My first Publication ocbc_ar17_fullreport_english | Page 232

NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2017
39. RISK MANAGEMENT (continued)
39.3 MARKET RISK AND ASSET LIABILITY MANAGEMENT (continued)
Interest rate risk (continued)
The significant market risk faced by the Group is interest rate risk arising from the re-pricing mismatches of assets and liabilities
from its banking businesses. These are monitored through tenor limits and net interest income changes. One way of expressing this
sensitivity for all interest rate sensitive positions, whether marked to market or subject to amortised cost accounting, is the impact on
their fair values of basis point change in interest rates.
The Bank’s interest rate risk is monitored using a variety of risk metrics at a frequency that is commensurate with the changes in
structural risk profile. The impact on net interest income of the banking book is simulated under various interest rate scenarios and
assumptions. Based on a 100 bp parallel rise in yield curves on the Group's exposure to major currencies i.e. Singapore Dollar, US
Dollar, Hong Kong Dollar and Malaysian Ringgit, net interest income is estimated to increase by $436 million (2016: $580 million),
or approximately +8.0% (2016: +11.5%) of reported net interest income. The corresponding impact from a 100 bp decrease is an
estimated reduction of $446 million (2016: $522 million) in net interest income, or approximately -8.2% (2016: -10.3%) of reported net
interest income.
The 1% rate shock impact on net interest income is based on simplified scenarios, using the Group’s interest rate risk profile as at
reporting date. It does not take into account actions that would be taken by Global Treasury or the business units to mitigate the
impact of this interest rate risk. In reality, Global Treasury seeks proactively to change the interest rate risk profile to minimise losses
and maximise net revenues. The projection assumes that interest rates of all maturities move by the same amount and, therefore, do
not reflect the potential impact on net interest income of some rates changing while others remain unchanged. The projections also
assume a constant balance sheet position and that all positions run to maturity.
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OCBC ANNUAL REPORT 2017