IMPROVING INTEREST RATE RISK MANAGEMENT MECHANISMS IN COMMERCIAL BANKS

Abstract

Interest rate risk is one of the most critical financial risks influencing the stability, profitability, and
long-term sustainability of commercial banks. In an environment characterized by volatile financial markets,
changing monetary policies, rising inflationary pressures, and increasing competition within the banking sector,
effective management of interest rate risk has become a strategic priority for financial institutions. Fluctuations
in market interest rates can significantly affect banks’ net interest income, economic value of equity, liquidity
position, and overall financial performance. Consequently, commercial banks are required to develop
comprehensive risk management frameworks capable of identifying, measuring, monitoring, and controlling
interest rate exposures.
This study examines the theoretical foundations and practical mechanisms of interest rate risk management
in commercial banks and explores opportunities for improving existing management approaches. The research
is based on international banking standards, particularly the principles and recommendations of the Basel
Committee on Banking Supervision, as well as statistical data and analytical reports related to the banking
sector. Various interest rate risk measurement techniques, including gap analysis, duration analysis, assetliability
management (ALM), stress testing, and modern risk assessment models, are analyzed within the study.
The findings indicate that effective interest rate risk management contributes significantly to enhancing
financial stability, maintaining profitability, improving capital adequacy, and strengthening banks’ resilience to
adverse market conditions. Furthermore, the integration of digital technologies, artificial intelligence, predictive
analytics, and real-time monitoring systems has improved the accuracy and efficiency of risk assessment
processes. The study emphasizes that commercial banks operating in emerging economies should adopt
advanced risk management practices and strengthen regulatory compliance to mitigate the negative effects
of interest rate volatility. Based on the obtained results, several practical recommendations are proposed to
improve interest rate risk management mechanisms and support the sustainable development of commercial
banking institutions.