Interrest rate risk management a case study of saigon commercial bank

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS- HOCHIMINH CITY TRẦN THIỆN DUY MASTER’S THESIS Ho Chi Minh City -2010 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS- HOCHIMINH CITY TRẦN THIỆN DUY MASTER’S THESIS In Finance- Banking Ology Code: 60.31.12 Supervisor Ph.D NGUYỄN THỊ NGỌC TRANG Ho Chi Minh City -2010 i Acknowledgements I would like to express my heartfelt gratitude and deepest appreciation to my research supervisor, Ph.D Nguyen Thi Ngoc Trang for her precious guidance, share of experience, ceaseless encouragement and valuable suggestion, advice and help Without her, this study could not have been completed Special thanks are sent to all instructors and staff at Postgraduate Faculty, University of Economics Ho Chi Minh city (UEH) for their support and valuable knowledge during my study in UEH I also express my appreciation to Professor Dr Nguyen Dong Phong, UEH deputy rector, for creating the MBA program in English I also wish to thank my colleagues from SCB, my friends in Tinnghia bank, Vietbank, ACB, Saigonbank, LienViet bank, HDbank to help me during colleting data as well as support me during doing research Specially, my thanks go to Mrs Hua Minh Dai University of Phoenix in Arizona USA, and Mr Nguyen Huu Thu- banking specialistfor a lot of useful information and advice sent during my study Last but not least, the deepest and most sincere gratitude goes to my beloved mother, elder brother and my wife Nguyen Vu Phuong Giao for their boundless support and encouragement during my entire study period ii Abstract Interest rate risk is one of important financial risks to banking business as other financial intermediaries The fluctuation of interest rate risk affects directly the bank’s balance sheet issuances The changed structure of bank’s balance sheet causes the relative movement of a bank’s earnings and net worth Many large banks have to set up their own process and principles to manage interest rate risk which is based on the content guidelines of Basel II as the standard procedure in terms of risk management in order to manage interest rate risk To manage interest rate risk, many measurement techniques have been used such as dollar gap, duration gap, simulation analysis, value at risk analysis, and option adjusted spread analysis Each method has its strengths and weaknesses Choosing an appropriate method depends on the source of interest rate risk, the complexity of operation and capability of that model While some foreign banks in Vietnam such as HSBC, ANZ use simulation and value at risk as main techniques for interest rate risk measurement, a large number of Vietnamese banks measure their interest rate risk by the maturity gap or dollar gap method as fundamental analysis Actually, some banks in Vietnam not pay attention to interest rate measurement seriously Therefore, this paper emphasizes current methods that Vietnamese banks have been using to measure interest rate risk, and analyzes the advantages and disadvantages of those methods In reality, the current method that Vietnamese banks use to calculate their interest rate risk is inappropriate due to the interest rate fluctuation in recent years and it iii shall need being replaced A more appropriate method, earning simulation model or income simulation model, which can cover all shortcomings of the dollar gap should be discussed and suggested to apply for interest rate risk measurement in the context of Vietnam Basing on the analysis of real situations, this paper also proposes some recommendations for the Vietnamese banking system to apply such a model in real condition and as well for the government in macroeconomic management Keywords: dollar gap; duration gap; income simulation model; interest rate risk; spread iv Table of contents Acknowledgements i Abstract ii Table of contents iv List of figures vi Abbreviations vii Chapter 1: Introduction 1.1 Rationale 1.2 Problem statement 1.3 Research questions 1.4 Research objectives 1.5 Significance 1.6 Research methodology .7 1.7 Structure of research Chapter 2: Literature review 2.1 Asset/Liability Management 2.2 Interest rate risk .10 2.3 Interest rate risk structure .10 2.4 Interest rate risk measurement 11 2.5 Conclusion .20 Chapter 3: Methodology 3.1 Research design 21 3.2 Data collection 22 3.2.1 Document collection 23 3.2.2 Personal interview 23 3.3 Data analysis 25 3.4 Conclusion .25 Chapter 4: Analysis and findings 4.1 Introduction .26 v 4.2 The findings of data analysis 27 4.2.1 Measure interest rate