Tài liệu Measure the interest rate risk acase study of vietcombank luận văn thạc sĩ

i MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY PHAM THI XUAN LIEN MEASURE THE INTEREST RATE RISK: A CASE STUDY OF VIETCOMBANK ECONOMICS MASTER THESIS HOCHIMINH CITY, 2010 ii MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY PHAM THI XUAN LIEN MEASURE THE INTEREST RATE RISK: A CASE STUDY OF VIETCOMBANK Major: Financial and Banking Major Code: 60.31.12 ECONOMICS MASTER THESIS Supervisor: Dr. Le Thai Thuong Quan HOCHIMINH CITY, 2010 iii ACKNOWLEDGEMENT I would like to express my honest gratitude to my devoted research Supervisor, Dr. Le Thai Thuong Quan, for his assistance and valuable guidance during the course of fulfillment this thesis. I would like to thank my colleagues from Vietcombank, who have helped me in collecting data for this thesis: Ms. Nguyen Thi Minh Trang from An Giang Branch, Ms. Le Mai Trinh from Dong Thap Branch. Especially, I would like to express my sincere thanks to Ms. Ho Thi Bich Lien – chief accountant of An giang Branch for her recommendation to Ms. Phung Nguyen Hai Yen, Deputy Director of Finance and Accounting Department in Vietcombank head office. I would like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong, UEH Board of Director for conceiving the Banking Master Program in English. I also would like to express my sincere gratitude to all mu teachers at Post-graduate Faculty- University of Economics Hochiminh City for their teaching and guidance during my Master in Banking course. Finally, I would like to extend my deepest gratitude to my beloved family, special thanks to my husband, Pham Trung Khanh, my son, Tony for their endless love and great support during study period. iv ABSTRACT With the volatility in the interest rate recent years, the interest rate more becomes a vital problem of Vietnamese bankers. Fluctuations in the interest rate since 2008 that effected sharply to the bank‟s interest income and value, making interest rate risk management decisive to its success. It is necessary to call for high degree in the asset and liability management with the duty of managing the bank‟s interest rate risk exposure through the use of various hedging strategies and instruments as well as balance sheet adjustment. This qualitative research measures the interest rate risk in Vietcombank - the leader in interest rate maker in domestic banks by using the gap model (dollar gap) also referred to as the funding gap or the maturity gap. The research shall investigate the movement of the Vietnam interest rate in financial market since 2008. Then it will analyze the gap (dollar gap) in Vietcombank financial statement to measure the interest rate risk that affected to the income of the bank. Finally, there shall be some suggested solutions in improve the gap as well as the net interest income. Keywords: Gap, Gap analysis, interest rate, interest rate risk, interest rate risk measurement, asset and liability management, Vietcombank, financial statement, SBV, VNIBOR. v CONTENTS Acknowledgement Abstract Contents List of Tables List of Figures Abbreviations Chapter 1: INTRODUCTION 1.1 Background, context and rationale for the research 1 1.2 Why is the problem worth addressing? 2 1.3 Objectives/goals of the research 3 1.4 Methodology 4 1.5 Data analysis and finding 5 1.6 Study structure 5 Chapter 2: THEORY OF INTEREST RATE RISK AND INTEREST RATE RISK MEASUREMENT 2.1 Background 6 2.2 Risks assumed by banks 7 2.2.1 Credit risk 7 2.2.2 Interest rate risk 8 2.2.3 Operational risk 8 2.2.4 Liquidity risk 9 2.2.5 Price risk 9 vi 2.2.6 Compliance risk 9 2.2.7 Foreign Exchange risk 9 2.2.8 Strategic risk 10 2.2.9 Reputation risk 10 2.3 Interest rate risk 10 2.4 The model of measuring the interest rate risk 12 2.4.1 Definition 14 2.4.2 Calculation 14 2.4.3 Limitation of gap model 17 2.5 Interest rate risk management 18 2.5.1 On balance sheet adjustment 18 2.5.2 Off balance sheet adjustment 19 2.5.2.1 Using interest rate futures to hedge a dollar gap position 19 2.5.2.2 Using forward contract 20 2.5.2.3 Using option contract 21 2.5.2.4 Using interest rate swap 22 2.6 Manage interest rate risk with dollar gap 24 2.6.1 Aggressive management 25 2.6.2 Defensive management 25 2.7 Conclusion Chapter 3: 25 INTEREST RATE MOVEMENT IN VIETNAM AND VITECOMBANK INTEREST RATE POLICY 3.1 The movement interest rate in Vietnam 27 3.1.1 Interest rate before the Renovation Policy 27 3.1.2 Interest rate after the Renovation Policy 28 3.1.3 Interest rate volatility period 29 vii 3.2 Interest rate policy in Vietcombank 31 3.2.1 Background 31 3.2.2 Interest rate policy 32 3.2.3 The fluctuation in 2008 34 3.2.4 The fluctuation in 2009 36 3.2.5 The movement in first six month of 2010 37 3.3 Conclusion Chapter 4: 38 MEASURE THE INTEREST RATE RISK IN THE COMMERCIAL JOINT STOCK BANK FOR FOREIGN TRADE OF VIETNAM (VIETCOMBANK) 4.1 Introduction. 