The interest rate turnaround has fundamentally changed the banking world and poses new challenges, particularly for regional banks. A central task here is the realignment of interest book management.
Critical review of maturity transformation
In times of inverted yield curves and dynamic interest rate increases, banks must critically question their interest book strategy and the extent of maturity transformation. A too rigid “buy-and-hold strategy” has proven to be disadvantageous during the interest rate turnaround, as the necessary protection against the rise in interest rates was often initiated too late or not at all.
Flexible benchmark control as a solution approach
Instead, flexible benchmark control with an upper and lower range is recommended in order to be able to react to market changes. Strategic and tactical interest rate forecasts as well as the steepness of the yield curve should be included in treasury management.
Dr. Wilhelm Menninghaus, partner at zeb, emphasizes: “It is important to review the interest rate book strategy and the extent of maturity transformation with the still inverted yield curve and to be prepared for the turnaround in interest rates.”
Deposit business in focus
The interest rate turnaround has also brought the deposit business into focus. It is seen as a new driver of earnings, but can quickly become an Achilles heel given the increasing competition in terms of conditions in the battle for deposits and expected interest rate cuts. The deposit business carries the reserves of the entire bank – in particular sight and savings deposits. It is therefore important to jointly derive a sustainable strategy for the deposit portfolio through sales, treasury and overall bank management, which anticipates the effects of reallocations and adjustments to conditions.
Multi-tiered approach to address challenges
In order to address the challenges of the interest rate turnaround, a multi-stage approach is recommended. At the current high level, it is important to be prepared for the turnaround in interest rates and to react to market changes with a flexible benchmark with an upper and lower range. A rule-based approach and the inclusion of expected interest rate developments are not contradictions. The realignment of interest book management requires a high degree of flexibility and forward-looking action from regional banks. This is the only way they can successfully navigate a volatile interest rate environment and secure their profitability in the long term.
Webinar series bank management for your preparation for the “turnaround in interest rates”
For a deeper discussion of these topics, zeb offers a webinar series on bank management.
The next online seminar “Interest Rate Turnaround and Interest Rate Control” will take place on 23. August 2024 instead of. Further information and the possibility to register can be found at: zeb webinars bank management
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