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Loans and negative interest rates

Banks and negative interest rates on loans…

Now there are the first rulings in connection with negative interest rates and loans in Austria. Loans with variable interest rates generally are bound to an indicator (Euribor, Libor, etc …). To this base rate is then added the loan margin . This is what the customer has to pay to the bank. If the base rate is still negative, the interest rate may remain negative even after adding the margin. In extreme cases, the bank would have to pay the customer “negative interest rates”, which of course would want to avoid any bank due to a functioning business model.

Some banks have already implemented in this context as a precaution an interest floor, e.g. is limited with the margin. Of course, these first rulings are for the time being to loans in CHF and credit granted to consumers. We will see what these decisions will bring for companies or municipalities. The 3-month Euribor is currently already at about -0.25% …


About the author, Heinz Hofstaetter – Over 20 years of international experience in senior management positions in the areas of consulting, banking, finance, asset management, valuation and Real Assets.