39 4.2 Research design 40 4.2.1 Data collection and analysis 41 4.2.2 Personal interview 42 4.3 Interest rate risk exposure 42 4.4 Balance sheet structure 45 4.5 Gap Analysis 47 4.6 Conclusion 54 Chapter 5: Suggest and conclusion 5.1 Conclusion 56 5.2 Conclusion related to search questions 57 5.3 Suggest for hedgeing the gap 59 5.3.1 Balance sheet adjustment 59 viii 5.3.2 Off – balance sheet 5.4 Limitation of the research and suggest for further research References Appendix 60 63 ix ABBREVIATIONS ALM Asset and Liability Management ALCO Asset and Liability Committee VCB The Bank for Foreign Trade of Vietnam SBV The State Bank of Vietnam SOCBS State Owned Commercial Bank RSA Rate Sensitivity Asset RSC Rate Sensitivity Viability FS Financial Statement SMEs Small and Medium Enterprises NRS Non Rate Sensitivity VND Vietnam Dong VAS Vietnamese Accounting Standard BOM Board of Management x LIST OF TABLES Table 2.1 Exposure to interest rate Table 2.2 Classification of Assets and Liabilities by interest rate sensitivity Table 2.3 The relation in Gap, Interest rate changes and net interest income Table 2.4 Distinction incremental gap and cumulative gap Table 4.1 VCB balance sheet in 2009 Table 4.2 VCB Classification of Assets and Liabilities by interest rate sensitivity Table 4.3 VCB Gap, Relative gap, interest sensitivity ratio Table 4.4 Maturity buckt of loans and deposits from customer at 31.12.2009 Table 4.5 VCB Reprcing mismatch in 2008, 2009 and first six months in 2010 Table 4.6 The compnent of net interest income in each maturity bucket Table 4.7 The effect f changing interest rate to NII xi LIST OF FIGURE AND EQUATION FIGURE Figure 2.1 Payoff for unhedged call option Figure 2.2 Payoff for unhedged put option Figure 2.3 Using an interest rate swap to hedge liability and asset sensitive position Figure 3.1 SBV report – Credit and Deposit growth Figure 3.2 Movement of interest rate since 2006 Figure 3.3 Interest expenses from 2005-2009 of Vietinbank, Vietcombank, Sacombank, Eximbank and Asiabank Figure 3.4 VCB lending and fund mobilization growth from 2001-2010 Figure 3.5 VCB movement of lending and deposit rate Figure 3.6 VCB difference between interest income and interest expenses from 2001-Jun 2010 Figure 3.7 VCB movement of lending and deposit rate in 2008 Figure 3.8 VCB movement of lending and deposit rate in 2009 Figure 3.9 VCB movement of lending and deposit rate in Jun 2010 Figure 4.1 Gaps in the period of 2002-06ms/2010 Figure 4.2 Turnover of loan and deposit from customer at 31.12.2009 Figure 4.3 The repricing mismatch in each maturity bclet from 20806ms/2010 Figure 4.4 The component of NII in 06ms/2010 xii EQUATION Equation 2.1 Gap Model Equation 2.2 Calculation delta net interest income Equation 2.3 Relative gap Equation 2.4 Interest sensitivity ratio Equation 2.5 Number of contract to hedge an asset sensitive position -1- 1.1 BACKGROUND, CONTEXT AND RATIONALES FOR THE RESEARCH The Vietnamese financial market has rapidly expanded over the past few years and has gained great strategic importance at the global level. With the rapid liberalization, privatization and globalization of the market, Vietnam has become a preferred destination of international financial investors. The key financial sectors „banking‟ and „insurance‟ are attracting huge foreign investment as both of these sectors represent highly untapped potential. Thanks to the "Doi Moi" policy in the year 1986, the economy of Vietnam showed marked improvement associated with market oriented. Improvement was also seen in the banking sector indicated the interactive relation between financial liberalization and economy reform. The proof of this innovation is the dramatic decline in inflation in 1988 (700 percent) to 67 percent in 1990, and it has continued to decline though 1994. Moreover, the banking system was gradually improved and became more effective intermediation of financial resources. Banking sectors has a significant contribution in fund mobilization serving manufacture, economy stimulus and the core channel of socio-economic capital. They are in charge of mobilization the idle resources from population and credit fund to demanded economic sectors to boost the priority tasks of modernization and industrialization. The General council of World Trade Organization approved Vietnam‟s membership on 7 November 2006, and Vietnam became the WTO‟s 150th member. After joining the WTO, the State Bank of Vietnam has continued its efforts to perfect its legal regulations in conformity with international commitments and Vietnam's situation. Many legal documents have been issued to facilitate banking activities in Vietnam. -2- The central bank have also taken initiative in implementing