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1.0 Introduction介绍
利率风险是银行面临的主要市场风险之一（English，Heuvel&Zakraj_ek，2018）。中国银行在利率市场化过程中也必然面临日益严重的利率风险（谭，2016）。有效管理银行经营风险将是银行经营管理中的一项紧迫而重要的任务（Entrop，Hausse&Wilkens，2017）。在此基础上，本文旨在探讨我国银行如何利用货币贷款政策和衍生产品有效降低和管理利率风险。本文首先通过相关文献介绍了与货币贷款政策及衍生产品相关的利率风险的概念和类型。然后，回顾了作者在XX银行的工作经历。其次，分析了利率风险产生的原因和XX银行利率风险管理的不足，最后，对银行如何运用货币贷款政策和衍生工具有效降低和管理利率风险提出了建议。
Interest rate risk is one of the major market risks faced by banks (English, Heuvel & Zakrajšek, 2018). Banks in China are also bound to face increasingly serious interest rate risks in the process of interest rate liberalization (Tan, 2016). Effective management of banks’ managing risk will be one of the urgent and important tasks in banks’ operation and management (Entrop, Hausse & Wilkens, 2017). Based on this, the main purpose of this paper is to discuss how banks of China make use of monetary loan policy and derivatives to effectively reduce and manage interest rate risk. This article first introduces the concepts and types of interest rate risk relating to monetary loan policy and derivatives through relevant literatures. Then, it reviews the author's work experience in XX Bank. Followed by the causes of interest rate risk and the deficiencies in interest rate risk management of XX Bank, finally, it brings forward suggestions on how banks use monetary loan policy and derivatives to effectively reduce and manage interest rate risks.
2.0 Main body主体
利率风险是指市场利率变化的不确定性造成的损失（Drakos、Kouritas和Tsoumas，2016）。根据巴塞尔银行监管委员会的规定，利率风险分为四类：重新定价风险、基准风险、收益率曲线风险和期权风险。
Interest rate risk refers to the loss caused by uncertainty in the market interest rate changes (Drakos, Kouretas & Tsoumas, 2016). According to the regulations of the Basel Committee on Banking Supervision, interest rate risk is classified into four categories: repricing risk, basis risk, yield curve risk, and option risk.
2.1 Literature review文献综述
2.1.1 Repricing risk重新定价风险
重新定价风险是最重要和最常见的利率风险形式（D_L_ze&Korkam_ki，2018）。它来自银行资产、负债、表外业务到期日（固定利率）或重新定价期（浮动利率）的差异（Delis&Kouritas，2011年）。
重新定价的风险使银行的收益或内在经济价值随着利率的变化而变化（English、Heuvel和Zakraj_ek，2018）。例如，如果银行将短期存款作为长期固定利率贷款的融资来源，当利率上升时，贷款的利息收入仍然是固定的，但存款的利息支出将随着利率的上升而增加，从而使银行的未来收入增加。Nue和经济价值下降（Entrop、Hausse和Wilkens，2017年）。另一个例子是，当资产期限大于债务期限时，当利率上升时，债务的利率将上升，由于资产尚未到期，资产的利率将保持在原来的较低水平，银行将遭受到期损失。o术语不匹配（Drakos、Kouritas和Tsoumas，2016年）。Repricing risk is the most important and most common form of interest rate risk (Délèze & Korkeamäki, 2018). It comes from differences existing in bank assets, liabilities, off-balance-sheet business maturity (in the case of fixed interest rates) or repricing period (in terms of floating interest rates) (Delis & Kouretas, 2011).
This risk of repricing makes a bank’s earnings or intrinsic economic value change with changes in interest rates (English, Heuvel & Zakrajšek, 2018). For example, if a bank uses short-term deposits as a source of financing for long-term fixed-rate loans, when the interest rate rises, the interest income from the loans is still fixed, but the interest expense on deposits will increase as the interest rate rises, thus making the bank's future revenue and economic value reduced (Entrop, Hausse & Wilkens, 2017). Another example is when the term of the asset is greater than the duration of the debt, when the interest rate rises, the interest rate of the debt will rise, and the interest rate of the asset will remain at the original lower level because it has not expired, and the bank will suffer losses due to the mismatch of the term (Drakos, Kouretas & Tsoumas, 2016).
