Interest rate risk in banking book management at commercial banks in Vietnam

Trang Nguyen Thi Thu (), Hang Do Thu (), Huong Tran Thi Thu () and Huong Nguyen Thi Diem ()

Edelweiss Applied Science and Technology, 2024, vol. 8, issue 6, 3361-3380

Abstract: Interest rate risk is potentially averse to a commercial bank's trading book and banking book. The sharp and rapid volatility of interest rates can push commercial banks to fall into difficult situations, thus leading to instability of the whole banking system. Therefore, interest rate risk in banking book (IRRBB) management plays a vital role in banking operations. This paper analyzes the current management of IRRBB at 21 commercial banks in Vietnam by doing in-depth interviews and questionnaires. The finding indicates that the level of IRRBB management of commercial banks in Vietnam is mostly relatively completed or inadequate, with the highest levels belonging to international commercial banks and the banks that implement Basel II. Furthermore, the study also executes a simulation of IRRBB management at one commercial bank according to current regulations of the State Bank of Vietnam. Based on the selected interest rate scenarios, the capital requirement for IRRBB is calculated, which is the actual simulation for commercial banking in implementing the IRRBBB framework. Finally, to improve the effectiveness of IRRBB management in Vietnam, some implications for the State Bank of Vietnam and commercial banks are provided.

Keywords: Bank management; Basel; Interest rate risk in the banking book; IRRBB. (search for similar items in EconPapers)
Date: 2024
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