Impact of Negative Euribor on Buyers Credit

European 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).

In 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

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.