Abstract:

The risk management of non-maturing deposits (NMDs), like savings deposits, sight deposits and deposits redeemable at notice, is complicated by the unknown options that customers may exercise. Given the significant amounts of NMDs in the balances of retail banks, a sophisticated management of the interest rate risk becomes a critical issue. Understanding the characteristics of a bank's deposit base is crucial to determining how interest rate changes may affect the bank's liquidity, profitability and exposure to these changes (Bolig et al., 2015). In the current low-rate environment, limited alternative investment opportunities, and general risk aversion, the pricing of deposits and modelling the elasticity of savings volumes is a major concern for all retail banks (Moser et al., 2015). In view of these developments and the importance of NMDs, we have conducted a survey of Slovak banks' attitudes toward NMDs modelling with the intention of determining and characterizing best practices. Especially, we concentrated our efforts on the question, if the current modelling is adequate with respect to the strategic importance of deposits. This paper aims to present the results of this survey and is based on an inquiry conducted on a total of 28 banks doing business in Slovakia.