A Comparative Analysis of the Determinants of Interest Rate Risk Using the Example of Banks from Developed and Developing Financial Markets

Abstract

The aim of this paper is to estimatethe effects of different balance sheet determinants on the interest rate risk exposure of banks operating in developed and developing financial markets. The quantification of the analysed exposure contributes to the process of identifying, monitoring and managing interest rate risk. As a sample of a developed financial market we surveyed 65 bank holding companies in the United States, whereas the sample of a developing financial market included 10 banks from the Republic of Serbia, which are listed on the Belgrade Stock Exchange. A comparative analysis of the influence of the balance sheet characteristics was conducted on the basis of the results of Stone’s regression model and the Econometric panel model. Based on the obtained regression coefficients, we conclude that growth of total assets in banks in the United States results in increases in exposure to interest rate risk, while in Serbia the relationship seems to be inverse. Furthermore, the results show that an increase in the share of deposits in total assets of the U.S. banks reduces exposure to interest rate risk, while banks in the Republic of Serbia experience an opposite effect. The coefficients also suggest that there are some empirical factors whose effects are universal. For instance, both an increase in return on average equity (ROAE) and a decrease in net interest income lead to reductions of interest rate sensitivity, regardless of the level of development of the market where the banks operate.

DOI: http://dx.doi.org/10.5755/j01.ee.25.4.3112