

o find ou" +!e"!er "!e firms !a'e adeua"e s"aff for managing ris%

o find ou" +!e"!er indeenden" re'ie+ is conduc"ed bo"! in"erna( and e$"erna( audi"orseriodica((#*

#urve" +esign4 #amle and #urve" +istribution

!e sur'e# s"ar"s +i"! ues"ions iden"if#ing +!e"!er ris% managemen" is essen"ia( "o "!e

resonden"6s firm fo((o+ed b# ues"ions in'es"iga"ing "!e imor"ance of "!e ro(e "!e differen"

commi""ees name(# ris% managemen" commi""ee) ris% managemen" forum) ris% di'ision ad audi"

commi""ee in "!e organia"ions in sec"ion one* Sec"ion 2 ues"ions re(a"e "o in"eres" ra"e ris%

managemen" o(icies) sec"ion "!ree see%s informa"ion abou" "!e resonsibi(i"ies "o iden"if#

in"eres" ra"e ris%) "!e imac" of c!anges in in"eres" ra"es on "!e ban%6s earnings and economic

'a(ue) "oo(s used "o assess "!ose ris%) re(iabi(i"# of in"erna( measuremen" s#s"em and fac"ors "o

be considered under s"ress scenarios* Sec"ion four of "!e sur'e# e'a(ua"es "!e fac"ors "o be

considered +!en assessing "!e ua(i"# and uan"i"# of in"eres" ra"e ris%*

!e core of "!e sam(e is "!e commercia( ban%s in /auri"ius and "!e ini"ia( sam(e (is" !ad 12

ues"ionnaires "!a" +ere dis"ribu"ed among "!e commercia( ban%s* In a(( +e recei'e 80

resonses +!ic! reresen" 4D of "!e ou(a"ion* !e sur'e# consis"s of four sec"ions) +i"!

eac! sec"ions consis"ing of 12;17 ues"ions* !e sur'e# consis"s of ues"ions in a(( (ease

refer "o endi$ 1 for a co# of "!e ues"ionnaire5*

.irs" of a(( "!e re(iabi(i"# of "!e sca(es +as e'a(ua"ed using Cronbac!6s a(!a) +!ic! measures

"!e consis"enc# +i"! +!ic! resonden"s ans+er ues"ions +i"!in a sca(e* -a"a !as been

"abu(a"ed and s"a"is"ica( "es"s suc! as -escri"i'e "es") C!i;Suare es") Corre(a"ion es") Cross

"abu(a"ion "es") .ac"or ana(#sis and /ean score ana(#sis !a'e been carried ou"*

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Reliabilit" of overall test

In order "o measure +!e"!er "!e ues"ions in "!is sur'e# are re(iab(e) a Cronbac! a(!a "es" +as

run and "!e resu(" of "!e "es" is s!o+n in ab(e 3 be(o+*

Table 3: Reliability Statistics

Cronbach's

Alpha

Cronbach's

Alpha Based on

Standardized

Items

No of Items

.858 .897 54

!e o'era(( Cronbac!6s a(!a "es" is 0*88 and i" means "!a" a(( "!e ues"ions are re(iab(e* !is

"es" is considered "o be good since a coefficien" grea"er "!an or eua( "o 0*7 is consideredacce"ab(e and a good indica"ion of cons"ruc" re(iabi(i"# Nunna((#) 19785*

Anal"sis

In "!is sec"ion +e +i(( re(a"e "!e "!eore"ica( frame of reference and our rob(em discussion "o

our emirica( findings in order "o crea"e a (in%age be"+een "!e urose and inuir# ues"ions*

+escritive Anal"sis

s s"a"ed abo'e "!e sam(e consis" of eig!" ban%s and "!e resonden"s 80 in "o"a(5 are ris%

officers 29D5) credi" ana(#s"s 9D5) financia( ana(#s"s 18D5) managers 11D5) suor" officers

2*D5) in"erna( audi"ors 22*D5 and accoun" e$ecu"i'es D5* !is is deic"ed in "!e bar c!ar"be(o+*

(igure 2: 5ob ,itle of resondents

!e second ar" of "!e sur'e# assesses "!e ro(e of "!e differen" commi""ees) forums and ris%

di'ision "o manage and moni"or ris%* s s!o+n in ab(e 4 be(o+) "!e minimum ra"ing used b#

u(# 2;3) 2013

Cambridge)


16/40


17/40


Table 5: Distribution of responses for review of limits set and models

3re!enc 6ercent 0alid 6ercent

C!m!lati$e

6ercent

0alid Ne!tral 8 -*.* -*.* -*.*

Aree +4 4.5 4.5 5.5

stronl aree +8 47.5 47.5 -**.*

otal 8* -**.* -**.*

Table 6: Descriptive statistics - Procedures for exceptions to policy

N

inim!

m

a"im!

m

Std.

