Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Banking system and business

The Interest Rate Risk Management of Commercial Bank during the Process of Interest Rates Liberalization in China

Author ZhangYi
Tutor ZengZhiGeng
School Southwestern University of Finance and Economics
Course Finance
Keywords interest rate liberalization commercial bank interest rate risks management
CLC F832.2
Type Master's thesis
Year 2012
Downloads 3131
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Since1970s, a far-reaching worldwide financial transform raised up silently, which started by the investigation of the Financial Repression and Financial Deepening by2theoretical scholars Ronald I. Mckinnon and E. S. Shaw, expressed as the fresh wave of financial liberalization, take the Interest rates liberalization as the core. Same time people started to concentrate and emphasis on the problems came along with the opening of interest rate, like the fluctuation of currency exchange rate, and the prominent interest risks of the financial institutions. In the wave of the interest rates liberalization, the fluctuating level of the interest rates would be aggravated as the huge changes from the interest rates level and structure of a country. At same time if the country does not have robust market mechanism, with the property transformation not in place and the undeveloped financial market, the commercial banks of the country would be in difficult positions of depression of interests return and market value, and the treat of living space.We observed the huge impact of the interest risk to financial institutions especially banking deposit financial institutions in the last several tens of years. The major bankrupts of the US saving institutions in1980s were mostly caused by the interest risk. As the more and more fluctuating of the interest rates, those financial institutions which are not adaptable with the fluctuating or not well prepared will experience the fall in net interest income and net present worth, many financial institutions will even face the situation of bankrupt.China estanblished the Decision of The State Council on Reform of the Financial System in1993, which is a significance as it was the first time setting the interest rates liberalization goal by lagislation. Since then the reform of interests rate accelerate, after20years development, there are already119accumlated manageable types of open, merge and cancel of the foreign currencies by the People’s Bank in China. The interest rate system is also standardized and now is the critical period of interests rate liberalization There is still lack of clear understianding of interests risk of China’s comercial banks. Although certain autonomy are estanblished in interests rate management, the sensitivity level of the interests change is still low, and the attitude which value the credit risk and despise the interests risk still exist. The interest rate management methods are also limited to certain basic tools and methods such as asset-liability ratio method and notch sensitivity analysis, not able to inovate the financial risk management tools regarding self exposed risks, as well as lack of perfessional interest risk management talent and team.Follow the exterenal financial time table, China hased ended the5years transition period in Dec2006after join WTO, the degree of financial opening will be more wide, it’s just a matter of time for the opening of saving interest rate. Since2006, China has adjusted the maro economy using interest rate tool, total adjusted the interest rates18times, more half of the time after interest rate librelization reform, exposed the interest rate risk of the commercial banks. Same time according to statistics, more than90%of the total state financial assets are controled by internal banks, the study of the comercial banks’ interest rate risk is extremely important since it is the concern of the safety of the national finacil economy.In addition, because of the author’ limited capacity, there is still much need to be perfected and innovative attempt to measure some aspects, such as basic data acquisition,and the more accurate the VAR model useing in future work and strive to be more in-depth understanding in the field of risk measurement. In addition, interest rate pricing in-depth study, the interest rate pricing relates to the future development of the commercial banks, Also need to pay more attention to and understanding of the development of interest rate derivatives market in China, familiar with the use of derivative instruments for risk hedging instruments.I hope later scholars specialized research on the above questions, to really apply theory to practice, and effectively improve China’s commercial banks to their own level of risk management, and thus ensure that our economic and financial stability and security. This paper focuses on the "Interest Rate Risk Identification-Risk Calculation-Interest Risk Management",According these three main lines,this paper can be divided into four parts, a total of seven chapters:The first part is the first and second chapters, this section briefly introduct the background of research and significance of the text, the selection and application of research methods, and the relevant literature synthesis in this field. On this basis, in the second chapter analysis the definition of the interest rate liberalization, as well as its own characteristics, and the accompanying interest rate risk implications were defined, and study the causes of its risk. In the last section a brief review of some landmark event in China’s interest rate market,In the hope that the reader a preliminary understanding of the actual situation of China’s interest rate management. This section can be seen as the introduction of the articles.The second part is Chapter3, the analysis focused on the specific interest rate risk faced by China’s commercial banks. Through I specify risk identification indicators into the special nature of interest rate risk of commercial banks in China to analyze the ability of anti-Interest rate risk, general interest rate risk analysis of three parts, combined with the latest bank annual report data, and regulatory agencies announced the analysis of the data obtained the conclusion of China’s commercial banks face interest rate risk level rising.The third part is divided into sections4,5chapters, this part belongs to the "interest rate risk measurement section. Therefore, in the fourth chapter introduces the three international and domestic interest rate risk measurement model, and added comments, This belongs to the theoretical part of the interest rate risk measurement model. In the fifth chapter, on the basis of analysis of interest rate changes, interest rate sensitivity gap and duration gap model, combined with commercial banks’annual report data for a specific analysis, belong to the empirical measure of interest rate risk analysis section.Part IV is the6,7chapters, this part is the core of the article,"Interest Rate Risk Management".The Chapter Vlanalysis problems ofthe interest raterisk management in China’s commercial banks, I proposed someideas and suggestions on interest rate risk management in Chapter7and hope these suggestions will be helpfulfor the further research in this field.

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