2.1.2 Basis risk基础风险
当一般利率水平的变化导致不同类型金融工具的利率变化时，银行将面临基准差风险（D_L_ze&Korkam_ki，2018）。例如，只要存款利率和贷款利率调整不完全一致，银行就会面临风险。中国商业银行目前依靠的贷款基准利率一般是中央银行公布的利率。因此，基差风险相对较小（Tan，2016年）。然而，随着利率自由化进程的推进，特别是在符合国际标准的情况下，我国商业银行必须满足业务需求，并以伦敦银行同业拆借利率为参照，基础差风险也相应增加（池莉，2017）。
When changes in the general interest rate level cause changes in the interest rates of different types of financial instruments, banks will face the risk of basis differences (Délèze & Korkeamäki, 2018). For example, as long as the deposit interest rate and loan interest rate are not adjusted exactly the same, banks will face risks. The benchmark interest rate that China’s commercial banks currently rely on for loans is generally the interest rate announced by the central bank. Therefore, the risk of basis differences is relatively small (Tan, 2016). However, with the advancement of interest rate liberalization, especially when it is in line with international standards, China’s commercial banks have to meet business needs and take LIBOR as a reference, and the risk of basis differences will also increase accordingly (Chi & Li, 2017).
2.1.3 Yield curve risk
Yield curve is a curve obtained by connecting the yields of various time bonds (Delis & Kouretas, 2011). The adverse effect of the unintended shift of the income curve or the sudden change of the slope on a bank's net interest spread income and the intrinsic value of assets is the risk of yield curve (Délèze & Korkeamäki, 2018). The slope of yield curve will change with the different stages of the economic cycle, giving rise to different shapes of the yield curve (Drakos, Kouretas & Tsoumas, 2016). The positive yield curve generally indicates that the yield of long-term bonds is higher than that of short-term bonds (Entrop, Hausse & Wilkens, 2017). There is no risk of yield curve at this time. When the business cycle is in an expansion phase, the central bank will increase short-term interest rates to curb excessive economic growth (English, Heuvel & Zakrajšek, 2018). At this time, the slope of yield curve will become negative, that is, the short-term interest rate is higher than the long-term interest rate.
2.1.4 Option risk
Option risk refers to the possibility of causing losses to a bank when a bank's customer's exercise of options implied in the bank's balance sheet business when interest rates change (Entrop, Hausse & Wilkens, 2017). That is, the interest rate risk arising from the customer’s potential return of loan principal and interest and early withdrawal of deposits.
2.2 My Task
One of my major tasks in XX is to analyze the Chinese government’s economic policies, the status quo and trends of China’s economic development, and the current status of Bank of China’s operations and management, based on these analysis results to assess the bank’s possible risks, including interest rate risks, and analyze the causes of these risks to make recommendations to the headquarter on how to manage these risks. In addition, the author’s work includes investigation and research on the financial derivatives of XX Bank, to find out what kinds of financial derivatives the bank has, how they are operated, whether they have achieved the intended purpose, and analyze how to use financial derivatives to circumvent and manage bank risk.
2.3 Reasons for Interest Rate Risk in Banks in China
The author analyzes the reasons for the interest rate risk of XX Bank based on his work experience in XX Bank and related literatures.
2.3.1 Reasons leading to repricing risk
There are structural mismatches in the mature period of assets and liabilities in China's banks (Tan, & Floros, 2018). In the absence of any extraordinary agreement, assets and liabilities can only be re-priced after the reflow period (Hou, Wang & Zhang, 2014). Prior to this, changes in interest rates do not affect the collection and payment of assets and liabilities (Aydemir & Ovenc, 2016). However, when the return period of bank assets and liabilities does not match, there will also be fluctuations in earnings due to changes in interest rates (Chen, Wei, Zhang & Shi, 2013). The direct cause of mismatches of assets and liabilities is the mismatches of the term structure of deposits and loans. On the one hand, the term structure of deposits is short-term; on the other hand, the term structure of loans is long-term, and the performance concentrating on the balance sheet of commercial banks is the mismatch of commercial banks' reflow period (Chen, Matousek & Wanke, 2018). This negative shortfall in the reflow period does not yet cause liquidity risk, but it brings about a loss of net interest income to banks in the interest rate increase cycle. As the return period of liabilities is shorter than the maturity period of assets, the liabilities are quickly priced and a rapid increase in interest expenses is incurred, making interest-sensitive liabilities larger than interest-sensitive assets in a certain time interval (Gopalan & Rajan, 2017). When interest rates change, commercial banks will also bear the risk of a decline in net interest income. #p#分页标题#e#
2.3.2 Causes of basis risk
There are many reasons for basis risk. The frequent adjustment of the benchmark interest rate by the Chinese government is an important reason (Chen, Wei, Zhang & Shi, 2013). For example, since 2012, interest rate cuts have been carried out seven times in a row. The maximum spread between RMB deposits and loans for a one-year period is 3.6, and the minimum is 1.8 percentage points (Chen, Matousek & Wanke, 2018). Continuing interest rate cuts led to a serious shortage of interest reserves for domestic commercial banks. The situation was specially serious in the banks in which three-year and five-year regular savings deposits accounted for a particularly high proportion, and their negative impact continued until 2020 (Tan & Floros, 2018). In the process of interest rate liberalization in China in future, fierce market competition among banks will lead to increased interest rate volatility. When commercial banks adjust the deposit and loan interest rate according to changes in the benchmark interest rate, the interest rate basis risk will be greater, which will inevitably affect the banks’ normal interest income (Aydemir & Ovenc, 2016).