measures to develop the monetary, foreign currency market, strengthen its capacity in implementing monetary and foreign exchange policies, carry out administrative reforms, expand international co-operation to exchange and learn more experiences. However, the global financial crisis has impacted to the economy associated with some risks in domestic financial environment. The recent volatility in the VNIBOR rate appears to be liquidity story of domestic bankers. Bankers are in the war of fund mobilization by offer a negotiable interest rate and lending it with higher rate. The interest rate risk management in Vietnam bankers are became vital banking activities. Risk management is defined by Dickson (1989: 18) in Valsamakis et al (1992: 13) as “the identification, analysis and economic control of those risks which threaten the assets or earning capacity of an organization.” As such the management of risk has, explicitly or implicitly, become part of a strategic component of the modern organization‟s survival and development (Waring and Glendon, 1983:3). Bernstein (1998) in De la Rosa (2003: 55) identifies that the principals of modern risk management were first established in the 1600s when mathematical concepts were first used in games of chance. Twentieth century authors such as Knight (1921) and Keynes (1921) provided noteworthy insight into the development of uncertainty, probability and the law of large numbers-concepts which today underpin risk management. So, bankers make decisions every day about funding deposit, about whether to make particular loans and about how to fund their investment and lending activities. These -3- decisions are based, in part on their outlook for interest rates, the composition of their assets and liabilities and the degree of risk that they are willing to take. Collectively, these decisions affect the bank‟s net interest income and balance sheet values. The process of making such decisions about the composition of assets and liabilities and the risk assessment is known as asset/liability management (ALM). The decisions are usually made by the asset/liability management committee (ALCO) that is responsible for the overall financial direction of the bank. 1.2 WHY IS THE PROBLEM WORTH ADDRESSING? As one of the biggest well-known bank in Vietnam, the research will provide a range of alternatives which Vietcombank can incorporate into its interest rate risk management strategy. The practicality of interest rate risk measurement model will be applied in the chaos specified period and specific business circumstance, its interest rate risk position and market conditions over the specified period. Furthermore, the thesis will analyze the component of the net interest income matched to the maturity bucket of Vietcombank asset and liability. Recommendations will be provided on the basis of a theoretical asset and liability structure which may further aid the Vietcombank in its management interest rate risk. 1.3 OBJECTIVES AND GOALS OF THE RESEARCH The objective of this thesis is to -4- 1. To investigate the movement of the interest rate in financial market since 2008 2. To analyse the Vietcombank specific business practices and its interest rate risk exposure 3. To analyse the gap in Vietcombank financial statement to measure the interest rate risk that affected to the income of the bank. 4. And also to find out the component of net interest income according to the maturity bucket. The thesis will focus on identify the impact of gap to the bank‟s net interest income and the component of the interest income/expenses according to the maturity bucket which is closely to the asset and liability sensitivity. There will be some main questions to answer in this study: 1. What are theoretically bank practices and/or solutions to deal with interest rate riks? 2. What is the extent of interest rate risk in Vietcombank? Whether or not such risk affect to its profit? 1.4 METHODOLOGY The research methodology of the thesis is a case study. The case study method allows for both the generating and the testing of hypotheses and allows the researcher to identify and include certain elements, conditions and information that may be unique to individuals and organizations, thus permitting a more holistic study (Tellis, 1997; Kennedy and Luzar, 1999). -5- Robert K.Yin, 2005 recognises the case study methodology as “an empirical inquiry that investigates a contemporary phenomenon within its real life context, when the boundaries between phenomenon and the context are not clearly evident, and in which multiple sources of evidence are used. It is particularly valuable in answering who, why and how questions in management research”. The thesis requires intimate knowledge of the Vietcombank business practices, legal requirements and unique balance sheet structure, all of which provide the rationale for the use of a case study methodology. In order to conduct a thorough analysis, a number of practices specific to the case study methodology must be used. More specifically, the researcher will have access to public Vietcombank achievement records, historical Vietcombank balance sheet structures and interviews with Vietcombank senior management. The researcher also conducts interviews with a number of other branches in the whole system of Vietcombank in order to generate hypotheses for the practicality of certain interest rate managing techniques. 