#e$iation S%e&ness !rtosisStatist

ic Statistic Statistic Statistic

Statisti

c

Std.

(rror

Statisti

c

Std.

(rror

Specificproced!re

s for e"ceptions to

polic

8* 5 ./-- ,.4* ./9 -.-/4 .5+

0alid N 1list&ise2 8*

s indica"ed abo'e in ab(e ) "!e da"a is s%e+ed "o "!e (ef" and "!e %ur"osis s!o+ed "!a" "!e

da"a are f(a"* !e ma$imum ra"ing is F s"rong(# agree and minimum ra"ing se(ec"ed is 2F

disagree* .rom "!e abo'e) "+ice "!e s"andard de'ia"ion error of s%e+ness is 0*38 and since "!e'a(ue of s%e+ness of ;0*420 fa((s in "!e range ;0*38 and G0*38) +e "!erefore consider "!e

dis"ribu"ion "o be aro$ima"e(# norma(*

Sec"ion 3 of "!e ues"ionnaire iden"ifies "!e effec" of c!anges in in"eres" ra"es on "!e earnings

and economic 'a(ue of "!e ban%s* !e resu("s are dis(a#ed in ab(e 7* !e ma$imum ra"ing

used is +!ic! is s"rong(# agree and (o+es" ra"ing being 2 -isagree5* !is in (ine +i"! "!e

findings of ?ag!a'an 20035 and Bas(e Commi""ee +!o s"a"ed "!a" "!e effec"s of in"eres" ra"e

s!ou(d be measured from earnings and economic ersec"i'e*

u(# 2;3) 2013

Cambridge)


18/40


Table :Statistics for effects of c!an"es in interest rate on earnin"s and economic value

of ban#s

N

inim!

m

a"im!

m

Std.

#e$iation S%e&ness !rtosis

Statistic Statistic Statistic Statistic Statistic

Std.

(rror Statistic

Std.

(rror

(arnins 8* 5 ./+ ,.+/+ ./9 .8/+ .5+(conomic 8* + 5 ./54 ,.*5* ./9 ,./* .5+0alid N

1list&ise2

8*

'arie"# of me"!ods are a'ai(ab(e for measuring in"eres" ra"e ris% e$osure* !ese me"!ods

differ in "!eir com(e$i"# as +e(( as in "!eir informa"iona( 'a(ue and usefu(ness for in"eres" ra"e

ris% managemen"* ab(e 8 resen"s "!e mos" of"en me"!ods used in "!e comanies of "!is s"ud#*

s i" can be seen from be(o+) 81D of "!e ban%s use ga ana(#sis) 3D use sensi"i'i"# ana(#sis

and D using !edging "ec!niues* n(# 1D 'o"ed no" in (ace for ga ana(#sis and 1D 'o"ed

neu"ra(* !e use of ga ana(#sis b# ma,ori"# of "!e ban%s in "!e sam(e is in (ine +i"! "!e oin"

of 'ie+ of effernan 1995) Bou%rami 20035 and >u e" a( 2005 +!o s"a"ed "!a" ga

ana(#sis as "!e easies" and mos" common(# used in"eres" ra"e ris% measuremen" "oo(*F

Table 8: Distribution of responses for usage of IRR analysis tool

Gap

Durati

on

Sensitiv

ity

Simulati

on

Hedgi

ng

!ective 81% 36% 63% 50% 65%

"eutral 16% 48% 25% 35% 29%Ine!ective 0% 1% 1% 0% 0%

"ot applicable 1% 3% 4% 5% 4%

"ot in place 1% 13% 8% 10% 3%!e abo'e resu("s are a(so i((us"ra"ed in .igure 4 be(o+*

.igure 4: I?? measuremen" "oo(s

u(# 2;3) 2013

Cambridge)


19/40


s s!o+n in .igure 4) dura"ion ana(#sis seems "o !a'e (os" i"s imor"ance in in"eres" ra"e ris%

managemen") bu" "!e grou ga ana(#sis) sensi"i'i"#) simu(a"ion and !edging aears "o !a'e a

