Interest rate risk management in public sector Bank of Bangladesh: With special reference to Sonali Bank Limited

Abstract

Asset liability mismatch in balance sheet of Sonali Bank Limited, Bangladesh posed serious challenges as the bank was following the traditional methods of recording assets and liabilities at the book value. The liberalization process in the economy coupled with multifaceted global developments exposed banks for various kinds of risks viz. interest rate risk, liquidity risk, exchange risk, operational risk etc. which have direct impact on their operations, profitability and efficiency to compete with. The volatility in interest rate during the last decade has witnessed risk in earnings or capital due to movement of interest rates which has affected the overall profitability of banks. Hence, there is a need for accurate measurement and control of Interest Rate Risk associated with a bank’s entire portfolio. This research paper makes an attempt to measure the Interest Rate Risk in Sonali Bank Limited by using Asset-Liability Mismatch, Relative Interest Sensitive Gap, Interest Sensitivity Ratio and Gap Analysis Technique. The findings revealed that Sonali Bank Limited, Bangladesh is greatly exposed to interest rate risk.