The interest rate risk challenge faced by Malta's to largest banks : how significant?

Abstract

A bank's balance sheet and income statement are valuable information sources for identifying risk taking and assessing risk management effectiveness. Although the amounts found on these statements provide valuable insights into the performance and condition of a bank, financial analysts, bankers and bank supervisors typically use data from them to develop financial ratios to evaluate bank performance. This is done to provide perspective and facilitate making comparisons. The opening aim of this study is to give a general overview of the literature concerning the interest rate risk faced by banks. It continues to outline interest rate risk tools, techniques and monitoring procedures. Further into the study, it takes a look at the local scenario and analyses the performance of the two major banks in Malta. The study consisted mainly of obtaining a number or ratios for both banks, and comparing the results against one another to see how they managed to maintain an adequate level of interest rate risk. Since the analysis took place over a seven year period between 1998 and 2004, I will try to identify any trends, which may be evident and comment and compare the resulting figures.