+ider user;grou* !erefore "!is grou +as no" among "!e a("erna"i'es of "!e s"ud# conduc"ed

b# a%%arainen e" a( 19975*

!e comanies +ere as%ed "o assess "o +!a" e$"en" "!e# agree "!a" "!e# s!ou(d measure "!e'u(nerabi(i"# "o (oss under s"ressfu( condi"ions on a sca(e of 1 "o ) +i"! 1 indica"ing "!a" "!e#

s"rong(# disagree and indica"ing s"rong(# agree* s deic"ed in ab(e 9 be(o+) 31*3D of "!e

resonden"s 'o"ed for measuremen" of ban%s 'u(nerabi(i"# "o (oss under s"ressfu( condi"ions and

10D of "!e resonden"s 'o"ed neu"ra(* !e ma$imum ra"ing +as F s"rong(# agree and "!e

(o+es" ra"ing +as 3F neu"ra(* I" means "!a" no one is agains" "!is s"a"emen"* !is is suor"ed

b# >u e" a( 2005 +!o ad'oca"e "!e use of simu(a"ion for s"ress "es"ing +!ic! "ries "o uan"if#

"!e effec" of differen" in"eres" ra"e scenarios on income and cai"a(*

Table $: Responses for measurement of vulnerability to loss under

stressful conditions

3re!enc 6ercent 0alid 6ercent

C!m!lati$e

6ercent

0alid Ne!tral 8 -*.* -*.* -*.*

Aree 47 58.8 58.8 /8.8

stronl

aree

5 +-.+ +-.+ -**.*

otal 8* -**.* -**.*

S"andard de'ia"ion: 0*10S%e+ness: ;0*143 S"andard error of s%e+ness is 0*295

=ur"osis: ;0*42 S"andard error of %ur"osis is 0*325

/inimum: 3

/a$imum:

!e ne$" se" of ues"ions +as "o +!a" fac"ors are considered "o assess "!e uan"i"# and ua(i"#

of in"eres" ra"e ris% +i"!in "!e organia"ion* !e fac"ors considered +erei5 'o(ume and rice)

ii5 'u(nerabi(i"# of earnings under differing ra"e c!anges) iii5 aroria"eness of ban%6s

in"erna( measuremen" s#s"em) i'5 resence of indeenden" ris% uni") '5 in'o('emen" of board

of direc"ors) 'i5 adeua"e s"affing) indeenden" and eriodica( re'ie+ b# in"erna( and e$"erna(

audi"ors* !e resu("s from "!e resonden"s are i((us"ra"ed in "!e c!ar" be(o+*

u(# 2;3) 2013

Cambridge)


20/40


21/40


Table %%: )rosstab for importance of ris# mana"ement and ban# name

Ban% name

otalSB CB

Ban%

ne

Standa

rd

Brame

r

Afraisi

a

Barcla

s

6C

B

Importance

of ris%

manaeme

nt

stronl

disaree .*: .*: .*: .*: .*: --.-: .*: .*: -.+:

aree

/.+

:

5.9: -.5: 5*.*: .: 55./: 4*.*: *.*: /.+:

stronl

aree 7+.7

:

94.-: 87.5: 5*.*: 77.8: ++.+: /*.*: 8*.*: 7.5:

otal -**.*

:

-**.*

:

-**.*

:

-**.*

:

-**.*

:

-**.*

:

-**.*

:

-**.*

:

-**.*

:

earson C!i O Suare: 20*297 Sign 0*1215

Cramer6s L O 0*3

18 ce((s 7*0D5 !a'e e$ec"ed coun" (ess "!an * !e minimum e$ec"ed coun" is 0*0*

s i((us"ra"ed in ab(e 11 abo'e) "!e ma,ori"# of "!e resonden"s 72*D5 'o"ed s"rong(# agree

fo((o+ed b# 2*3D agreed "!a" ris% managemen" is essen"ia( for "!e success of "!e organia"ion

irresec"i'e of "!e name of "!e ban%* !ere is no s"a"is"ica( significance difference among a(( "!e

ban%s as "!e earson c!i;suare is 20*297 and "!e assum"ion significance is 0*121*

ab(e 12 be(o+ deic"s "!a" "!e resonses for imor"ance of ris% managemen" is consis"en" +i"!