risk in Vietnamese banks .27 4.2.2 Advantages and disadvantages of current methods 38 4.2.2.1 The advantages of current methods 38 4.2.2.2 The disadvantages of current methods .39 4.2.3 Experience of measuring interest rate risk 40 4.2.4 Expectation of interest rate risk measurement 42 4.2.5 Measuring interest rate risk with income simulation model 43 4.2.6 Conclusion 47 Chapter 5: Conclusion 5.1 Conclusions to research questions 49 5.2 Recommendations 51 5.2.1 Recommendations for Vietnamese banks 51 5.2.2 Recommendations for the government 53 5.3 Limitations of research 54 References 55 Appendixes 58 vi List of figures Figure 4.1 : Sample of gap report Figure 4.2 : Sample graphic displays Figure 4.3 : IRR measurement (for example 1% increase) Figure 4.4 : Adjusted interest rate risk measurement Figure 4.5 : Average mobilizing rate and lending rate 2008-2010 Figure 4.6 : Framework of income simulation model vii Abbreviations ALCO : Asset and Liability Management Committee ALM : Asset and Liability Management CDs : Certificate of deposits CIC : Credit information centre GSO : General statistic office IRR : Interest rate risk RSA : Interest rate sensitive asset RSL : Interest rate sensitive liability SBV : State Bank of Vietnam VND : Vietnam dong WTO : World trade organization Chapter 1: Introduction 1.1 Rationale At the end of 2007, Vietnam was confronted with the economy overheating resulting from massive capital inflows The government had to push out VND to absorb approximately 10 billion US dollar and increased monetary base in the economy resulting in double-digit inflation appearance At the same time, global financial crisis has been occurred The financial crisis, originating in the United States, affected foreign demand and global financial market The international prices of commodities exported by Vietnam were on a declining trend, export orders for garments and other industrial products collapsed, and a slowdown in manufacturing became noticeable The government reacted swiftly to economic shock Subsequent stimulus measures have prevented a collapse of economic activity and have put the economy on a recovery track Vietnam had to raise massive of financial and monetary polices to rebalance the economy The government has applied a tightened monetary policy which demonstrated the government‘s resolution in maintaining the priority policy on inflation control and growth Some of those were issuance of central bank note, increasing reserve requirement ratio and interest rate hikes to withdraw money out off economy SBV applied strict tightened monetary policies through the prime rate adjustment They increased prime rate up to 12% in June 2008 and reached to 14% in July 2008, lasting until December of 2008 In the last quarter of 2008, when the inflation was in controllable situation, SBV changed their monetary policies in order to accelerate for growth objective ahead The government opened their 48 It can forecast the interest rate risk for future position It can show the impacts of interest rate fluctuation to interest income In order to identify the appropriate model for measuring interest rate risk in Vietnamese banks, sources of interest rate risk must be identified clearly Thus, the information of survey leads to the result that the main sources of interest rate risk in Vietnamese banks are the maturity risk and basis risk The factors affected to risk management of Vietnamese banks are mainly the interest rate fluctuation, instability of deposits and CDs, government policy and regulations and overdue loans The current method cannot measure all these factors in the model From linking the main sources of interest rate risk with the impact factors and expected contents, the income simulation model is an appropriate method for Vietnamese banks in measuring the interest rate risk It is more dynamic and retrieves all weaknesses of the gap analysis It is more useful for forecasting the interest rate exposure in the future 49 Chapter 5: Conclusions 5.1 Conclusions to research questions As indicated in Chapter 1, one of the objectives of research is to collect evidence of the current interest rate risk measurement in Vietnamese banks, and then to suggest the appropriate method of interest rate risk calculation Many personal interviews have identified that the current measurement of interest rate risk in Vietnamese banks is mainly basing on the gap analysis method which has many shortcomings and is quite inappropriate in the condition that interest rates have heavily fluctuated when the financial environment in Vietnam is