Duration analysis in forecasting internal capital adequacy in banks
Duration analysis in forecasting internal capital adequacy in banks

Author(s): Edward Pielichaty
Subject(s): Business Economy / Management, Financial Markets, Accounting - Business Administration
Published by: Masarykova univerzita nakladatelství
Keywords: debt financial instruments; interest rate risk; duration analysis;
Summary/Abstract: The duration analysis as a dynamic method can constitute an effective tool in the internal system of measurement and control of interest rate risk in bank book. In this article, the author outlines the practical application of the duration analysis in the management of the bank balance when it comes to the interest rate risk. The key objective of this article is to show the use of duration method in estimating internal capital budget to cover the interest rate risk by the bank. Duration analysis is a sophisticated method of measuring interest rate risk used by Polish banks, with traditional banking practice, for single financial instruments. The originality of the article stems from its author’s proposition to use the duration method to manage the entire portfolio of fixed income instruments in the banks’ balance. The study of interest rate risk was conducted based on financial reports from a selected cooperative bank.

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