Research On Interest Rate Risk Measurement And Control Of Chinese Commercial Banks

The Interest Rate Liberalization is a necessary condition for the development ofmarket economy."The12th Five Year Plan" clearly proposes to promote market-orientedreform of interest rate. With the acceleration of the process of China’s interest rateliberalization, especially the Liberalization in the benchmark interest rate of deposit andloan，commercial banks of China will face increasingly serious interest rate risk. Underthe condition of opening up of the banking sector, the level of interest rate riskmanagement will play a key role in improving the bank’s core competitiveness. Interestrate risk management covers many aspects, including interest rate risk monitoring,measurement and control. The paper describes the interest rate risk measurement methodswhich are often used by the western commercial banks. Through comparison of thesemethods and based on our current situation, the interest rate sensitivity gap and theduration are suitable for commercial banks of China. Control of interest rate risk is the keyto achieve the effective interest rate risk management for commercial banks. Control ofinterest rate risk can be done in the balance sheet and out of balance sheet. As for domesticfinancial market is underdeveloped, especially the lack of financial derivative instruments,the control method of interest rate risk is little and mainly concentrated in asset-liabilitymanagement, focusing on initiative asset management.The paper made an empirical analysis of interest rate risk that listed commercialbanks faced with interest rate sensitivity gap and duration method.It indicated thatstate-owned banks have more short-term deposit and long-term loan and their interest raterisk exposure are greater than the joint-stock banks. The joint-stock banks have more flexible performance in interest rate risk management than state-owned banks. The paperdemonstrated the feasibility of the duration in China with example. Based on aboveanalysis, the paper gave suggestions from the external environment and the bank itself toimprove interest rate risk management of commercial banks in China. On the one hand,interest rate liberalization should be steadily promoted. At the same time, governmentshould strengthen the construction of financial market; On the other hand, the commercialbanks should improve the interest rate risk management system, in order to make scientificand efficient measurement and control of interest rate risk.