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4tarting point$
impact on profitabilit of
lending activit
Impact on profitabilit
,.eturn on fin# assets-
scale independent
i
E
G
E
NII
,
_
i
FA
G
FA
NII
,
_
SL
SA
GapRatio
9
The timing problem
5e can 2rite
i
j
* current int# rate for the asset ;<th
n
j
j j j
p i SA II
1
1
( )
j j j j
p i SA II 1
12
The solution for the timing
problem (follows
m
k
k k k
p i SL IE
1
1
( ) ( ) ( ) i E MAGAP i E p SL p SA IE II NII E
n
j
k
m
k
k j j
1
]
1
) ( 1 1 ) (
1 1
13
Marginal and cumulati!e gap
n
i
i
MG CG
1
14
"n example
1 month gap * 1=0
> months gap * >0
"##$%# & ' (I")I(I%I$# & '
%eposits 2ith banks ,1 month-
?@T ,> months-
88T ,A ears-
,ne0t rate revision : months-
4hort term loans ,A months-
9loating rate mortgages ,20 -
,ne0t rate revision 1 ear-
?TP ,A ears-
9i0ed rate mortgages ,10 -
?TP ,>0 ears-
200
>0
120
B0
C0
1C0
200
1>0
%eposits 2ith banks ,1 month-
9loating rate notes
,ne0t revision > months-
9loating rate notes
,ne0t revision : months-
9i0ed rate notes ,1 ear-
9i0ed rate notes ,A ears-
9i0ed rate notes ,10 -
Dunior debt ,20 -
4hareholders6 /Euit
:0
200
B0
1:0
1B0
120
B0
120
%ota* 1000 %ota* 1000
15
Marginal and cumulati!e gaps
The bank has a long net position for the first month and for the
period from > to : months and a short net position for the period
from 1 to > months and for the period from : to 12 months#
Time Period 4ensitive
Assets
4ensitive
'iabilities
Marginal
1AP
8umulative
1AP
0<1 months 200 :0 1=0 1=0
1<> months >0 200 <1C0 <>0
><: months 200 B0 120 F0
:<12 months C0 1:0 <F0 0
1<A ears 1C0 1B0 <10 <10
A<10 ears 200 120 B0 C0
10<>0 ears 1>0 B0 A0 120
%ota* 1000 ++0 < <
16
Follows
1iven the null 1 ear gap if in ever time sub<period the interest rate
change is adverse the bank can e0perience a decrease in the net interest
income#
%i'e
Period
,arg. G"P
(& '*n)
Int. rate
"ssets
Int. rate
(ia-i*ities
i it. respect
to %0
(-asis points)
$ffect on
t.e NII
T0 :#0G >G
1 month 1=0 A#AG 2#AG <A0
> months <1C0 :#>G >#>G H>0
: months 120 A#:G 2#:G <=0
12 months <F0 :#:G >#:G H:0
%ota*
17
18
The effect on #et Interest
Income
26
"n example
1AP * 120 vs 4tandardized 1AP * 1C2