"!e abo'e resu("* I" means "!a" a(( "!e resonden"s irresec"i'e of "!e na"ure of ,ob agree "!a" ris%

managemen" is fundamen"a( for "!e success of "!e organia"ion*

u(# 2;3) 2013

Cambridge)


22/40


Table %*: )rosstab for importance of ris# mana"ement and +ob Title

;ob itle

otal

)is%

officer

Credit

analst

3inanci

al

analst anaer

S!pport

officer

Internal

A!ditor

Acco!n

ts

("ec!ti

$e

Importanc

e of ris%

manaem

ent

stronl

disare

ed

.*: .*: 7.-: .*: .*: .*: .*: -.+:

Aree

-7.4: 8./: 4.9: .: .*: 7.8: .*: 4.7:

stronl

aree 8./: 7-.4: 5*.*: 77.8: -**.*: 7.: -**.*: 74.*:

otal

-**.*:

-**.*:

-**.*:

-**.*: -**.*: -**.*: -**.*: -**.*:

Pearson Chi- Square: 10.385 (Sig: 0.582)

Cramers !: 0.566

15 "e##s ($1.4%) hae e&'e"e "oun #ess han 5. *he minimum e&'e"e

"oun is 0.03

u(# 2;3) 2013

Cambridge)


23/40


24/40


Table %: )rosstab for ade,uate staffin" by "ender

=ender

otalale 3emale

Ade!atestaffin No --.8: /.9: -*.*:

No Idea -./: 7./: +.8:

Not Applicable +.9: +.4: +.8:

Ne!tral -9./: -*.+: -/.+:

i%elihood )atio .*89 4 .7-9

>inear,b,>inear

Association

.--- - .7+9

N of 0alid Cases 8*

a. 4 cells 14*.*:2 ha$e e"pected co!nt less than 5. he minim!me"pected co!nt is -.*9.

Cramer?s 0@ *.-58

!ere is no s"a"is"ica( significance difference be"+een "!e resonses ob"ained from "!e

resonden"s deending uon "!e osi"ion !e(d in "!e organia"ion and gender differen"ia"ion* I"

can a(so be seen "!a" "!e s"reng"! of associa"ion be"+een "!e 'ariab(es are good a" 0*18*

*"ot!esis ,esting

u(# 2;3) 2013

Cambridge)


25/40


Table %6: +ob title . Documented (RR policy )ross tabulationCo!nt

(ach oranisation m!st ha$e a doc!mented

I)) polic

otaldisaree ne!tral aree

stronl

aree

;obtitle )is% officer * 7 -4 +

Credit analst - * - 5 7

3inancial

analst

* * 5 9 -4

anaer * * 5 4 9

S!pport officer * * *

Internal A!ditor * - / -- -8

Acco!nts

("ec!ti$e

- * - 4

otal + 5 47 77

s i" can seen from ab(e 1 abo'e) a(( "!e resonden"s agreed "!a" eac! organia"ion mus" !a'e

a documen"ed in"eres" ra"e o(ic# consis"en" +i"! "!e na"ure and com(e$i"# of "!e

organisa"ion6s ac"i'i"ies* I" can a(so be no"ed "!a" none of "!e ris% officers) financia( ana(#s" and

in"erna( audi"ors 'o"ed disagree or neu"ra(* C!i;suare "es" +i(( be carried ou" as fo((o+s:

0: !ere is an associa"ion be"+een "!e e$is"ence of documen"ed in"eres" ra"e ris% o(ic# and

,ob "i"(e

1: !ere is no associa"ion be"+een "!e e$is"ence of documen"ed in"eres" ra"e ris% o(ic# and

,ob "i"(e*

!e "es" +i(( be carried ou" a" D (e'e( of significance and "!e "es" s"a"is"ics +i(( be "!e C!i;

suare "es"*

!e "es"s s"a"is"ics are as fo((o+s:

u(# 2;3) 2013

Cambridge)


26/40


Table %: )!i-S,uare Tests

0al!e #f

Asmp. Si. 1,

sided2

6earson Chi,S!are *.-++

a

-8 .+5>i%elihood )atio -/.5- -8 .55/

>inear,b,>inear

Association

.-+* - .7-9

N of 0alid Cases 77

a. cells 178./:2 ha$e e"pected co!nt less than 5. he minim!m

e"pected co!nt is .*5.

b. Cramer?s 0@*.+5

ccording "o "!e ;La(ue of "!e earson C!i;Suare 0*325 from "!e abo'e "ab(e) since i" is

grea"er "!an 0*0) ois acce"ed* !us "!ere is an associa"ion be"+een ,ob "i"(e and in"eres" ra"e

ris% o(ic#* !is im(ies "!a" "!e em(o#ees are +e(( educa"ed*

Table %/: )rosstab for compliance wit! (RR policies and ban# name

Ban% name

otalSB CB

Ban%o

ne

Standar

d Bramer Afraisia

Barcla

s

6C

B

Complian

ce &ith

I))

internal

policies

controls

and

proced!r

es

No Idea 5.+: 5.9: 44.4: 4*.*: -*.*:

