Model for analyzing the sensitivity of the bank’s risk indicators to the interest rate variation

Commercial banks carry out a complex number of lending operations, mainly from the money means from the attracted deposits. There are two groups of banking operations, namely active banking operations, which include primarily credit and securities transactions. The second category or group is the passive operations that are mainly represented by attracting sight and / or term deposits, attracting loans as well as securities issues. Throughout the banking business, there is a risk of interest rate variation that may result in a decrease in revenue earned from interest, commissions, amid rising interest expense. There are maturity ranges that can identify a number of factors influenced by interest rate variation. Sensitive elements are those that produce effects in the same sense, that is, sensitive. Interest rate variation, one of the most common risks is the interest rate. Changing the interest rate may determine the amount of revenue earned by reflecting in the balance sheet the value of the bank’s assets and liabilities. The interest rate risk, traditionally measured by the difference between assets and interest-sensitive liabilities, gives a report on the bank’s situation at a certain point in time. In this respect, the interest rate is calculated, given by the difference between assets and liabilities that are sensitive to the change in the interest rate at a given moment. This sensitivity index is subunit, meaning that assets sensitive to sensitive liabilities are reported and it should be subunit to show the bank’s power and life. The bank’s strategy for managing interest rate risk is interpreted as an optimal, ie a minimal risk, and this happens when the spread approaches zero or is a fractional index as small as possible. The interest rate risk model is measured by calculating the spread for different time intervals based on the book value of those items. Such an analysis involves performing some steps, such as determining sensitive assets and liabilities, grouping assets and liabilities according to their maturity, calculating the differences for each period of time and direct interpretation, or using sensitivity analysis methods of this spread. Interest rates in the banking system are fluctuating and can influence the net interest income of the bank, which depends on the structure of the portfolio that is sensitive to interest rates. Another aspect is the duration, which is considered as an extension of the gap analysis, of difference, which provides additional information about the interest rate risk on imbalances that may occur between the different bands of maturity. The duration analysis shows that the interest rate risk arises as a result of the non-correlation in time of the inputs and outputs of assets and liabilities and establishes a direct link of proportionality between the change in the portfolio thus formed and the interest rate changes. On the other hand, the proportion is calculated as the ratio of the market value of the total asset or liability to the market value of the total assets or liabilities. In this article, the authors try to decipher all these elements in order to be interpreted appropriately.