1.5 DATA ANALYSIS AND FINDING The study is mainly used books, scientific articles and statistic to get better understanding of Asset and Liability Management. The data will be collected from Annual Vietcombank‟s financial statement since the interest rate has become volatility in 2008. Besides of that, questionnaires were designed and directly asked to interviewees to collect data related to VCB‟s assets and liabilities management. The findings are not just to help measuring the interest rate risk of Vietcombank but also to show some difficulties as well as the strength of a SOCB in financial market. -6- On the other hands, the findings will be an evidence to manage the interest rate risk aggressively in Vietcombank. 1.6 STUDY STRUCTURE The thesis shall be included five chapters which chapter one involved the theory of the research background, and presents definitions of terms, significance and scope of the study. The chapter two shall present the theory of interest rate risk measurement as well as the management. Chapter three shall introduce the interest rate movement in Vietnam and Vietcombank interest rate policy. Chapters four shall analysis the gap in interest rate risk measurement and finally, the chapter five will suggest some solution to manage to interest rate risk as well as improve the net interest income -7- 2.1 Background For many centuries, banks have played a vital role in the financial system. That vital role continues today although the forms of banking have changes with the needs of the economy. Commercial banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner. They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities. These financial services help to make the overall economy more efficient. Banks can be described as intermediaries between lenders and borrowers. For competitive reasons, bank may be obliged to accept client funds with varying maturities that could potentially alter the structure of the balance sheet to an interest rate sensitive position (UBS, 1987:37). Banks tend to lend long and borrow short. This natural exposure of banks looks beneficial when long term interest rates than are above short term interest rates. Often, bank effectively lend at higher rates then the cost of their debts, because of positive spread between long terms rates and short terms rate. Besides of the traditional business in deposit and loan, nowadays bank may have developed some other functions:  Paying a customer's cheques or drafts on it to the amount on deposit by such customers, and holding Treasury Bills and bank notes and coin for such purpose; -8-  Discounting commercial paper for its customers;  Dealing in exchange and in gold and other financial instrument;  Arranging credits for itself with banks in other towns, cities and countries;  Selling its drafts or cheques on other banks and banking correspondents;  Issuing letters of credit; bank guarantees,…  Lending money to its customers on the customers' notes, by way of overdraft (or) on bonds, shares and other securities.  Make other banking services such as: transfer money, issuing credit cards and supply other banking services. 2.2 Risks assumed by banks According to Bessis (2002), there are a large number of risks in the banking industry, of which most are well known. Risk and the management of it are important to banking and with this in mind it is somewhat surprising that risk quantification remained limited until recently. Risk management requires an entire set of models and tools for linking risk management issues with financial views on risks and profitability (Ibid). This is supported by Galai et al (1999) who state that the recent financial failures in the banking industry confirm the need for various form of risk management. Therefore managers of banks need reliable risk measures in order to be able to direct capital to activities with the best trade off between risk and return. Risk management is the process of identifying key risks, acquiring understandable risk measures, choosing which risk to reduce and which to increase and by what means, and finally ascertaining procedures to monitor the resulting risk position (Galai et al 1999).