Gap Analysis 

Use

Unlike NPV analysis and value-at-risk analysis, where risks are depicted using NPVs and future values, in gap analysis position and maturity volumes, cash flows, and liquidities are analyzed on key dates or in periods. The gap positions, interest rate risk, currency risk, and liquidity risk that are disclosed in this way are then displayed.

For interest rate risk, you are able to highlight, for example, the fixed interest rate gap position in a maturity band for any currency by means of the following template:

In the closed fixed-rate block, there is no risk because the product interest rates of the counterparties are not affected by changes in the market interest rate. Hence the closed interest result is not affected. In the closed variable-rate block, it is assumed that the changes to the interest rate of the items, which result from changes in the market interest rate, affect both sides, meaning that the final net interest income is unchanged in this block too.

Therefore, the actual risk is in the area of the gap; in the area of the asset-side gap in this example. If, for example, the interest calculated for the variable-rate liabilities increases as a result of increases in the market interest rate, then you expect a decrease in the net interest income because the lending terms cannot be adjusted in line with the changes in the market rate due to the fixed-rate agreement.

Features

Gap analysis enables you to do the following:

·       Depict the interest rate risk as a possible negative deviation of the net interest income per period from the expected net interest income per period.

·       Depict key date-based and period-based position volumes, or key date-based maturity volumes in relation to their interest commitment or capital commitment, fixed-rate cash flows, and incoming payments and disbursements of liquidity.

·       Depict gap positions as a comparison of the volumes of asset and liability positions, and maturity volumes, as well as incoming payments and disbursements of cash flows or liquidity flows.

·       Analyze positions, maturity, and cash flows from fixed-rate items for any subportfolio on a daily basis.

·       Use scenarios to depict the net interest income for old transactions.

·       Use due date scenarios and forwards (for example, floaters, the variable side of swaps and FRAs) to take into account variable items that do not have fixed-rate periods (demand deposits and savings deposits).

·       Use due date scenarios to take into account non-interest items that do not have a fixed-rate period (for example, equity, provisions, land and buildings).

·       Take into account optional-like interest instruments with the underlying or delta-weighted underlying (for example, forward swaps for swaptions, fictitious bonds for OTC interest options, options on futures).

·       Display results distributed over time periods, which can be subdivided into any time unit, for example, day, month, quarter, half-year and year.