Financial Assets & Interest Rates

Banking Risk Exposure's



Abstract

Through research shows that the percentages of provisions currently in place are overvalued compared to the level that the institution has expired, and is not possible to cover the level of earnings, it also established that there is no proper link between the risk and the rate of interest and introduces a methodology for classifying the rate of active financial Bank.

Framed in the context of the economy Cuba presents novel insights into the implementation of a matrix of weighted average interest rate for financial assets of the bank and details a methodology to achieve effective linkage of interest rate risk.

Introduction

The introduction of payment instruments discountable, encouragement and punishment to borrowers through rebates or charging interest on arrears, improving the management and financial trading and other ways to accelerate the rotation of the money will be implemented, by achieving a performance of the financial institutions and non-bank, in accordance with those purposes.

Today, Cuba is in full process of economic transformation, to be inserted into the markets and internationally laying the groundwork for future development sustained economy. One of the key issues for achieving this purpose is the raising of the efficiency business, which is important for not only the changes required in the management of companies, but at the same time also improving the financial environment, essential to achieving the objectives pursued. The new demands of the domestic economy and the development of finance to scale internationally require a process of continuous improvement of the Banking system, ensuring their further modernization and competitiveness.

Thus, in this context there are new variants of loans, new products that lead to financial analysis from the point of view of exposure to the risk that entails and the need to create viable mechanisms for reducing these risks.

Problem to solve

Policy provision that exists today in the Bank is not possible to cover the current level of earnings and there is no effective link between the interest rate and risk.

Objective

Propose a methodology to vary the percentages of outstanding provisions currently evaluating the Bank's risk exposure and achieve a higher return on financial assets through the implementation of the proposed methodology that links the interest rate risk.

Hypothesis 

By varying the supply policy, and linking performance risk, the Bank will be in a more advantageous financial position that would cover their profits from their risk provisions

Literature Review

Framework

Theoretical aspects of risk and policy provisions

Principle 8 The Core Principles of the Basel Accords of September 1997 states: "Banking supervisors must be satisfied that banks have established and adhere to policies, practices and procedures for evaluating the quality of assets and adequacy of provisions and reserves for loan losses (Fisher, 1990, p.453)

According to Pedro Pablo Villasante, Director General of Supervision of the Bank of Spain : "The policy provisions take into account the experience of managers and the need to anticipate economic cycles, and especially the need to protect the quality of assets, the creditworthiness of the entity, the business confidence and continuity "

In the opinion of the Superintendency of Banks and Institutions Chilenas "Financial institutions to constantly evaluated its entire loan portfolio, in order to be timely and sufficient provisions to cover eventual losses recuperation of credits granted "

According to Brown and Horacio Fernandez Perez Fredy Ocaris Ram írez, Magisters in Mathematics Applied University EAFIT, Medellin, Colombia in his article: The model logistics: a tool statistics to assess the risk of credit , states: "The risk as the probability of get an unexpected result, requires that its study must take into account ...