Interest Rate Risk Management in Public Sector Bank of Bangladesh: With Special Reference to Sonali Bank Limited

Authors: 
Md. Shakhaowat Hossin, Md. Ataur Rahman
DOI Number: 
http://doi.org/10.31039/jomeino.2020.4.1.1
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.
Keywords: 
Asset-Liability Management, Interest Rate Risk, Asset-Liability Mismatch, Sensitivity analysis, Gap methods.
Full Text: 
File download
References: 

Ahmed, A. S., Beatty, A., & Takeda, C. (1997). Evidence on interest rate risk management and derivatives usage by commercial banks. Available at SSRN 33922.

Bessis, J. (2011). Risk management in banking. London: John Wiley & Sons.

Brewer, E., Jackson, W. E., & Moser, J. T. (2001). The value of using interest rate derivatives to manage risk at US banking organizations. Economic Perspectives-Federal Reserve Bank of Chicago, 25(3), 49-65.

Charumathi, B., & Balakrishnan, M. (2008, July). Asset Liability Management in Indian Banking Industry-with special reference to Interest Rate Risk Management in ICICI Bank. In Proceedings of the World Congress on Engineering 2008 Vol II, 1149-1154.

Balakrishnan, C. (2010). Interest Rate Risk Measurement in Indian Banking Industry–An Analytical Research Study. International Journal of Economic Research, 7(13).

Chen, B., & Yao, J. (2005). The Application of Duration Analysis in the Risk Management of Commercial Banks. Finance & Insurance, (6), 97-99.

Dash, M., Venkatesh, K.A., & Bhargav, B.D. (2011). An Analysis of Asset-Liability Management in Indian Banks. Retrieved from http://ssrn.com/ abstract=1760786

Dash, M., & Pathak, R. (2009). A Linear Programming Model for Assessing Asset-Liability Management in Banks. Available at SSRN 1542776.

Deng, R. (2011). The Research on Interest Rate Risk of China’s Commercial Banks. Financial Theory and Practice, (2), 72-73.

Dhanani, A., Fifield, S. G. M., Helliar, C. V., & Stevenson, L. A. (2005). Interest rate risk management-an investigation into the management of interest rate risk in UK companies. The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP, 2(4).

Faulkender, M. (2005). Hedging or market timing? Selecting the interest rate exposure of corporate debt. Journal of Finance 60 (2), 931–962.

Galai, D., Ruthenberg, D., Sarnat, M., & Schreiber, B. Z. (Eds.). (1999). Risk Management and Regulation in Banking: Proceedings of the International Conference on Risk Management and Regulation in Banking (1997). Springer Science & Business Media.

Haslem, J. A., Scheraga, C. A., & Bedingfield, J. P. (1999). DEA efficiency profiles of US banks operating internationally. International review of economics & finance, 8(2), 165-182.

Hempel, George H, Simonson Donald G (1999). Bank management: text and cases 5th edition. New York: John Wiley & Sons, Inc.

Jinlao, H. (2001). Market-oriented Interest Rate and Risk Control of Commercial Banks. Economic Research Journal, (1), 2.

Hudson, R., Colley, A., & Largan, M. (2013). The capital markets and financial management in banking. Routledge.

Li, Y. (2000). The Interest Rate Risk Management of China’s Commercial Banks. Finance & Trade Economics, (9), 33-37.

Ranjan, R., & Nallari, R. (2004). Study of asset liability management in Indian banks canonical correlation analysis. Spandan-2014.

Saunders, Anthony (2000). Financial institution management-A modern perspective. New York: Irwin McGraw-Hill.

Saunders, M & Lewis, P & Thornhill, A. 2009. Research Methods for Business Students 5th Ed. Pearson Education Limited. England.

Vaidya, P., & Shahi, A. (2001). Asset Liability Management in Indian Banks. Spandan Rao, AV (2005), ALM Systems in Banks,” Treasury Management.

Vickery, J. (2008). How and why do small firms manage interest rate risk?. Journal of Financial Economics, 87(2), 446-470.

Wang, H. (2008). The interest rate risk management of commercial banks under the background of RMB exchange rate appreciation. Financial Observation, (12), 37-39.