Ne!tral -5.8: +.5: -.5: --.-: --.-: -.5:


27/40


suor" officers 0D5 +!o !a'e (i""(e %no+(edge of in"eres" ra"e ris% managemen"* !is resu("

is s!o+n in ab(e 18*

Com(iance +i"! I?? in"erna( o(icies) con"ro( and rocedures +ere found "o be imor"an"

irresec"i'e of "!e osi"ion !e(d b# "!e resonden"s* !is is s!o+n in ab(e 19*

Table%$: )ompliance wit! (RR policies and +ob Title )rosstabulation

;ob itle

otal

)is%

officer

Credit

analst

3inancia

l analst anaer

S!pport

officer

Internal

A!ditor

Acco!nt

s

("ec!ti$

e

Compliance

&ith I))internal

policies

control and

proced!res

No

Idea

-+.*: -4.+: -4.+: 5*.*: 5./: -*.4:

Ne!tral 8.7: -4.+: --.-: 5./: 5.*: 9.-:


28/40


!e ro(e of "!e ris% managemen" commi""ee and ris% managemen" forum is imor"an" for

effec"i'e ris% managemen"* ab(e 20 ro'ides "!e means and i" can be seen from "!e a'erage

means 4*395 "!a" "!e commercia( ban%s agreed "!a" "!e ro(e of "!ese commi""ees is imor"an" in

main"aining "!eir in"eres" ra"e ris% +i"!in "!eir dec(ared (imi"s* !e ro(e "o de"ermine ris%

"o(erance and ae"i"e ob"ained "!e !ig!es" mean 'a(ue of 4*3 fo((o+ed b# "!e ro(e of assis"ing

board in fu(fi((ing i"s o'ersig!" resonsibi(i"ies of 4*4) indica"ing "!a" "!e commi""ees s!ou(d

de"ermine aroria"e ris% (imi"s in (ine +i"! ban%s ris% rofi(e and assis" "!e board "o manage

ris%*

Table *%: 0ean Score

N ean

In$ol$ement of board

of directors

8* 4./5

6resence of

independent ris%

control !nit

8* 4.5

0alid N 1list&ise2 8*

ab(e 21 abo'e s!o+s "!e mean score for in'o('emen" of board of direc"ors in ris% con"ro(

rocess and +!e"!er "!e ban% !as an indeenden" ris% con"ro( uni"* Bo"! e(emen"s ro'ed "o be

imor"an" since "!eir mean score is abo'e 3 bu" "!e in'o('emen" of board of direc"ors aears "o

be of more imor"an" since i"s mean score is grea"er "!an "!e resence of indeenden" ris%

con"ro( uni"* !is indica"es "!a" efficien" ris% managemen" rac"ices is one of "!e ban%6s

ob,ec"i'es*

!e fo((o+ing "es" +i(( in'es"iga"e +!e"!er "!e mean score reor"ed for in'o('emen" of board of

direc"ors in ris% managemen" is significan"(# grea"er "!an "!ose of "!e indeenden" ris% con"ro(

uni"*

o: /1 /2

1: /1P/2

!ere /1 is "!e mean score of "!e in'o('emen" of board of direc"ors in ris% con"ro( rocess

and /2 is "!a" of indeenden" ris% con"ro( uni"*

u(# 2;3) 2013

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29/40


!e "es" +i(( be carried ou" a" D (e'e( of significance and "!e "es" s"a"is"ics +i(( be an

indeenden" sam(e ";"es"* !e resu(" is as fo((o+s:

1roup StatisticsIndependent ris%

control !nit N ean

Std.

#e$iation

Std. (rror

ean

In$ol$ement of Board

of #irectors

No - 5.** . .

e$ene's

est for

(!alit of

0ariances t,test for (!alit of eans

3 Si. t df

Si.

1,

tailed2

ean

#ifferenc

e

Std. (rror

#ifferenc

e

95:

Confidence

Inter$al of th

#ifference

>o&er ppe

In$ol$emen

t of Board

of #irectors

(!al

$ariances

ass!med

. . .+79 /- .7*/ .+*/ .8*8 ,-.+*9 -.9

(!al

$ariances

not

ass!med

. . . .+*/ . .

