The funding gap (GAP) is the difference between a bank's interest rate sensitive assets (IRSA) and interest rate sensitive liabilities (IRSL), that is: funding gap (GAP) = interest rate sensitive assets (IRSA) - Interest rate sensitive liabilities (IRSL)

Interest rate sensitive assets and interest rate sensitive liabilities refer to assets or liabilities that will change their interest rates as a result of changes in market interest rates, such as interbank lending, short-term loans, short-term loans, Assets such as investments and floating-rate term loans and liabilities such as demand deposits, short-term deposits, and shortfall borrowings.

For simplicity, we can understand interest-rate sensitive assets as floating-rate assets, and interest-rate-sensitive liabilities as floating-rate liabilities. Correspondingly, non-interest-rate-sensitive assets are fixed-rate assets, and non-interest-rate sensitive assets are fixed-rate assets. Interest rate sensitive liabilities are fixed rate liabilities.

There are three situations of funding gap: positive gap, negative gap and zero gap. Net interest income change = interest rate change × funding gap

Positive gap: interest rate sensitive assets > interest rate sensitivity Liabilities (when market interest rates rise, income will increase; on the contrary, it will decrease);

Negative gap: interest rate sensitive assets < interest rate sensitive liabilities (when market interest rates rise, income will decrease; on the contrary, it will increase);

Zero gap: interest rate sensitive assets = interest rate sensitive liabilities (market interest rates change, income will not be affected)