1. a) Explain the sources of interest rates in a typical banking book of a bank. (5 marks)

b) Elsie Mensah is a Treasurer of Ansaba Bank Limited. During ALCO last month members expressed concern about the continuous increase in interest rates over the next 1 year and its impact on the bank's net interest income. The Treasurer was tasked to make a presentation to ALCO at the next monthly meeting on the interest rate risk the bank currently has and what should be done to hedge this risk.

She has gathered the following extracts from the bank's balance sheet as at 30th June 2022

Assets

1. Consumer loans GHS 300m, 7 year maturity with rates fixing every 3months
2. Corporate Loans - GHS 250m, 2 year tenor with 6months rate fixing.
3. Mortgage Loans- GHS 100m, 25 year with I year rate fixing
4. Fixed rate loans - GHS 650m, 5 year personal loans.
5. Government Securities - GHS 150m 91 day, 200m 182 day and 2 year 140m bond.
6. Interbank Lending- GHS 50m invested for 1 week
7. Fixed assets- GHS 120m
8. Cash- GHS 140m

Liabilities

1. Current Accounts - GHS 200m
2. Savings Accounts - GHS 150m
3. Time Deposits - GHS 550m with 12 months maturity
4. Negotiable Certificate - GHS 300m 6months maturity
5. Interbank borrowings GHS 200m with 7 days to mature
6. Subordinated debt- GHS 200m rates fixing every 6mths

5. Equity - GHS 400m

You are required to:

a) Calculate the 12 months Rate Sensitive Assets (RSA), Rate Sensitive Liabilities and Re-pricing gap. (6 marks)

b) Calculate the impact of a 300 basis point increase in interest rate on the bank's net interest income over the next 12 months (5 marks)

c) Calculate the impact on the bank's net interest income if as a results of increase in market interest rates, asset rates increase by 400bps whilst liability rate increase by 300bps. (5 marks)

d) Briefly highlights what the bank can do to minimize its interest rate risk position.(4 marks)