Strengthening Interest Rate Risk Management

In February 2025, the Hong Kong Monetary Authority (HKMA) reviewed the practice of authorized institutions on interest rate risk management and published a circular. It provides guidance with respect to the disclosure of adjusted Capital Adequacy Ratios (CARs) on held-to-maturity (HTM) debt securities investments and the use of behavioral models in measuring interest rate risk in the banking book management (IRRBB).

We have summarized the guidance and provide insights in this brief paper, which includes the use of granular segmentation approach in non-maturity deposits (NMDs) model, five modules of the governance framework in IRRBB management, and the procedures of measuring and disclosing the adjusted CAR ratio.