FIN20013 Banking Operations and Governance - Tutoring 2

Tutoring 2

Question

PART A
The book value of DRAGON SLAYER BANK’s balance sheet is listed below. The current market yield for the securities is in parentheses. The amounts are in millions.

Required

1. What is the cumulative repricing gap if the planning period is

1. 6 months
2. 3 year
   (1 + 1 marks)

2. What will happen to the net interest income of the bank, if interest on the banks rate sensitive assets is forecasted to decrease by 30 basis points and rate-sensitive liabilities to increase 50 basis points in a year’ time? (4 marks)
3. Does the bank have sufficient capital to meet the risk adjusted assets requirement as per the Basle III requirement? Please ignore the cyclical buffer requirement (8 marks)

PART B
The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value.

4. Assume current market yield is flat at 3.0% p.a. What is the duration gap of the bank? (3 marks)
5. Using the duration gap estimated from question 4, what will happen to the net worth of the bank if the market yield goes up from by 2.5%p.a. (from 3.0%pa) to 5.5%p.a.? ......................... (2 marks)
6. What is the maturity gap of the bank (1 marks)