7.

Earning Spread:
Earning spread or net interest spread or simply spread is an efficiency
assessment tool which measures the effectiveness of banks intermediary
function in borrowing and lending money and also the intensity of
competition in the banks market area. (Rose, 2013-2014). It is calculated in
the following manner
E.S = Total interest income/Total earning assets- Total interest Expense /Total interest
bearing bank liabilities

The trend of earning spread of IFIC Bank Limited is expressed in the following
chart
-

Chart: Calculated Earning Spread of IFIC bank Limited

Interpretation: Greater competition reduces the spread between the yields

from income generating assets and the costs of liabilities. Of the seven year
analysis, in FY 2007 the earning spread reached the bottom (1.34%) which
depicts the immense competition between different banks in the year 20062007. To increase the bank spread bank managers have to introduce
different loan and deposit schemes. The reality of the statement can be
found in the following FY2008 where the total interest income and expense,
income generating assets or liabilities all increased to an amount which
collectively increased the net interest spread to 1.59%.

On the other hand, the spread reached the peak in the FY 2010 to 2.45%.
The reason behind it is a substantial rise in the demand for loans and
advances. The interest expense fell to a certain percent in that period which
means the costs of liability were lower than other periods.

8. Interest Sensitive Gap:

A bank can hedge itself against interest rate changes no matter which way
rates moves by making sure for each time period that the
Dollar amount of repriceable (interest sensitive) assets= Dollar amount of repriceable
(interest sensitive) bank liabilities

However, most of the time, the equation doesnt equal. Clearly a gap exists
between the interest sensitive assets and liabilities. (Rose, 2013-2014)
Gap analysis offers a simplified way to determine a bank's interest-rate risk
as it relates to repricing the change in interest rate when an interestsensitive investment matures. The size of a bank's gap indicates how much
of an impact interest-rate changes will have on a bank's net interest income.
IFIC banks IS gap of the years are in the following -

yea
r

FY
2006

IS GAP

10,118,
097,876

Comm
ent

ASG, +ve
gap

FY
2007
12,333,326,
814
ASG, +ve
gap

FY
2008

FY
2009

FY
2010

FY
2011

FY
2012

14,480,9
22,530

10,398,9
56,517

14,982,1
34,235

16,480,7
96,766

18,531,2
26,728

ASG, +ve
gap

ASG, +ve
gap

ASG, +ve
gap

ASG, +ve
gap

ASG, +ve
gap

IFIC bank constantly managed to keep positive IS gap. The change in interest
rate will have little effect when positive IS gap occurs.