INTEREST

RATE RISK
MANAGEMEN
T
 OBJECTIVES
To be able to identify
the risk the
management has
encountered with
regards to interest rate;
 Design to execute a risk
management process to
monitor and reassess the
identified risk that based
upon changes in interest rate
in the internal and external
operating environment;
 Design to analyze
and evaluate the
strategies they used
in minimizing and
managing risk;
 Define risk management
strategies and clear
accountabilities and action
steps for building and
executing risk management
capabilities and improving
them continuously;
Continuously monitor the
information provided to
decision-makers in order to
assist them as they manage
key risks and protect the
interests of shareholders
 INTRODUCTION
The Land Bank of the
Philippines was established
in Manila, Philippines in
year 1963, it is known as a
government financial
institution that strikes a
 Contd Intro.

Balance in fulfilling its social

mandate of promoting
countryside development
while remaining financially
viable. It is a commercial
bank in the Philippines owned
by the Philippine government
 Products and
Services
Regular Savings Account
Regular Current Account
Savings Account with
ATM Access
Current Account with
ATM Access
Regular Peso E.A.S.Y.
(Earning Access &
Sure Yield) Check
Regular Peso Time
Deposit
High-Yield Savings
Account (HYSA)
U.S. Dollar Savings
Account
U.S. Dollar Time
Deposit
Internet Corporate (i-
Corp) Viewing Facility
Landbank Cash Card
OFW Cash Card
Phone Banking Land
Bank Phone Access
FEATURES

Balance Inquiry
Checkbook
Requisition
Check Status Inquiry
Returned Check/s
Inquiry
Fund Transfer
Bills Payment
What is Interest Rate
Interest rate risk is
Risk? a
potential loss from
unexpected changes in
interest rates which can
significantly alter a banks
profitability and market value
of equity.
 Risk Management
1. Process
Communication and
Consultation
This aims to identify who
should be involved in
assessment of risk (including
identification, analysis and
evaluation) and it should
engage those who will be
RISKCOM Core adapts
this duties and
responsibilities:
a. Identify and Evaluate
Exposures.
b. Assess the probability of
each risk becoming reality and
shall estimate its possible
on those risks that are most
likely to occur and are costly
when they happen.
C. Identify and assess the
external risks that may affect
the business plans and
directions of the bank.
Oversee the implementation
of the Risk Management
Plan.

a. Communicate the risk

management plan and loss
control procedures to affected
parties; and
b. Conduct regular
discussions on the Banks
current risk exposure based
on regular management
reports and assess how the
concerned units or offices
manage / mitigate these
risks.
Review and Revise the Risk
Management Plan, as Needed.
a. Review and evaluate the steps
that management has taken to
monitor and control risk
exposures to ensure its
continued relevance,
comprehensiveness and
b. Revisit strategies, look
for emerging or changing
exposures and stay abreast
of developments that might
affect the likelihood of
harm or loss to the land
bank;
c. Ensure that the risk
infrastructure and operating
policies are congruent with
corporate policies on prudent
risk management, and conform
to regulatory, industry and
technological standards, trends
and best practices
d. Report regularly to the
Board of Directors the land
banks overall risk exposure,
actions taken to manage /
mitigate the risks and
recommend further actions or
plans as necessary.
2. Establish the context
This step defines the overall
environment in which a
business operates and
includes an understanding of
the clients or customers
perceptions of the business.
Peso Deposit Rates Rate For
Savings Deposit 02/19/2016to03/07/2016
Amount (P) 0.5000
0.6250
1,000.00 PhP
300,000.00 - 499,999.99
Interest Rate
0.5000
0.2500 0.6250
Term 0.6250
p.a. 0.7500
Time Deposit 500,000.00 - 999,999.99
1,000.00 - 49,999.99 0.7500
0.2500 0.8750
0.3750 0.8750
0.3750 1.0000
0.5000 1,000,000.00 and up
1.0000
50,000.00 - 299,999.99
1.0000
0.3750
1.1250
0.5000 1.2500
Dollar Deposit Rate For
Rates 02/19/2016to03/07/2016
Savings Deposit 10,000.00 - 49,999.99
0.3750
0.5000
Amount ($) 0.6250
1,000.00 0.7500
Interest Rate 0.8750
0.1500 50,000.00 - 99,999.99
Term 0.5000
p.a. 0.6250
Time Deposit 0.7500
1,000.00 - 9,999.99 0.8750
0.3125 1.0000
0.3750 100,000.00 - below 5 MM
0.5000 0.7500
0.6250 0.8750
0.7500 1.0000
1.0000
3. Identify the risks
The aim of risk
identification is to identify
possible risks that may affect,
either negatively or positively,
the objectives of the business
and the activity under
analysis.
Land Bank is a financial
institution and aside from
Interest Rate Risk, below are
the possible risks in which
Land Bank are being also
exposed of:
Interest Rate Risk
Liquidity Risk
Market Risk
Credit Risk
Business Operational
Risk
4. Analyze the risks
The risk analysis step will
determine the cause- and-effect
relationships between probable
happenings, and likely outcomes, also
this steps determines quantitative and
qualitative techniques to reduce the
uncertainty of the outcomes especially
in Interest Rate Risk.
An adverse movement in Interest
Rate Risk may potentially:

increase borrowing costs for

borrowers;
reduce returns for investors
reduce profitability of financial
services providers such as banks
 reduce the net present value
(NPV) of organizations due to
the effect of changes in the
discount rate (interest rate) on
the value of financial
instruments, hedges and the
return on projects.
Impact of adverse
movements in
Interest Rates in
Land Bank

Borrowers
concerned about
Inc.cost of funds=Dec. in
Profitability=Dec.in MV
Decrease in ability to
undertake capital expenditure
Decrease in ability to pay
dividends
Increase the chance of a
breach of borrowing
covenants
Increase the borrowing
Investors concerned
about falling rates
Reduced cost of funds =
Reduced Profitability =
Reduced in Market Value
Reduced ability to pay
returns to stakeholders
especially to those
with investments
Reduced competitive
returns =Reduced
the ability to attract
investors
Reduced the ability
to meet future
outgoings
5. Evaluate the risks
Risk evaluation involves comparing
the level of risk found during the analysis
process with previously established risk
criteria, and deciding whether these risks
require treatment. The result of a risk
evaluation is a prioritized list of risks that
require further action. This step is about
deciding whether risks are acceptable or
need treatment
6. Treat the risks
Risk treatment involves identifying
options for treating or controlling
risk, in order to either reduce or
eliminate negative consequences, or
to reduce the likelihood of an
adverse occurrence. Risk treatment
should also aim to enhance positive
outcomes.
7. Monitor and Review
It is an essential and
integral step in the risk
management process. A
business owner must
monitor risks and review
the effectiveness of the
treatment plan, strategies
and management system
 RECOMMENDATION
Financial Institutions has a greater
impact of risk which includes
mainly the Interest Rate Risk. Land
Bank already has established a Risk
Oversight Committee, to understand
well if there company is now in the
line of undefended risk.
 In line with this, a risk
assessment on the Philippine
banking industry have created a
primary guide to cope with risk
and perform better. Basel II, as
required by Bangko Sentral ng
Pilipinas (BSP) it could categorize
the performance and efficiency of
every bank industry
 CONCLUSION
We analyze and evaluate the
sources of interest risk, its impact
and effect on the company and had
come up on a conclusion that if
interest rates rise, the cost of funds
increases more rapidly than the
yield on assets
 CONCLUSION

thereby reducing net income.

And if the interest rate risk
exposure is not managed
properly it can erode both the
profitability and shareholder
value of the company.