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Note 32 - Interest rate sensitivity gap analysis Interest rate risk emanates from the Group’s loan investments and the Group’s funding. The Group’s policy is that fixed rate lending is matched with fixed rate borrowings and the interest rate resetting profile of variable rate lending is matched with that of variable rate borrowings through gearing the portfolio. Financial instruments including interest rate swaps are used as part of this matching process. Equity investments, which are mainly funded by shareholders’ funds but also partially by borrowings in similar currencies, give rise to an interest rate sensitivity gap as a result of the equity investments being non-interest bearing and having no fixed maturity date. The interest rate sensitivity gap at 31 March 2004 was: Assets Not more than three months 2003 £ m More than three months but not more than six months 2003 £m More than six months but not more than one year 2003 £m More than one year but not more than five years 2003 £m More than five years 2003 £m Non-interest bearing 2003 £m Total 2003 £m Treasury bills and other eligible bills –  –  –  –  1  –  1  Loans and advances to banks 419  65  50  –  –  –  534  Debt securities held for treasury purposes 244  40  –  –  –  –  284  Debt securities and other fixed income   securities held as financial fixed assets                  Loan investments 424  39  59  301  489  –  1,312     Fixed income shares –  –  –  –  –  150  150  Equity shares –  –  –  –  –  2,864  2,864  Other assets –  –  –  –  –  267  267    1,087  144  109  301  490  3,281  5,412  Liabilities               Deposits by banks 215  –  –  –  –  –  215  Debt securities in issue (174)  (24)  21  388  917  –  1,128  Convertible bonds –  –  –  367  –  –  367  Other liabilities –  –  –  –  –  262  262  Subordinated liabilities –  –  –  –  45  –  45  Shareholders’ funds –  –  –  –  –  3,395  3,395    41  (24)  21  755  962  3,657  5,412  Interest rate sensitivity gap 1,046  168  88  (454)  (472)  (376)  –  Cumulative gap 1,046  1,214  1,302  848  376  –  –    Assets Not more than three months 2003 £m More than three months but not more than six months 2003 £m More than six months but not more than one year 2003 £m More than one year but notmore than five years 2003 £m More than five years 2003 £m Non-interest bearing 2003 £m Total 2003 £m Treasury bills and other eligible bills –  –  –  –  1  –  1  Loans and advances to banks 412  105  10  –  –  –  527  Debt securities held for treasury purposes 228  55  –  –  –  –  283  Debt securities and other fixed income   securities held as financial fixed assets                  Loan investments 438  67  65  328  438  –  1,336     Fixed income shares –  –  –  –  –  228  228  Equity shares –  –  –  –  –  2,375  2,375  Other assets –  –  –  –  –  249  249    1,078  227  75  328  439  2,852  4,999  Liabilities               Deposits by banks 316  104  3  –  –  –  423  Debt securities in issue (44)  126  (34)  302  1,000  –  1,350  Convertible bonds –  –  –  –  –  –  –  Other liabilities –  –  –  –  –  239  239  Subordinated liabilities –  –  –  –  51  ���  51  Shareholders’ funds –  –  –  –  –  2,936  2,936    272  230  (31)  302  1,051  3,175  4,999  Interest rate sensitivity gap 806  (3)  106  26  (612)  (323)  –  Cumulative gap 806  803  909  935  323  –  –

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