Topical issues of interest rate risk management (evidence from Chinese banks)

Abstract

This article addresses current approach to interest rate risk management in commercial banks and identifies different management tools aimed at increasing business value. We argue that interest rate risk management tools available in Russia and China are only marginally used, with a significant similarity in the development of Russian and Chinese credit systems. We provide information from the core groups of Chinese banks concerning the extent of acceptable interest rate risk, attempt to assess the quality of interest rate risk management and offer the examples and possible variants to mitigate the interest rate risk while using specific asset and liability management options. The authors argue that the study of interest rate management practice compared to mature financial market existing tools demonstrate that commercial banks earn premiums while accepting interest rate risks but handle it marginally.

References

Bank of Russia. (2007). About international approaches (standards) of the organization of interest rate risk management. Letter № 15-1-3-6/3995 from 02.10.2007.

Bank of Russia. (2016). About the best practices of interest rate risk management for the bank portfolio in credit institutions. Report for public consultations. https://cbr.ru/Content/Document/File/98190/Consultation_Paper_200120.pdf

Bank of Russia. (2020). Methodological recommendations “On calculating the amount of interest rate risk on assets (claims) and liabilities (liabilities) of a credit institution (banking group)” № 8-МР from 09.07.2020. https://cbr.ru/statichtml/file/59420/20200709_8-mr.pdf

Lobanov, A. A., & Chugunov, A. V. (2003). Encyclopedia of Financial Risk Management. Moscow: Alpina.