Roel Capital’s Post

A concept from business school - ‘Gap’. ‘Gap’ is the difference between a bank’s rate sensitive assets (loans) and its rate sensitive liabilities (deposits). The concept differs from ‘net interest margin’ in that it’s not a static measure, it’s contingent on where market interest rates move. Think about if a bank’s loan book is funded by long dated term deposits locked in when rates are low and their mortgage book is predominantly variable. In a rising interest rate environment, its assets (loans) adjust quickly to rising interest rates, whereas its liabilities (deposits) do not adjust as quickly. Now think of the same concept in reverse, where variable rate mortgages fall and term deposit interest paid is less adjustable. Interesting take from the AFR on banks cutting deposit rates. There is a line in the article which notes this may be a hedge against falling rates, or the start of more intense price competition for mortgages…or both 🤔 Anthony Nocon Roel Capital #mortgagebroking #interestrates #financebroking