Examine the trends in the NIM and IR% and IE% for Heritage Bank and explain why Heritage Bank's NIM fell in 2006. What type of funding gap does Heritage Bank likely have, with rates rising in 2006? How does Heritage's NIM and IR% and IE% and interest rate risk compare relative to the PG3?

Question

Quizplus · Accepted Answer

The Answer is The fall in the NIM% was by about 0.15%, with rates rising and a larger rise in the IE% by 0.86% than the IR% by 0.71%. This suggests a negative funding for HB, with a larger rise in the IE% than the IR% with the rise in rates. HB has a higher IR% and a higher IE% than the PG3, resulting in a slightly higher by 0.04% NIM%. Hence, Heritage Bank has a higher IR% as a strength, but a higher IE% as a weakness relative to the PG3. The PG3 had only a 0.02% drop in NIM with the rise in rates in 2006, suggesting a more hedged funding gap with the PG3 IR% rising by a similar amount to the rise in the IE%.

Examine the Trends in the NIM and IR% and IE