in the process of regional and global finance integration To measure interest rate risk, some Vietnamese banks calculate the gap between the asset average interest rate and liability average interest rate The gap maybe in negative or positive position which reflects the impact of interest rate to the net interest income In other words, this calculation is a different appearance of dollar gap method This calculation ignores the time band of dollar gap or the maturity of assets and liabilities It is just concerned to the interest rate sensitivity of asset and liability, revenue from interest rate sensitivity assets and expense of interest rate sensitivity liabilities Although the gap analysis method of Vietnamese bank has been used as many alternative ways of interest rate risk computation, the effectiveness of this method should be reconsidered A large proportion evaluation of interviewees have also unappreciated gap analysis Although, the gap method has been used in variety of ways, it cannot meet the need of risk management In the context of Vietnam, the 50 interest rate has been moved in large spread and the government has gradually deregulated the interest rate management and put the interest rate fluctuation in trend of market signal, so the dollar gap also becomes inappropriate in current situation Not only this method has become inappropriate in current situation, but also it has appeared various disadvantages in interest rate measurement performance It is just a simple analysis which supplies crude information for measuring interest rate risk It is also undynamic when it just calculates interest rate risk for current situation and not for future scenarios All interviewees have agreed that the current method just measures the maturity mismatch risk while the main interest rate risks in Vietnamese banks are both maturity risk and basis risk To answer the third question of study, the appropriate method for measuring interest rate risk in condition of interest rate fluctuation is the income simulation model that is more dynamic and retrieves all shortcomings of gap analysis While the gap report is also the first step of simulation model, the income simulation raises two more steps, which are to project cash flow for every related account and to analyze different scenarios at a specific point of time It meets all requirements of an effective method for Vietnamese banks in interest rate measurement such as: It is appropriate with the nature, scope and complexity of banking operations It is accurate and flexible in risk measurement calculations when it captures major assumptions utilized in the risk 51 measurement system, and being a good test of the validity of the calculation It captures all interest rate risk sources in Vietnamese banks 5.2 Recommendations The measurement of interest rate risk is one of the important issues of risk management which supplies essential information for daily banking management It is necessary for learning an appropriate interest rate risk measurement method This study presents the current method of Vietnamese banks and assesses the earning simulation as an appropriate method that Vietnamese banks should apply for interest rate risk management This section presents recommendations for the research study including recommendations for banks in Vietnam and for the government 5.2.1 Recommendations for Vietnamese banks Firstly, a risk management division or section of Vietnamese banks should be established and put them in effective operation In terms of method, many banks in Vietnam use the dollar gap as a main tool to measure interest rate risk to serve the interest risk management Actually, it is inappropriate in current condition Vietnamese banks should replace their method in order to evaluate their interest rate risk more effective The income simulation is an appropriate method for applying The income simulation method is not only a recovery of maturity gap analysis but it is also a strong and useful tool for forecasting and analyzing for future scenarios The data from this 52 accurate measurement also supply for the Board of Directors with an effective tool for making other daily financial decisions Secondly, because the model serves for bank goals in terms of profit protection, a clear asset and liability management policy is also established with framework of loans, deposits, and investment, and other items of the balance sheet This is one of the basements of assumption in the model and likewise a guideline for all banking activities Thirdly, skillful risk management staff should