2.3.3 Causes of yield curve risk
The interest rate of China’s current issuance of treasury bonds is higher than that of bank deposits during the same period (Chen, Wei, Zhang & Shi, 2013). There is room for interest rate spreads between interest rates of treasury bonds and interest rates of deposits of the central bank. Banks have used the loan that was originally used for enterprises to purchase a large amount of national debt to obtain interest income. Not only the revenue increases substantially, but also the risk is zero. In recent years, the proportion of bond assets in total assets in commercial banks has been increasing. In the short term, this can bring considerable opportunistic gains to banks, but in the long term, if the central bank raises the interest rate, in the situation that the turnover rate in the secondary market of bonds is low, commercial banks have to bear greater interest rate risk (Chen, Matousek & Wanke, 2018).
2.3.4 Causes option risk
Potential risk of option risk interest rate refers to changes in commercial banks’ net interest income caused by depositors’ advance withdrawal of time deposits or borrowers’ returning loans in advance when there are changes in interest rates (Gopalan & Rajan, 2017). In China, many of banks’ deposit and loan businesses have options features (Aydemir, R., & Ovenc, 2016). Holders of options always exercise their power when they are beneficial and it is unfavorable to the sellers. Therefore, commercial banks in China will face varying degrees of potential options risks. Regardless of whether the real interest rate change is positive or negative, as long as the nominal interest rate changes, it may prompt borrowers to pay in advance unexpired loans or depositors to withdraw unexpired deposits in advance (Chi & Li, 2017). In particular, when customers repay loans in advance, and banks do not receive relevant income to make up for the risks that the banks bear, and the bank systems have accumulated a large number of option-type risks. The gradual release of interest rates will undoubtedly make it more difficult for banks to control potential options.
China has lowered interest rates on deposits and loans for seven times since 2012, many companies have repaid unscheduled loans in advance to ask for loans at lower interest rates to reduce financing costs; at the same time, individual customers’ interest-rate risk awareness has increased, and they have also repaid unexpired loans and ask for a loan with lower interest rates, coupled with a lack of policy restrictions for China's current default behaviors for customers' early repayment, therefore, option risk is increasingly prominent in China's commercial banks (Tan & Floros, 2018).
3.0 Conclusion
Interest rate risk is currently one of the major risks faced by Chinese banks. The interest rate risks faced by banks in China include four categories: repricing risk, basis risk, yield curve risk, and option risk. The risk of repricing is related to structural mismatches in the maturity period of assets and liabilities that are common in China's banks. Basis analysis is related to the frequent regulation of interest rates by the Chinese government. Yield curve risk is related to the large number of Chinese banks’ purchase of government bonds to earn interest income. Option risk is related to the lack of policy restrictions on the current default behaviors of customers’ early repayment. Finally, the author proposes suggestions on how banks in China use monetary loan policy and derivatives to effectively reduce and manage interest rate risks, the suggestions include optimizing investment portfolios, improving interest rate development strategies, using interest rate derivatives to manage interest rate risks and asset securitization.
4.0 Recommendation
Based on relevant literatures and the author's work experience in XX Bank, the author made the following recommendations for how XX Bank manages interest rate risk.
4.1 Monetary loan policy
4.1.1 Optimizing investment portfolio
Optimizing investment portfolio strategies helps to manage and control repricing risk and yield curve risk (Tan, 2016). The most direct way to change interest rate sensitivity gap is to adjust the time from the interest rate adjustment date for certain items in the assets or liabilities. If the interest rate sensitivity gap is positive, that is, the interest rate sensitivity asset is greater than the interest rate sensitivity liability, then banks can sell the short maturity bonds held by the banks and then purchase long-term bonds. Conversely, if the gap is negative, it can adjust long-term bonds to short-term bonds. Of course, in every decision to change investment decisions, decision makers must be aware of how the decisions will affect the matching of assets and liabilities and the impact on the trend of the sensitivity gap. Using simulation software to assist in decision-making is a more feasible method. Commercial banks often face the problem of income loss when they use investment portfolio strategies (Chi & Li, 2017). After selling bonds, they face the risk of reinvestment, such as the sale of long-term bonds with higher interest rates. At this time, market interest rates are low. After buying short-term bonds, it will have a greater impact on the next year's revenue, this situation is often difficult to be accepted by banks, and it needs to find other ways to solve the interest rate risk problem.
