Gap Analysis
Calculating GAP for Quarter
Rate Sensitive Assets Rate Sensitive Liabilities
Bankers 4,000 Bankers 4,
Securities 2, Savings 13,
Prime Loans 4, CDs 4,
Med. Risk Loans 2,
2,
2,
Consumer Loans
Mortgages
Total RSA 18, Total RSL 22,
Calculating GAP for
GAP = RSA - RSL
= 18, - 22,
= - 4,
This is the amount of the Bank’s Balance Sheet that is “at risk” due to a change in interest rates, should you “do nothing” for the next quarter.
If interest rates go up, interest expense will go up more than interest revenue - thus net interest income will go down.
If interest rates go down, interest expense will go down more than the interest revenue - thus net interest income will go up.
Conclusion: We want a negative GAP if we expect short interest rates to go down. We want a positive GAP if we expect short interest rates to go up.
Calculating GAP for
Notes:
1. All Bankers are included, as they all mature at the end of each quarter.
2. Securities include only those securities which mature in Qtr. , recorded at cost. (See Details of Government Securities on page 6 of output)
3. All Prime Loans are rate sensitive.
4. All Medium Risk Loans are rate sensitive.
5. Only Consumer Loan repayments for next period are rate sensitive. (See Loan Account Activity on page 6 of output).
6. Only the portion of mortgages which are renegotiated next period are rate sensitive. (See Details of Mortgage Loans on page 6 of output)
7. Include the portions of Certificates of Deposit (CDs) that mature. (See Details of Certificates of Deposit on page 7 of output)
Forecasting Next Period’s GAP
Static Gap, which we have just calculated, assumes that you make a “do nothing” decision for the following quarter.
However, we would like to analyze the GAP given the set of decisions that we intend to make. We will refer to this as either the forecasted or the dynamic GAP.
Start with the projected Balance Sheet. Then develop your desired Balance Sheet.
Forecasted GAP is calculated based on the decisions that you intend to make for the next quarter.
The Projected Assets
Projected Desired New
Cash 0
Bankers 0 0 0
Securities 6, 6, 0
Loans
Prime 3, 4, 800
Med risk 1 1, 2, 300
Med risk 2 1, 2, 300
Med risk 3 2, 2, 400
Consumer 5, 6, 1,000
Credit card 2, 600
Mortgages 5, 6, 1,000
Other 1, 1, 0
30, 35,
The Projected Liabilities
Projected Desired New
Bankers 0 0 0
Demand deposits 3, 4, 540
Savings deposits 13, 14, 400
CDs 9, 14, 4,300
Central Bank 1, ? ?
Provisions Tax Div 0
Debentures 1, 1, 300
Equity 1, 1, 0
30, 35,
Central Bank Advance would equal 35, - 35, =
The Forecasted GAP
Rate Sensitive Assets Rate Sensitive Liabilities
Cash 0
Bankers 0 Bankers 0
Securities 0 Savings 14,
Prime Loans 4, CDs 4,
Med. Risk 1,2,3 6, Central Bank advance
Consumer (new) 1, Debenture
Mortgages (new) 1,
Mortgages (renew)
Total RSA 14, Total RSL 18,