Wang, Q. (2010). The correlation between interest rate liberalization and monetary supply. Economic Theory and Economic Management, (1), 46-48.

Yao, Y. (2012). The countermeasures of interest rate risk of commercial banks. Financial Forum, (11), 45-51.

Ahmed, A. S., Beatty, A., & Takeda, C. (1997). Evidence on interest rate risk management and derivatives usage by commercial banks. Available at SSRN 33922.

Bessis, J. (2011). Risk management in banking. London: John Wiley & Sons.

Brewer, E., Jackson, W. E., & Moser, J. T. (2001). The value of using interest rate derivatives to manage risk at US banking organizations. Economic Perspectives-Federal Reserve Bank of Chicago, 25(3), 49-65.

Charumathi, B., & Balakrishnan, M. (2008, July). Asset Liability Management in Indian Banking Industry-with special reference to Interest Rate Risk Management in ICICI Bank. In Proceedings of the World Congress on Engineering 2008 Vol II, 1149-1154.

Balakrishnan, C. (2010). Interest Rate Risk Measurement in Indian Banking Industry–An Analytical Research Study. International Journal of Economic Research, 7(13).

Chen, B., & Yao, J. (2005). The Application of Duration Analysis in the Risk Management of Commercial Banks. Finance & Insurance, (6), 97-99.

Dash, M., Venkatesh, K.A., & Bhargav, B.D. (2011). An Analysis of Asset-Liability Management in Indian Banks. Retrieved from http://ssrn.com/ abstract=1760786

Dash, M., & Pathak, R. (2009). A Linear Programming Model for Assessing Asset-Liability Management in Banks. Available at SSRN 1542776.

Deng, R. (2011). The Research on Interest Rate Risk of China’s Commercial Banks. Financial Theory and Practice, (2), 72-73.

Dhanani, A., Fifield, S. G. M., Helliar, C. V., & Stevenson, L. A. (2005). Interest rate risk management-an investigation into the management of interest rate risk in UK companies. The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP, 2(4).

Faulkender, M. (2005). Hedging or market timing? Selecting the interest rate exposure of corporate debt. Journal of Finance 60 (2), 931–962.

Galai, D., Ruthenberg, D., Sarnat, M., & Schreiber, B. Z. (Eds.). (1999). Risk Management and Regulation in Banking: Proceedings of the International Conference on Risk Management and Regulation in Banking (1997). Springer Science & Business Media.

Haslem, J. A., Scheraga, C. A., & Bedingfield, J. P. (1999). DEA efficiency profiles of US banks operating internationally. International review of economics & finance, 8(2), 165-182.

Hempel, George H, Simonson Donald G (1999). Bank management: text and cases 5th edition. New York: John Wiley & Sons, Inc.

Jinlao, H. (2001). Market-oriented Interest Rate and Risk Control of Commercial Banks. Economic Research Journal, (1), 2.

Hudson, R., Colley, A., & Largan, M. (2013). The capital markets and financial management in banking. Routledge.

Li, Y. (2000). The Interest Rate Risk Management of China’s Commercial Banks. Finance & Trade Economics, (9), 33-37.

Ranjan, R., & Nallari, R. (2004). Study of asset liability management in Indian banks canonical correlation analysis. Spandan-2014.

Saunders, Anthony (2000). Financial institution management-A modern perspective. New York: Irwin McGraw-Hill.

Saunders, M & Lewis, P & Thornhill, A. 2009. Research Methods for Business Students 5th Ed. Pearson Education Limited. England.

Vaidya, P., & Shahi, A. (2001). Asset Liability Management in Indian Banks. Spandan Rao, AV (2005), ALM Systems in Banks,” Treasury Management.

Vickery, J. (2008). How and why do small firms manage interest rate risk?. Journal of Financial Economics, 87(2), 446-470.

Wang, H. (2008). The interest rate risk management of commercial banks under the background of RMB exchange rate appreciation. Financial Observation, (12), 37-39.

Wang, Q. (2010). The correlation between interest rate liberalization and monetary supply. Economic Theory and Economic Management, (1), 46-48.

Yao, Y. (2012). The countermeasures of interest rate risk of commercial banks. Financial Forum, (11), 45-51.

 

Page: 
1-21.
Content Status: 
Published