!e ;'a(ue is 0*70 +!ic! is grea"er "!an 0*0* !us "!ere is no" enoug! e'idence "o re,ec" 0*

!us i" can be assumed "!a" bo"! e(emen"s are imor"an"* !is im(ies "!a" for roer ris%

managemen" "!e in'o('emen" of board of direc"ors and "!e resence of indeenden" con"ro( uni"

is essen"ia(*

u(# 2;3) 2013

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Table *3: 0ean score for components of interest

rate ris# policy

(RR policy s!ould include ean

>ines of responsibilit o$er I))

manaement decisions 4.-4

#efine a!thorised hedin

instr!ments

+.99

#efine le$el of I)) acceptable to

the ban%

4.*7

#efine specific proced!res and

appro$al process for e"ception to

the policies limits

4.-4

0alid N 1list&ise2

'erage 4*09

Eac! ban% !as an in"eres" ra"e ris% I??5 o(ic# and "!e mean of "!e sam(e resonses on "!e

comonen"s of I?? o(ic# is 4*09) +!ic! indica"es "!a" "!e commercia( ban%s !a'e "!e abo'e

comonen"s in "!eir I?? o(ic#* I" can a(so be seen from "!e "ab(e "!a" "!ere is no" a big

difference be"+een "!e means of "!e fac"ors in "!e I?? o(ic#) +!ic! means "!a" resonden"s

'ie+ed fair(# eua((# a(( "!e fac"ors of "!e I?? o(ic#*

u(# 2;3) 2013

Cambridge)


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Table *:0ean score Reportin" and monitorin" of

interest rate ris#

(RR monitorin" and reportin" ean

I)) e"pos!re report m!st be

reported on a timel basis to theboard

4.44

he report m!st incl!de findins

of internal and e"ternal a!ditors +.7/

Information sstem of the ban%

m!st capt!re mat!rit aps

earnins and economic $al!e

sim!lation and res!lts of stress

tests

4.+/

0alid N 1list&ise2

'erage 4*19

?is% moni"oring can be used "o ma%e sure "!a" ris% managemen" rac"ices are in (ine +i"!

desired rac"ices* roer ris% moni"oring a(so !e(s ban% managemen" "o disco'er mis"a%es

ear(#* !e ues"ionnaire inc(udes "!ree ues"ions addressing I?? moni"oring* ab(e 24

summaries "!e sam(e resonses on "!ese ues"ions* !e mean of "!e sam(e6s resonses on"!e "!ree ues"ions is 4*19) +!ic! indica"es "!a" "!e commercia( ban%s !a'e an efficien" ris%

moni"oring and con"ro((ing s#s"em* I" is no"ed "!a" a(( "!e ban%s agree "!a" in"eres" ra"e ris%

reor" mus" be reor"ed on a "ime(# basis "o board as i" !as ac!ie'ed "!e !ig!es" a'erage score

of 4*44* !e (o+es" a'erage score is "!a" "!e reor" mus" inc(ude findings of bo"! in"erna( and

e$"erna( audi"ors of 3*7) bu" "!is comonen" is considered "o be eua((# imor"an" since i"s

score abo'e "!e neu"ra( score of 3*

(actor anal"sis

Princial Comonent Anal"sis

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32/40


Table *5: Rotated )omponent 0atrix of

respondents - 2actors for assessin" (RR

Component

- +

0ol!me and price

sensiti$it

.7-

0!lnerabilit of

earnins and capital

!nder differin

interest rates

.794

("pos!re of earnins

and economic $al!e

to I))

.79/

Appropriateness of

ban%'s internal

meas!rement

sstem

./-9

6resence of

independent ris% !nit

./*-

In$ol$ement of Board

of #irectors in I))

ris% control process

.8*+

Compliance &ith

internal policies

controls and

proced!res

concernin I))

.7*9

Ass!mptions of ris%

meas!rment sstem

.8-/

Ade!ate staff for

so!nd ris%

manaement

.5-/

Independent re$ie&

b both internal and

e"ternal a!ditors

./97

(ien$al!e .75* -.74 -.4/

*.59

u(# 2;3) 2013

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33/40


Table *5: Rotated )omponent 0atrix of

respondents - 2actors for assessin" (RR

("traction ethod@ 6rincipal Component

Analsis.

