Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 2 The management of ABC Bank Limited is worried about falling interest rates over the next 1 year and its impact on the bank's

Question 2
The management of ABC Bank Limited is worried about falling interest rates over the next 1
year and its impact on the bank's Net Interest Income, returns on loans and capital. During
ALCO last month, the treasurer of ABC Bank Ltd was tasked to quantify the risks the bank is
exposed to over the next 1 year. The Treasurer has gathered an extract of the bank's balance
sheet as at 30th June 2023 as shown below:
In addition to the balance sheet, the Treasurer has determined that the weighted average
duration of the bank's assets is 5 years whilst that of its deposits is 3 years. The current 1 year
interest rates is 16% and is forecasted to decline to 14.50% in a year's time. Also, 100% of the
short term loans re-price every 3 months, whilst 60% of the Long Term consumer loans re-price
every 6 months. The Long Term Commercial loan is 100% fixed whilst the mortgage re-price
every month.
On the deposit side, 25% of both the demand and the savings account re-price every month. As
a new recruits in the Treasury department, the Treasurer has tasked you to help determine the
following:
a) The impact on bank's Net Interest Income over the next lyr if the decline in rates as
forecasted tends to be true.
b) The impact on bank's Capital (Net worth)
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Hybrid Securities Convertible Bonds CoCo Bonds And Bail In

Authors: Jan De Spiegeleer, Wim Schoutens, Cynthia Van Hulle

1st Edition

1118449991, 978-1118449998

More Books

Students also viewed these Finance questions