be built up Actually, one of the important criteria for accurate interest rate risk measurement is various performance of assumptions being forecast exactly The results of the analysis step depend on the level exactly of assumptions forecast considered as input information of the income model while the accuracy level of assumptions forecast depends on necessary experience and knowledge of staff Such skillful staff can be trained inside or outside the bank, moreover sending them overseas for studying and learning in order to promote the role of risk management department or division Fourthly, to apply effective tools for measurement interest rate risk for practical banking activities, infrastructure of banking technology should be invested seriously to meet the development of the banking system Vietnamese banks may invest into powerful softwares, modern computer system and establishing the historical information back-up system 53 5.2.2 Recommendations for the government Firstly, as mentioned in Chapter 4, the government legal framework, in general, has not mentioned the interest rate risk yet No regulation deals with the interest rate risk The latest regulations in Vietnam are Circular 13/TT-NHNN dated July 20th 2010 and circular 19/2010/TT-NHNN dated September 27th 2010 also have not any guideline about interest rate measurement while the guidance of SBV No 6692/NHNN-TTR of 23 July 2008 is out of date The lack of government legal regulations about interest rate risk measurement have resulted in the fact that Vietnamese banks also pay a little attention to interest rate risk management Therefore, a legal framework about how to measure the interest rate risk is necessary which can be based on international standards because the banking system of Vietnam is on the way of integrating into the international financial community Secondly, Basel II is one of the standard rules for bank systems in the world, which Vietnamese banks should conform to its guideline in terms of maintaining the system safety The government should put the standard guideline from Basel II into practice, which protects the banking system safety and as well pushes banking activities more developed and closed to international standards Finally, the government should create a legal framework for derivatives that can supply more financial tools for risk hedging activity This is another channel for controlling and hedging the interest rate risk of the banks 54 5.3 Limitation of research Like other researches, this study has many limitations Firstly, in terms of survey sampling, Vietnamese banks in the survey are Vietnamese medium joint stock commercial banks, which are located in Ho Chi Minh city In the banking sector, there are three statedowned banks, 39 joint stock banks, five 100% foreign owned banks; joint venture banks and 30 branches and representative offices of foreign bank The study just takes a survey of 10 representative banks among 39 joint stock banks in population Therefore, Vietnamese banks in this study also mean Vietnamese joint stock commercial banks, not include state-owned banks and foreign banks Secondly, collecting data for measuring interest rate risk is very difficult because the banks keep information in secret Hence, the above figures are illustrated in simple In addition, many banks not have database which is cumulated for certain period Because there is lack of suitable powerful software to carry out the income simulation model as well, the study lacks of demonstrated figures and tables for interest rate risk calculation This study presents an appropriate method for interest rate risk measurement in Vietnamese banking sector Further researches may concern about more complicate methods such as Economic value at risk or Value at risk, or interest rate risk in the relationship with liquidity risk, credit risk, and operation risk On the other hands, further researches about derivatives tools for hedging interest rate risk also should be taken when the financial market of Vietnam has been developing in recent years 55 References Myron A Grave, 1974, “ On duration and Optimal maturity structure on the balance sheet”, the Bell journal of Economic George G Kaufman, 1985, Measuring and managing interest rate risk: A primer, Federal reserve bank of Chicago Genal O Bierwage, 1987, Duration analysis: Managing interest rate risk G Douglas, 1990, Bond risk analysis: a guide to duration and convexity, New York institution finance Wright, D.M and J.V Houpt, 1991, ‘A method for evaluating interest rate risk in US commercial banks’, Federal