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Surya Software Systems

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Provide data to manage Interest Rate Risk Centrally ... Interest rates swap curve. Wholesale CD rates. LIBOR. Treatment of Non-Maturity Contracts ... – PowerPoint PPT presentation

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Title: Surya Software Systems


1
BFTPBank Funds Transfer Pricing
  • Surya Software Systems

2
Objectives
  • Provide data to manage Interest Rate Risk
    Centrally
  • Remove Interest Rate Risk from Business Units
    Earnings
  • Measure profitability of business units and
    off-set center (Managed by Treasury)

3
Matched Maturity Method
  • Every transaction should be matched with a
    corresponding hypothetical internal funds
    transfer
  • Ability to decompose net interest margin into
    three components
  • Lending/Investment spread
  • Funding spread
  • Rate risk spread

4
Example Marginal Components
There is a contractual rate of 8 on a two year
zero coupon loan and contractual rate of 3 on
Certificate Deposit. Transfer pricing system
assigns 5 market rate for two years money and 4
for one year funds
  • Line Unit Assets Liabilities Real Spread
    Real Rate 8 3 5 Transfer Rate 5 4
    Matched Spread 3 1
  • Treasury Funding Center Total Matched Spread
    Transfer Pricing Income 5 5 Transfer
    Pricing Expenses 4 Treasury Spread (Rate
    Risk) 1

Funding Spread
Lending/ Investment Spread
Rate Risk Spread
5
List of Functions
  • Viewing FTP Rate
  • Choosing FTP Curve
  • Treatment of Non-Maturity Contract
  • FTP Book Report
  • FTP Report By Business Unit
  • Profitability Report
  • Profitability Report by Business unit
  • Off-set Center Spread and Profit Report
  • Graph, FTP Rate, Contracted Rate Vs Term
  • Funding, Investment and Rate Risk Spread between
    Two Transaction Dates
  • Graph, Current Market Rate, FTP Rate Vs Term
  • Sensitivity Analysis

6
Viewing FTP Rate
7
Choosing FTP Curve
  • Treasury rates
  • Marginal funds pool
  • Bank Cost of Funds
  • Target borrowing rate
  • Proxy curves for cost of funds
  • Interest rates swap curve
  • Wholesale CD rates
  • LIBOR

8
Treatment of Non-Maturity Contracts
  • Divide non-term products balances as core portion
    and volatile portion
  • Assign long term rate to core portion
  • e.g 10 years market rate
  • Assign Short term rate to volatile portion
  • e.g 1 year market rate

9
Thank you
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