)otation ethod@ 0arima" &ith aiser

Normalization.

otal $ariance e"plained@ 59.54:

Barlett?s est of Spericit@ -89.99+ 1.***2

aiser,eer,%lin eas!re of Samplin

ade!ac

!e "!ree fac"ors accoun"ed for 9*4 ercen" of "!e 'ariance e$(ained* ?o"a"ed fac"or

(oadings) communa(i"# ac"ua( 'ariance e$(ained b# eac! 'ariab(e5 and con"en" of "!e fac"ors

are in Table 25 a(ong +i"! eigen'a(ues*

u(# 2;3) 2013

Cambridge)


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Table *6: Rotated )omponent 0atrix Role of

Ris# )ommittees

Component

- +

#etermines ris%

tolerance and

appetite

./-+

Assists board in

f!lfillin its o$ersiht

responsibilities

.885

)e$ie&s ris%

portfolios aainst

tolerance

./88

3orm!lates and

implements strate

for I))

.89

)ecommends

chanes to policies

.78-

6lans !ides and

monitors the

acc!m!lation of

assets

./99

onitors pr!dential

limits and ris% profile

.8+

(ns!res compliance

&ith re!lator norms

.7/8

)eports to )is%

3or!m and Board

.78+

(ien$al!e .8++ -.8*+ -.-97

-: of $ariance

e"plained

+.++* -.9+ -9.554

*./7

Cronbach?s Alpha *./4* *.7+ *.7

("traction ethod@ 6rincipal Component Analsis.)otation ethod@ 0arima" &ith aiser

Normalization.otal $ariance e"plained@ /9.8:

Barlett?s est of Spericit@ -87.+*4 1.***2

u(# 2;3) 2013

Cambridge)


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!e "!ree fac"ors accoun"ed for 9*82 ercen" of "!e 'ariance e$(ained* ?o"a"ed fac"or

(oadings) communa(i"# ac"ua( 'ariance e$(ained b# eac! 'ariab(e5 and con"en" of "!e fac"ors

are in Table 26 a(ong +i"! eigen'a(ues and 'ariance e$(ained* !e in"erna( consis"enc# of "!e

'ariab(es +i"!in a fac"or +as "es"ed using "!e Cronbac!6s (!a* !e "es" is re(iab(e as "!e

Cronbac!6s (!a is abo'e 0*7 Nunna((#) 19785*

7ruskal/8allis ,est

!e %rus%a(;a((is "es" a(so confirmed "!e resence of s"a"is"ica( significan" re(a"ions!i

be"+een "es" 'ariab(es effec"i'e ris% managemen") in'o('emen" of board of direc"ors) re'ie+ of

(imi"s) recommend c!anges "o o(icies5 and "!e ban% name) ,ob "i"(e and gender*

Table *: 4rus#al-allis Test %

Ban%

name N

ean

)an%

Importance

of ris%

manaeme

nt

Sbm -9 4-.--

cb -7 49.-8

ban%one 8 4/.5/

standard 8 +-.75

bramer 9 4.7

Afraisia 9 +.94

Barclas 5 +5.7*

6CB 5 4+./*

otal 8*

Chi + square: 15.001 (sig: 0.036)

u(# 2;3) 2013

Cambridge)


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Table */: 4rus#al-allis Test *

;ob itle N

ean

)an%

Importance

of ris%

manaement

)is% officer + 4.+9

Credit analst 7 +8.-4

3inancial

analst

-4 9.9

anaer 9 4*.5/

S!pport officer 49.**

Internal A!ditor -8 +8.44

Acco!nts

("ec!ti$e

4 49.**

otal 77

Chi-square: $.649 (sig 0.265)

Table *$: 4rus#al-allis Test 3

=ender N

ean

)an%

Importance of

ris% manaement

ale 5- +9./7

3emale 9 4-.97

otal 8*

Chi - square: 0.301 (sig 0.583)

s i((us"ra"ed in ab(e 27) ab(e 28 and ab(e 29) "!ere is no s"a"is"ica( significan" re(a"ions!i

be"+een "!e 'ariab(es grea"er "!an 0*05) irresec"i'e of "!eir ,ob "i"(e) ban% name and gender*I" means "!a" a(( "!e resonden"s consider "!ese 'ariab(es as being imor"an"*

Conclusion

!e resu(" of "!is sur'e# ro'ides a broad unders"anding of "!e curren" s"a"e of in"eres" ra"e ris%

managemen" among "!e commercia( ban%s* In"eres" ra"e ris% managemen" is considered "o be

essen"ia( b# a(( ban%s in "!e sam(e*

I" +as no"ed "!a" a(( ban%s are sensi"i'e "o c!anges in in"eres" ra"es as i" !as an ad'erse effec" on

