The Study Of Interest Rate Risk Management In Commercial Banks

With the accelerating process of the interest rate marketization and theinternationalization of financial market, the interest rate fluctuates dramatically. Chinesecommercial banks who take deposit and loan as main business face more severe interestrate risk. Due to long-term interest rate control, domestic commercial banks have enjoyedhigh spreads income. After the interest rate marketization, domestic commercial banks arefaced with the challenge of lower spreads and intense market competition. Changes ininterest rates have an impact on net interest income and equity value of commercial banks,which need to improve their ability of interest rate risk measurement and management.In this paper, the Agriculture Bank of China is taken as a case study of commercialbank interest rate risk measurement and management. First of all this paper introduces therelevant theories about commercial bank interest rate risk management, including themeaning and classification of interest rate risk, and the methods of interest rate riskmeasurement and management. Then use the reprising model and duration model tomeasure the interest rate risk of Agriculture Bank of China in2013. The result shows thatthe levels of interest rate risk are different at different times, and changes in interest ratehave different effects on net interest income and equity value. The interest rate riskexposure of Agriculture Bank of China is gradually narrowing, and the interest rate riskmanagement has achieved some success, but there are still some problems. On themanagement of interest rate risk, VaR model is not used to measure the interest rate riskof bank account. And there is not a special interest rate risk management institution in riskmanagement framework. In this regard, this paper suggests that the Agricultural Bank ofChina should adjust the balance sheet items to reduce the interest rate risk exposure, anduse the off-balance sheet financial instruments to hedge interest rate risk. Then use VaRmethod to measure the interest rate risk and improve interest rate risk measurementmethods. Also establish a special interest rate risk management institution and standardizeinterest rate risk management mechanism. Finally, Train interest rate risk managementpersonnel and enhance the ability to measure and manage interest rate risk.