Page 20 - Pillar 3 Disclosure
P. 20

8. Interest Rate Risk

The main activities undertaken by the Society that give rise to interest rate risk are as follows:

 Management of the investment of capital and other non-interest bearing liabilities;

 Issue of fixed rate savings products;

 Fixed rate wholesale funding taken by the Treasury department;

 Fixed and capped rate mortgage and other lending;

 Fixed rate investments by the Treasury department;

 Timing differences between asset, liability and swap maturities.

Interest rate risk is managed by utilising natural hedges on the balance sheet and by effecting interest rate swaps with external counter-parties. 

An analysis of the variance in earnings or economic value arising from both upward and downward interest rate shocks is considered on a 

monthly basis by ALCO and hedging action is taken as appropriate. When considering hedging action an allowance is made for the impact of loan 

prepayments, early redemption charges, or early withdrawal of deposited funds.

The Society balance sheet is tested against Board limits on a regular basis for the effects of a 2% parallel shift in interest rates after the 

appropriate adjustment of capital allocations. Interest rate risk limits are an expression of the Board’s risk appetite and are reviewed annually as 

an integral part of updating the Society's ICAAP.

Page 19

   18   19   20   21   22