Reserve Bulletin ,August Sharriff Shaffer, 1991, Interest rate risk: What’ a bank to do?, business review, May Ter Haar, H.D en G.F van der Linden, 1991, Bank management: Performance, planning and control Wright, D.M and J.V Houpt, ‘An analysis of commercial bank exposure to interest rate risk,’ Federal Reserve Bulletin, vol February 1996: 115-28 Katerina Simons, New England Economic Review , Jan-Feb, 1995 Interest rate derivatives and asset-liability management by commercial banks Thomas J Limseier and Neil D.Pearson, 1996, Risk measurement: An introduction to value at risk Comptroller’s handbook, Narrative June-1997, Procedure -1998, Interest rate risk Avaidyanathan R., 1997, Asset and Liability Management, ASCI journal management 29(1) 39-48 56 Kiyama, Y et al, ‘Interest rate risk of banking accounts: Measurement using the VaR framework,’ Bank of Japan Monetary and Economic Studies, vol.16 (1) May 1998: 1-34 Nawalkha, S.K and D.R Chambers (eds.), Interest Rate Risk Measurement and Management Institutional Investor, 1999 Gordon H Dash, Jd, 1999 , Bank financial Management, Hedging interest risk Jame T Moser, 2001, the value of using interest rate derivatives to manage risk at US banking Orangnizations, Economic perspectives Joel Bassis, 2002, Risk management in banking, second edition, ALM simulation, page 191-233 Jean Dermine and Youssef F Bissada, 2002, Asset and liability management, a guide to creation value and risk control, page 69-91 J.A Lopez, ‘Supervising interest rate risk management,’ FRB San Francisco Economic Letter, nr.2004-26 http://www.frbsf.org/publications/economics/letter/2004/el2004-26.html Basel Committee on Banking Supervision, 2004, ‘Principles for the Management and Supervision of Interest Rate Risk’ http://www.bis.org/publ/bcbs108.pdf Sanya K Navalkha, Gloria M.Soto, Natalia A Belliaeva, 2005, interest rate risk modeling, page 16-111 Beton E Gup and James W Kolari 3th, 2005, Banking risk management, page 116-145 Timothy W.Koch , S Scott MacDonald, 2006, Bank management, 6th edition, chapter 57 Christopher C Finger, 2006, historical simulation, research monthly, April Hull, J.C., 2007, Risk Management and Financial Institutions Pearson, Prentice Hall Ferderic S.Miskin, 2007, the economic of money, banking and finance Markets, 8th edition, Pearson Addison- Wesley Christine Brown, 2008, Asset and Liability management Dr D.J.C Smant, August 2008, interest rate risk management, Lecture notes FEM11015 adv money, credit, and banking Zikmund, W G ,1997, Bussiness research methodology Fort Worth, TX: the Dryden Pres Yin R K 2003, Case study research, 3th edition 58 Appendixes Appendix Guidance for indepth-interviews Population - People working in risk management department, division, or sector of Vietnamese commercial banks - Members of Vietnamese bank’s Board of Director or members of ALCO - Specialists in risk management duty of Vietnamese banks Performance of interest rate risk measurement, advantages and disadvantages of current method in Vietnamese banks - What method does your bank use to identify and measure interest rate risk? - What are sources of interest rate risk in your bank? - Describe interest rate risk measurement in your bank - How does your bank react in order to limit interest rate exposure? - What are disadvantages and advantages of current method of interest rate risk measurement? - How exactly is the current method performance? - What main factors affect your bank’s current method performance? - What are the contents of a bank’s interest rate risk measurement that is considered being inappropriate for nature of its activities? 59 - What are your suggestions or commendations for contributing on a new appropriate method? - What are the main contents of a new appropriate method of interest rate risk measurement? List of interviewees Name Diep Bao Chau Pham Manh Cuong Tran Thi Diem Trang Vu Thi Thanh Nga Position Name of bank Deputy director of Risk Management SCB Division Manager of Risk Management Dept SCB Manager of Investment Dept SCB Manager of capital management Dept SCB Phan Thanh Long General director TNB Nguyen Van Hung Chief Accountant TNB Nguyen Duy Tan Manager of capital management Dept TNB Le Minh Tam Manager of Risk Management Dept TNB Ha Minh Quan Plan and Strategy Department ACB Le Thi Huong Ly Deputy manager of capital management Dept Deputy manager of capital management Dept Risk management centre Nguyen Hoang Vu Chief Accountant Nguyen Thu Phuong Trinh Minh Viet Nguyen Hoai Linh ACB Vietbank TCB EIB Manager of capital management Dept SGB Ngo Nguyen Doan