4.1.2 Strategies to improve interest rate formulation
Strategies of improving the interest rate system help to manage and control basis risk and option risk (Tan & Floros, 2018). Pricing directly affects the size, structure, and maturity of assets and liabilities, it can prevent interest rate risk by changing the pricing level and method of a commercial bank. On the one hand, banks can change their scale by raising or lowering the deposit and loan interest rates for certain periods. For example, by increasing the three-year and five-year deposit rates, attracting depositors to choose more long-term deposits; on the other hand, by changing interest rate adjustment methods to directly change the maturity period, such as determining the medium and long-term loan interest rates yearly, makes long-term loans become interest-rate sensitive assets.
There is a major shortcoming in changing banks' interest rate risk by formulating new interest rate strategies. It is that it takes a considerable period of time before banks’ total interest rate risk cash changes significantly. Of course, in order to speed up the effects of interest rate policy changes, banks can provide deposit rates above the market level and loan interest rates below the market level. In addition, banks can also relax credit standards for new borrowers in order to facilitate the expansion of new loan activities. Of course, with these measures, managers must also consider the results of reduction in interest rates and increased credit risk.
4.1.3 Asset securitization
Using asset securitization helps to solve repricing risk, basis risk and option risk.
Asset securitization mainly refers to the reorganization of credit assets (such as bank deposits, corporate accounts receivables, etc.) that are less illiquid but have future cash flows to form asset pool and use them as a basis for the issuance of securities (Délèze & Korkeamäki, 2018). As a structured financing method, asset securitization is through the joint participation of various stakeholders to enable various contracts (such as transfer contracts, guarantee contracts, etc.) established by their respective commitments to support each other and restrict each other, ultimately achieving the results of risk sharing and getting what they need. Assets in balance sheets are transferred to the capital market in the form of securitization and traded. In effect, the interest rate risk is transferred from banks to investors in the capital market, making interest rate risk be avoided. Advantages of asset securitization are not only the transfer of interest rate risk, but also increase of the liquidity of assets.
4.2 Using interest rate derivatives to manage interest rate risks
4.2.1 Interest rate swap
For banks in China, since the source of funds is mainly residents’ deposits and the deadline is short, the issue of medium- to long-term fixed-rate loans will generate a large interest rate gap (Hou, Wang & Zhang, 2014). It is urgently necessary to sign a fixed-rate loan contract with customers to achieve interest rate risk hedge in the interest rate swap market. The RMB interest rate swap is an action that the two parties agree to exchange cash flow according to the agreed amount of RMB principal within a certain period of time in the future. One party's cash flow is calculated based on the floating interest rate, and the other party's cash flow is calculated based on the fixed interest rate. When different market players judge the interest rate trends differently, they exchange transactions. This is the most effective tool for sharing the market risk among the participating entities. At present, China's banking system has accumulated a huge interest rate risk and has laid down hidden risks for financial stability (Tan & Floros, 2018). The efficient hedge function of interest rate swaps is conducive to commercial banks’ evading the interest rate risk for huge debt assets, and it is also conducive to resolving the risks caused by mismatching the maturity of commercial banks' asset liabilities through interest rate swap transactions.#p#分页标题#e#
4.2.2 Forward interest rate swap
Forward interest rate agreement is an agreement agreed upon between the parties to the transaction in order to evade the risk of future interest rate fluctuations or to speculate on future fluctuations in interest rates (Delis & Kouretas, 2011). What needs to be emphasized is that forward interest rate agreement itself does not cause any lending. At the settlement date, both parties only pay attention to the actual interest rate. In accordance with the difference between the actual interest rate and the contract interest rate, the losing party will pay the winning party a cash sum. Forward interest rate agreement is mainly used for long-term interest rate protection, which allows banks to lock interest rates of a single cash flow occurring at a specific point in the future, thus reducing the interest rate risk. Compared with interest rate futures, forward interest rate agreements are not traded in exchanges, they have no fixed share standards and settlement dates, and are more flexible than standardized futures contracts; but because forward rate agreements are over-the-counter transactions, compared to futures and options, they have larger credit risk.
References
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