Esabelle Mensah is a Treasurer of E5 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 banks 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 banks balance sheet as at 31st March 2020.

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

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

3. Fixed rate loans - GHS 180m, 5-year personal loans.

4. Government Securities-GHS 150m 91 day, 160m 182 day and 2-year 140m bond.

5. Fixed assets-GHS 120m

Liabilities

1. Current Accounts - GHS 300m

2. Savings Accounts - GHS 350m

3. Time Deposits - GHS 200m with 12 months maturity

4. Negotiable Certificate-GHS 150m 6months maturity

5. Interbank borrowings GHS 50m with 7 days to mature

6. Subordinated debt-GHS 100m with rates fixing every 6mths

5. Equity - GHS 400m You are required to:

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

ii. Calculate the impact of a 150 basis point decline in interest rate on the banks net interest income over the next 12 months

iii. Calculate the impact on the banks net interest income if as a results of decline in market interest rates, asset rates fall by 300bps whilst liability rate fall by 150bps.

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