V.

Interest Rate Risk (IRR) of Vietinbank

1. Definiton.

Interest rate risk (IRR) is the risk that impacts negatively to income, capital of the banks due to
adverse changes of interest rate. Interest rate risk arises when there is a difference of term
between interest earning assets and interest rate bearing liabilities that are mobilized to sponsor
those assets. Main activities of the banks that create interest rate risk include loans, mobilities
and investments. The assessment of interest rate risk is based on the Repricing Model.
According to this model, interest rate measurement is conducted through the following steps:
- Identify interest-sensitive assets and liabilities (ie, revaluation) in a future period
- Determine interest rate sensitivity gap
- Measure losses
The following assumptions and conditions are applied in the analysis of interest rate risk of
Vietinbank’s assets and liabilities:

 The loan (usually short term) is about to mature / renew

 Maturing investment securities
 Loans and securities investments with floating interest rates
 Loans from money markets (Loans in the interbank money market; RPs)
 Savings deposit (usually short term) matures
 Money market deposits
 Deposits and loans (including issuance of valuable papers) with floating interest rates
 Valuable papers issued (usually short-term) mature

2. Gap analysis.

Interest sensitivity gap = Total sensitive assets – Total sensitive liabilities

Total sensitive assets Total sensitive liabilities Interest sensitive gap

(RSA) (RSL) ($GAP)
2016 794,684,560 764,061,468 30,623,092
2017 919,879,186 890,595,876 29,283,310
2018 1,087,661,505 983,431,850 104,229,655
(Unit: million VND)

Based on the table, we can see that Vietinbank has a positive $gap in three years from 2016 to
2018. In general, financial institutions with a positive dollar gap will benefit from increasing the
Interest rates because as interest rate increase (decrease), the bank‘s earnings on assets (cost
of liabilities) would rise faster than its cost of liabilities (earnings on assets) causing an increase
(decrease) in profits.

However, we see that the interest sensitive gap decreases slightly from 30,623,092 VND in
2016 to 29,283,310 in 2017 and increases significantly to 104,229,655 VND in 2018. This
caused by some reasons such as: Demand for term of user;The ability of the sender and the
lender to limit; Convert period of time.