Negative Euribor will reduce performance of credits – Mad Money

Bank of Portugal states that institutions must reflect the negative Euribor on existing contracts

The supervisor explained : Euribor rates that may reach negative values ​​are same to be applied to existing credit agreements. Banks argued so far that charges should not be less than 0%.

“The Bank of Portugal sent the credit institutions to their understanding of the application to credit agreements and financing interest rates Euribor if this indexer be negative, “said the institution chaired by Carlos Costa.

And he warned. “Credit institutions shall comply with the conditions laid down for determining the interest rate on credit agreements and financing that concluded with their customers.”

This means that, in a case where the monthly average Euribor reaches negative values ​​banks must do reflect this value in the credit agreement, and deducting the spread (increased rate Euribor and that, ultimately, is the bank’s profit margin). And lowering the provision. For example, a customer whose Euribor monthly average is -0.01% and the spread of 0.3%, the rate applicable is 0.29%.

“When the interest rate the credit and financing contracts are indexed to a benchmark should result from the simple arithmetic average of the daily prices of the month preceding interest period count, understand this bank, in credit agreements and ongoing funding, not can be introduced limits on the change of the reference rate to prevent the full production of the effects arising from the application of this legal rule, “said the Bank of Portugal, in the circular letter sent to credit institutions.