"!e ban%6s earnings and economic 'a(ue of "!eir asse"s) (iabi(i"ies and off ba(ance s!ee"

osi"ions* +ide 'arie"# of me"!ods are a'ai(ab(e for managing in"eres" ra"e ris%) "!e

+idesread me"!ods used b# "!e commercia( ban%s are ga ana(#sis) sensi"i'i"# ana(#sis) s"ress

"es" and !edging "ec!niues*

!e sur'e# !ig!(ig!"s "!a" commercia( ban%s !a'e se" u differen" commi""ees "o moni"or and

manage in"eres" ra"e ris%* !e ro(e of eac! commi""ees6 are defined for roer con"ro(* .or

e$am(e "!e ris% ae"i"e and "o(erance are de"ermined b# "!e ris% managemen" commi""ee

u(# 2;3) 2013

Cambridge)


37/40


+!i(e c!anges "o o(icies) rocesses and arame"ers are recommended "o "!e board b# "!e ris%

managemen" forums* sse" (iabi(i"# managemen" forums a(so !a'e been se" u and "!e members

mee" regu(ar(# "o discuss on (iuidi"# osi"ions and in"eres" ra"e ris%*

In addi"ion "o "!e abo'e) i" +as a(so found "!a" a(( ban%s "a%e a s#s"ema"ic 'ie+ on in"eres" ra"e

ris% managemen") +!ic! is bes" i((us"ra"ed b# "!e fac" "!a" eac! ban% !as a +ri""en in"eres" ra"eris% managemen" o(ic# in (ace +!ic! is a(so a regu(a"or# reuiremen" bo"! b# "!e Ban% of

/auri"ius and Base( Commi""ee* !is is in accordance +i"! "!e resu("s of Erns" and Joung

20045 on "!e in"eres" ra"e ris% managemen" of mos"(# Bri"is! comanies) as +e(( as +i"! "!e

resu("s of Bodnar e" a(* 19985 on


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Bar"ram) S* 20025) The Interest Rate Exosure of !onfinan"ial #ororations* Euroean

.inance ?e'ie+) Lo(* ) No* 1* * 101;12

Bas(e II 20095) H>uide(ine on measuremen" and managemen" of mar%e" ris%6) n(ine ma"eria()

a'ai(ab(e a":

!"":bom*in"ne"*mudf@egis(a"ion>uide(inesCom(iance>uide(ines>uide(ine/ar%e"?is%*df

Bess(er) * & Boo"!) >*>* 19945) Hn in"eres" ra"e ris% managemen" mode( for commercia(

ban%s6)Euroean $ournal of %erational Resear"h 74) 243;2

Bodnar) >*) a#") >*) /ars"on) ?*) 19985) 1998 !ar"on Sur'e# of .inancia( ?is%

/anagemen" b#


39/40


>eric!) */*L*) =ar,a(ainen) *) 2005) In"eres" ?a"e ?is% /anagemen" in @arge .innis! Non;

.inancia( comanies*

>(oba( reasur# d'isor# Ser'ices "eam) Erns" & Joung* 20045) reasur# era"ions Sur'e#

2004* 'ai(ab(e


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San,a#) =*) >(oria /*) /anaging In"eres" ?a"e ?is%: !e Ne$" C!a((engeR E(ec"ronic5*

'ai(ab(e: !"":ssrn*com

San"omero) */*) 19875) Commercia( Ban% ?is% /anagemen": n na(#sis of "!e rocess)

ourna( of .inancia( Ser'ices ?esearc!) 12) 83;11

Saunders) * 20005) &inan"ial institutions (ana'e(ent , / (odern erse"tive* Ne+ Jor%:

Ir+in /c>ra+;i((*

Sin%e#) *.*r*) 20025) Commercia( Ban% .inancia( /anagemen": in "!e financia(;ser'ices

indus"r# e5* Ne+ erse#

S"u() ?*) 1995 ?e"!in%ing ?is% /anagemen"* ourna( of (ied Corora"e .inance) Lo(*9

No*3

Sinne#) *) /anaging In"eres" ?a"e ?is%* M.INNCE* 'ai(ab(e: +++*finance*com

rian"is) **) 19995) ?ea( "ions and Corora"e ?is% /anagemen" In Corora"e ?is%T

S"ra"egies and /anagemen") edi"ed b# >regor# * Bro+n and -ona(d *C!e+* >rea" Bri"ain)

?is% Boo%s*
http://ssrn.com/http://www.qfinance.com/http://ssrn.com/http://www.qfinance.com/

Seetanah B, Thakoor P

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