Interest rate risk is one of the main financial risks of banks. Because there are many factors that affect the change of interest rate, it is more difficult to predict the change of interest rate. One of the key points in daily management of banks is how to control interest rate risk. The management of interest rate risk depends to a great extent on the management of banks' own deposit structure and the use of some new financial instruments to avoid risks or try to benefit from them.
Risk management is one of the core contents of modern commercial bank management. With the advancement of interest rate marketization, interest rate risk will also become one of the most important risks faced by commercial banks in China. The interest rate risk management of western commercial banks has been relatively mature after long-term development. However, the long-term interest rate control has led to the insensitivity of China commercial banks to interest rate changes, insufficient understanding of interest rate risks and relatively backward interest rate risk management. Therefore, how to prevent and resolve interest rate risk and effectively manage interest rate risk has become a major problem that commercial banks need to solve urgently. Interest rate risk and its classification The Basel Committee on Banking Supervision divides interest rate risk into four categories: repricing risk, basis risk, yield curve risk and option risk. 1, repricing risk
Repricing risk is the most important interest rate risk, which stems from the mismatch between the repricing time (for floating interest rates) and the maturity date (for fixed interest rates) of bank assets, liabilities and off-balance-sheet project positions. The difference between interest-sensitive assets and interest-sensitive liabilities in a certain period of time is usually called "repricing gap". As long as the gap is not zero, banks will face interest rate risk when interest rates change. In the late 1970s and early 1980s, the crisis of American Savings and Loan Association was mainly caused by the sharp rise in interest rates, which brought repricing risk.
This kind of risk is widespread, and commercial banks in China are also facing the risk of re-pricing.
2. Basic risks
When the change of general interest rate level leads to the change of interest rates of different kinds of financial instruments to varying degrees, banks will face basis risk. Even if the repricing time of bank assets and liabilities is the same, banks will face risks as long as the adjustment range of deposit interest rate and loan interest rate is not completely consistent. At present, the benchmark interest rate of commercial banks in China is generally the interest rate announced by the central bank, so the basis risk is relatively small. However, with the advancement of interest rate marketization, especially after it is in line with international standards, China's commercial banks may take LIBOR as a reference for business needs, and the basis risk will increase accordingly.
3. Risk of yield curve
The yield curve is a curve obtained by connecting the yields of bonds with various maturities. When the bank's deposit and loan interest rate is based on the yield of national debt, the adverse impact on the bank's net interest margin income and the intrinsic value of assets due to the unexpected shift or sudden change of the yield curve is the yield curve risk. The slope of the yield curve will change with different stages of the economic cycle, which makes the yield curve show different shapes. Positive yield curve generally means that the yield of long-term bonds is higher than that of short-term bonds, and there is no risk of yield curve at this time; Negative yield curve means that the yield of long-term bonds is lower than that of short-term bonds, and there is yield curve risk at this time. According to the information released by China National Debt Information Network, the face value of national debt held by China Commercial Bank has exceeded 3 trillion yuan by the end of 2004. When the yield curve is negative, the risk of the yield curve is very great for such a huge national debt balance.
4. Option risk
Option risk refers to the possibility that bank customers exercise options hidden in the business on the bank balance sheet and cause losses to the bank when interest rates change. That is, the customer may choose to repay the loan principal and interest in advance and withdraw the deposit in advance, resulting in interest rate risk.
Since 1996, China has lowered the deposit and loan interest rates for eight times, and many enterprises have "borrowed new loans for old ones", repaid outstanding loans in advance and borrowed loans with lower interest rates to reduce financing costs; At the same time, the interest rate risk awareness of individual customers is also increasing, and there is still a lack of policy restrictions on the default behavior of customers' prepayment in China. Therefore, option risk is increasingly prominent in China's commercial banks. Domestic interest rate risk and its classification China's "Guidelines for Market Risk Management of Commercial Banks" divides interest rate risk into repricing risk, yield curve risk, benchmark risk and option risk according to different sources.
1, repricing risk
Also known as maturity mismatch risk, it is the most important and common form of interest rate risk. It does not stem from the difference between the maturity (in terms of fixed interest rate) or repricing (in terms of floating interest rate) of bank assets, liabilities and off-balance-sheet business. This asymmetry of repricing makes the income or internal economic value of banks change with the change of interest rate. For example, if a bank takes short-term deposits as the financing source of long-term fixed-rate loans, when the interest rate rises, the interest income of the loans will be fixed, but the interest expenses of the deposits will increase with the increase of interest rates, thus reducing the future income and economic value of the banks.