Trang Manager of capital management Dept Trustbank Nguyen Ngoc Oanh Tan Thiep Nguyen Dong Hai Manager of Risk Management Dept Manager of Risk Management Department Manager of Money trading Dept NVB HDB PNB 60 Appendix This appendix provides a general overview of the principles underlying the above measurement techniques, as well as a discussion of their primary strengths and weaknesses All techniques have limitations and provide only an estimate of interest rate risk The following table provides an overview of gap, duration, and simulation analysis and the interest rate risk that can generally be evaluated using these measurement techniques Comparison of IRR Measurement Techniques Sources/Exposures Gap Analysis Duration Analysis Income Simulation Market Value Simulation Short-Term (NII) Exposure Yes No** Yes No Long-Term (MVE) Exposure No Yes No Yes Repricing or Mismatch Risk Yes Yes Yes Yes Basis Risk Limited* No Yes Limited* Yield Curve Risk Limited* No Yes Yes Option Risk Limited* Limited* Limited* Yes * Depending on complexity of analysis and software, the ability of the system to evaluate these risks will vary ** Does not distinguish between short-term (NII) exposure and long-term (MVE) exposure 61 Appendix Indexes of prime rate, refinance rate and discount rate form 2008-2010 Month 01/2008 02/2008 03/2008 04/2008 05/2008 06/2008 07/2008 08/2008 09/2008 10/2008 11/2008 12/2008 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 Prime rate 8.25% 8.75% 8.75% 8.75% 12.00% 14.00% 14.00% 14.00% 14.00% 13.00% 12.00% 10.00% 9.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Refinance rate 6.50% 7.50% 7.50% 7.50% 13.00% 15.00% 15.00% 15.00% 15.00% 14.00% 12.00% 9.50% 9.50% 8.00% 8.00% 8.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Source: CIC, GSO Discount rate 4.50% 6.00% 6.00% 6.00% 11.00% 13.00% 13.00% 13.00% 13.00% 12.00% 10.00% 9.00% 7.50% 6.00% 6.00% 6.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% CPI 2.38% 3.56% 2.99% 2.20% 3.91% 2.14% 1.13% 1.56% 0.18% -0.19% -0.76% -0.68% 0.32% 1.17% -0.17% 0.35% 0.44% 0.55% 0.52% 0.24% 0.62% 0.37% 0.55% 1.38% 1.36% 1.96% 0.75% 0.14% 0.27% 0.22% 62 Appendix Indexes of Vietnamese banks ROA Banks ACB STB OCB EAB ABB EIB SGB HDB VAB TNB PNB NVB SCB Banks ACB STB OCB EAB ABB EIB SGB HDB VAB TNB PNB NVB SCB 2009 1.08% 1.42% 1.61% 1.31% NA 1.73% 1.73% 1.00% 1.29% 1.19% 0.60% 0.75% 1.24% 03/2010 0.24% 0.37% 0.60% 0.24% 0.42% 0.48% 0.35% 0.21% 0.20% 0.18% 0.07% 0.08% -0.53% Total Asset Equity and funds 175,047 116,152 13,390 46,374 31,914 74,086 12,796 21,930 16,362 36,583 41,114 14,562 54,688 9,877 9,954 2,306 3,834 4,633 14,134 1,924 1,739 1,834 3,641 3,282 1,129 4,712 ROE 06/2010 0.40% 0.66% 0.86% 0.42% 0.73% 0.80% 0.33% 0.31% 0.50% 0.39% 0.39% 0.27% 0.24% 2009 22.30% 16.20% 9.64% 15.58% NA 9.02% 11.95% 11.95% 13.07% 5.56% 7.91% 13.71% 15.80% 03/2010 5.04% 4.26% 3.22% 2.93% 2.53% 2.44% 2.44% 2.41% 1.66% 1.26% 0.92% 1.16% -6.53% NIM 06/2010 7.49% 7.47% 4.41% 4.98% 3.65% 3.91% 4.30% 2.27% 4.50% 3.27% 4.95% 3.34% 2.82% Deposit Total 155,427 100,704 10,791 40,285 25,684 58,751 10,591 19,636 14,160 26,389 37,207 13,139 47,430 Market 124,010 90,938 8,892 37,824 20,120 54,093 9,612 14,031 11,542 19,687 31,989 10,031 40,808 2009 2.16% 2.61% 4.13% 3.22% NA 3.58% 4.71% 6.99% 2.60% 2.74% 1.39% 1.58% 2.66% 03/2010 0.54% 0.60% 1.04% 0.70% 0.92% 0.93% 0.86% 0.61% 0.69% 0.46% 0.04% 0.46% 0.07% Loan Market 31,417 9,766 1,899 2,461 5,564 4,658 979 5,605 2,618 6,702 5,218 3,108 6,622 Total 71,470 66,998 9,690 33,511 15,148 42,528 9,832 7,360 11,747 22,851 22,021 10,454 21,949 Shortterm 37,448 44,001 6,052 9,014 9,014 27,112 6,390 4,427 6,614 17,486 13,765 5,641 7,139 06/2010 1.03% 1.15% 1.79% 1.29% 1.60% 1.54% 1.66% 1.07% 1.37% 1.34% 5.74% 1.22% 1.90% Investment Longterm 34,022 22,997 3,638 24,497 6,134 15,416 3,442 2,933 5,133 5,365 8,256 4,813 14,810 Source: financial statement of Vietnamese banks in Q2/2010 49,713 15,625 297 889 4,200 9,115 1,154 8,931 1,505 1,531 5,038 2,122 9,156 ... interest rate risk management is properly a part of asset and liability management An important purpose of asset and liability management is that how to adjust the items on balance sheet and offbalance... activities about composition of asset and liabilities and the risk management is know as Asset/Liabilities Management Risk management is also a part of ALM Hence, the purpose of ALM is partially... interest rate risk can affect significantly to earning and capital base Interest rate risk is also a concern of Asset and liability management When interest rates change, the changes affect banks’