Impact of Negative Euribor on Buyers Credit

Eur INREuropean Central Bank (ECB) started Quantitative Easing (QE) program last year for European Banks which has resulted into

  • Weakening of Euro Currency
  • Negative Inter Bank Rates (EURIBOR)

Till September 2014 Euribor was in positive territory post which Euribor has turned negative for period of 1 Month, 2 Months and 3 Months (Refer below chart).

imagesIn earlier article “Buyers Credit Interest Rate (Libor +  Margin)” we have discussed on how overseas banks quote interest rate on buyers credit. One such example is given below;

For a 3 Month Transaction Quote:

3 Month Euribor + 75 bps pa

0.10 + 0.75 = 0.85% pa.

With EURIBOR in negative territory post September 2014, for same buyers credit in Euribor for 3 Months at the same pricing cost has come down.

For a 3 Month Transaction Quote:

3 Month Euribor + 75 bps.

– 0.143 + 0.75 = 0.607 bps.

Impact on Importer : Reduction in Buyers Credit Cost

Impact on Buyers Credit Banks: 

  1. Reduction in Margin.
  2. You might have noticed, many Indian bank overseas branches outside Euro Zone have stopped doing buyers credit transactions in Euro Currency.
  3. Recent Update: Buyers Credit Bank are charging Min 0.01% Euribor  or is charging 12M Euribor for all transaction as its still in positive territory. 12 Month Euribor : 0.048%

Latest EURIBOR Rate Chart

 Euribor maturity / rate 01-19-2016 01-18-2016 01-15-2016 01-14-2016
1 month -0.222 % -0.222 % -0.221 % -0.221 %
2 months -0.182 % -0.181 % -0.179 % -0.181 %
3 months -0.143 % -0.142 % -0.142 % -0.143 %
6 months -0.056 % -0.054 % -0.054 % -0.053 %
9 months -0.011 % -0.009 % -0.010 % -0.009 %
12 months 0.048 % 0.049 % 0.049 % 0.048 %

Reference

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