24. INTEREST RATE SENSITIVITY We are exposed to interest rate risk as a result of a difference, or gap, between the maturity or repricing behaviour of interest sensitive assets and liabilities. The interest rate gap is managed by adjusting the repricing behaviour of interest sensitive assets or liabilities to ensure the gap falls within our risk appetite. The repricing profile of these assets and liabilities has been incorporated in the table following, which contains the gap position at October 31 for select time intervals. Figures in brackets represent an excess of liabilities over assets or a negative gap position.
ASSET LIABILITY GAP POSITIONS ($millions)
Floating Rate and Within 1 Month
1 Month to 3 Months
3 Months to 1 Year
Total Within 1 Year
1 Year to 5 Years
More than 5 Years
Non- interest Sensitive
October 31, 2021
Total
Assets Cash resources and securities $
153
$
12
$
171
$
336
$
3,285
$
98
$
7
$
3,726
Loans (1)
14,916
1,172
4,405
20,493
12,063
343
(139)
32,760
Other assets (2)
-
-
-
-
-
-
837 137
837
Derivatives (3)
1,615
140
444
2,199
1,174
450
3,960
Total
16,684
1,324
5,020
23,028
16,522
891
842
41,283
Liabilities and Equity Deposits (1)
13,960
1,893
5,174
21,027
8,461
502
(14)
29,976
Other liabilities (2)
-
-
-
-
-
- - -
798
798
Debt
73
152
541
766
2,249
-
3,015 3,534 3,960
Equity
-
-
-
-
575
2,959
Derivatives (3)
2,230
28
69
2,327
1,326
170
137
Total
16,263
2,073
5,784
24,120
12,611
672
3,880
41,283
Interest Rate Sensitive Gap
$
421
$
(749)
$
(764)
$
(1,092)
$
3,911
$
219
$
(3,038)
$
-
Cumulative Gap
$
421
$
(328)
$
(1,092)
$
(1,092)
$
2,819
$
3,038
$
-
$
-
Cumulative Gap as a Percentage of Total Assets
1.0 %
(0.8) %
(2.6) %
(2.6) %
6.8 %
7.4 %
- %
- %
October 31, 2020 Cumulative Gap
$
(753)
$
(376)
$
(49)
$
(49)
$
2,699
$
2,858
$
-
$
-
Cumulative Gap as Percentage of Total Assets
(1.9) %
% (1.0) %
(0.1) %
(0.1) %
6.9 %
7.4 %
- %
- %
(1) Potential prepayments of fixed rate loans and early redemption of redeemable fixed term deposits have not been estimated. Redemptions of fixed term deposits where depositors have this option are not expected to be material. The majority of fixed rate loans, mortgages and leases are either closed or carry prepayment penalties. (2) Accrued interest is excluded in calculating interest sensitive assets and liabilities. (3) Derivative financial instruments are included in this table at the notional amount.
WEIGHTED AVERAGE EFFECTIVE INTEREST RATES
The effective, weighted average interest rates for each class of financial asset and liability are shown below:
Floating Rate and Within 1 Month
1 Month to 3 Months
3 Months to 1 Year
Total Within 1 Year
1 Year to 5 Years
More than 5 Years
October 31, 2021
Total
Total assets
2.9 %
3.9 %
3.9 %
3.2 %
3.1 %
2.4 %
3.2 %
Total liabilities
0.7
1.2
1.5
0.9
2.0
1.7
1.3
Interest Rate Sensitive Gap
2.2 %
2.7 %
2.4 %
2.3 %
1.1 %
0.7 %
1.9 %
October 31, 2020 Total assets
3.1 %
2.9 %
3.5 %
3.2 %
3.7 %
4.1 %
3.4 %
Total liabilities
0.8
1.9
2.2
1.2
2.3
1.0
1.5
Interest Rate Sensitive Gap
2.3 %
1.0 %
1.3 %
2.0 %
1.4 %
3.1 %
1.9 %
Based on the current interest rate gap position, it is estimated that a one-percentage point increase or decrease in all interest rates would have an insignificant impact on net interest income. The analysis is a static measurement of interest rate sensitivity gaps at a specific point in time, and there is potential for these gaps to change significantly over a short period. The impact on common shareholders’ net income from changes in market interest rates depend s on both the magnitude of and speed with which interest rates change, as well as the size and maturity structure of the cumulative interest rate gap position and the management of those positions over time. A one-percentage point increase in interest rates would decrease OCI $66,052 (October 31, 2020 – $72,721), net of tax and a one-percentage point decrease in interest rates would increase OCI by $67,710 (October 31, 2020 – $74,999), net of tax. The estimates are based on a number of assumptions and factors, which include: a constant structure in the interest sensitive asset and liability portfolios; interest rate changes affecting interest sensitive assets and liabilities by proportionally the same amount, except floor levels for various deposit liabilities and certain floating rate loans, and applied at the appropriate repricing dates; and, no early redemptions.
104 | CWB Financial Group 2021 Annual Report
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