Duration gap analysis revisited method in order to improve risk management: the case of Chinese commercial bank interest rate risks after interest rate liberalization

Abstract

Modern theories attach much attention to interest rate-related problems. We discuss the impacts of the interest rate liberalization, in China, for ten commercial banks of three markedly different ownership types. The methodology is based on revisited interest rate sensitivity analysis, duration analysis and value-at-risk analysis. The situation is examined within both vertical (composition of operating income and interest rate sensitivity gap for the ten banks in the same year) and horizontal (one bank over a 7-year period) aspects. Thereafter, we discuss the present management of interest rate risks by such banks. We conclude with several suggestions on how such commercial banks risk management can be refocused and on how their cases can be used for comforting other banking cases.