Esabelle Mensah is a Treasurer of E$5$ Bank Limited. During ALCO last month members expressed concern about the continuous decline in interest rates over the next $1$ year and its impact on the bank$$s net interest income. The Treasurer was therefore 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 of $30$th June $2019.$

Assets

$1.$ Consumer loans $$ GHS $450$m$,5-$year tenor with rates fixing every $6$months

$2.$ Corporate Loans $-$ GHS $350$m$,2-$year tenor with $3$ months rate fixing. The remaining term to maturity is $2$ months.

$3.$ Fixed$-$rate loans $-$ GHS $180$m$,5-$year personal loans with equal monthly cash flows.

$4.$ Government Securities$-$GHS $50$m $91$ day, $60$m $182$ day, and $2-$year $40$m bond.

$5.$ Fixed assets$-$GHS $40$m

Liabilities

$1.$ Current Accounts $-$ GHS $300$m with $25\%$ rate$-$fixing every month

$2.$ Savings Accounts $-$ GHS $350$m with $30\%$ rate$-$fixing every month

$3.$ Time Deposits $-$ GHS $100$m with $50\%$ maturity in $3$months and another $50\%$ in $6$months

$4.$ Interbank borrowings $$ GHS $20$m with $7$ days to mature

$5.$ Equity $-$ GHS $400$m

i$)$ Construct the cumulative $1-$year re$-$pricing gap for E$5$ Bank Limited.

ii$)$ Calculate the impact of a $200-$basis point decline in the interest rate on the bank$$s net interest income.

iii$)$ Calculate the impact on the bank$$s net interest income if as a result of a decline in market interest rates, the asset rate falls by $300$bps whilst the liability rate falls by $150$bps$.$

iv$)$ Briefly describe the challenges associated with using the Re$-$pricing model to estimate the level of interest rate risk in the banking book.