2. Risk of yield curve
The asymmetry of repricing will change the slope and shape of the yield curve, that is, the non-parallel movement of the yield curve will adversely affect the bank's income or internal economic value, thus forming the yield curve risk, also known as the risk of interest rate term structure change. For example, if the short position of 5-year treasury bonds is a long position of 10-year treasury bonds, the economic value of the long position of 10-year treasury bonds will still decline when the yield curve becomes steep, although the above arrangement has offset the parallel movement of the yield curve.
3. Benchmark risk
Also known as the fundamental risk of interest rate pricing, it is another important source of interest rate risk. In the case of inconsistent changes in the benchmark interest rate on which interest income and interest expenses are based, although the repositioning characteristics of assets, liabilities and off-balance-sheet businesses are similar, the difference between their cash flow and income has changed, which will also adversely affect the bank's income or internal economic value. For example, a bank may use a one-year deposit as the financing source of a one-year loan, and the loan is re-priced once a month according to the treasury bill rate of the United States, while the deposit is re-priced once a month according to the London Interbank Offered Market interest rate. Although one-year loans are issued from one-year deposits, because the repricing period of interest-sensitive liabilities and interest-sensitive assets is exactly the same, there is no repricing risk, but because the changes of their benchmark interest rates may not be completely related and synchronized, banks will still face benchmark risks that they are unwilling to bear because of the changes of benchmark interest rate spreads.
4. Option risk
An increasingly important interest rate risk comes from bank assets, liabilities and options implied in off-balance sheet business. Generally speaking, options give their holders the right to buy, sell or change the cash flow of financial instruments or financial contracts in some way, but they have no obligation. Options can be separate financial instruments, such as on-exchange options and off-exchange options contracts, and can also be implied in other standardized financial instruments, such as early payment of bonds or deposits, early repayment of loans and other optional terms. Generally speaking, options and option clauses are executed when they are beneficial to the buyer and unfavorable to the seller. Therefore, this kind of option tool will bring risks to the seller because of its asymmetric payment characteristics. For example, if interest rate changes are beneficial to depositors or borrowers, depositors may choose to reschedule their deposits, while borrowers may choose to reschedule their loans, thus adversely affecting banks. Nowadays, more and more options have high leverage effect, which will further increase the option position and may have an adverse impact on the financial situation of banks. Several factors affecting the change of market interest rate 1. Macroeconomic environment. When economic development is in the growth stage, investment opportunities increase, loanable funds's demand increases and interest rates rise; On the contrary, when the economic development level is low and the society is in a depression period, the willingness to invest decreases, so the demand for loanable funds naturally decreases and the market interest rate is generally low.
2. Central bank policy.
Generally speaking, when the central bank expands the money supply, the total supply in loanable funds will increase, the supply exceeds demand, and the natural interest rate will decrease accordingly; On the contrary, the central bank implements a tight monetary policy to reduce the money supply, so that the demand in loanable funds exceeds the supply, and the interest rate will rise accordingly.
3. Price level.
Market interest rate is the sum of real interest rate and inflation rate. When the price level rises, the market interest rate also rises accordingly, otherwise the real interest rate may be negative. At the same time, due to rising prices, the public's willingness to deposit has declined, while the demand for loans from industrial and commercial enterprises has increased. The imbalance between deposit and loan caused by loan demand exceeding loan supply will inevitably lead to an increase in interest rates.
4. Stock and bond markets.
If the securities market is on the rise, the market interest rate will rise; On the contrary, interest rates are relatively low.
5. International economic situation.
Changes in a country's economic parameters, especially exchange rate and interest rate, will also affect the fluctuation of interest rates in other countries. Naturally, the rise and fall of the international securities market will also bring risks to the interest rates faced by international banking business.
Funding gap is a concept related to the length of time. The value of the gap depends on the length of the planning period, because the interest rate adjustment period of assets or liabilities determines whether the interest rate adjustment is related to the interest rate during the planning period.
In addition to the above-mentioned funding gap indicators, the interest rate sensitive ratio can also be used to measure the interest rate risk of banks. In recent years, bank managers have gradually adopted the dynamic gap method between interest-sensitive assets and interest-sensitive liabilities, one of which is "duration gap analysis".