RULEBOOK ON DETERMINING INTEREST RATES ON LOANS AND DEPOSITS IN RETAIL

Transcription

1 RULEBOOK ON DETERMINING INTEREST RATES ON LOANS AND DEPOSITS IN RETAIL

2 ON THE MANAGEMENT BOARD SESSION, HELD ON , BANK S MANAGEMET HAS BROUGHT DECISION ON RULES FOR CHANGING INTEREST RATES FOR LOANS AND DEPOSITS IN RETAIL 1. General provisions The purpose of these Rules is to define: 1. The rules for determining interest rates for all types of retail loans and deposits 2. The rules for change of interest rates for all types of retail loans and deposits 2. Types of interest rates on loans and deposits Interest rates on loans and deposits can be contracted as fixed or changeable (variable) interest rates. The type of interest rate is defined by the Loan/Deposit/Account Agreement. Fixed interest rates are contracted as unchangeable for the whole duration of the loan or deposit. Variable interest rates are contracted as variable for the whole duration of the loan or deposit. Housing loans approved with government subsidies and housing loans approved for purchase of real property under projects financed by Bank loans may be subject to a defined fixed interest rate during one part of contracted repayment period and to a variable interest rate during the remaining part of repayment period. Variable interest rates depend on changes of market circumstances which determine conditions under which the Bank provides its financing sources on domestic and foreign markets, on the credit risk of Republic of Croatia, on regulatory cost of the Bank s operations, on changes in statutory regulations affecting the cost of the Bank s sources of funding and income from loan origination. Further on, interest rates on loans can be regular or preferential (reduced) interest rates. They are determined depending on whether the borrower s regular income (salary or pension) is paid to an account held with the Bank. Regular interest rate applies for borrowers whose regular income (salary or pension) is not paid to an account held with the Bank. The preferential (reduced) interest rate represents a percentage of the interest rate or interest margin and applies when the borrower transfers their regular monthly income (salary or pension) to an account held with the Bank. The interest rate discount percentage may be additionally be increased for users of other Bank s products and services, so that that total discount on the regular interest rate or interest margin is additionally increased by a certain number of percentage points. If the borrower s status regarding regular salary should change during loan repayment, the Bank shall have the right to adjust the interest rate according to the client s status. Where at the time of loan approval conditions for certain types of loans are only defined for clients with salary transferred to SG SB (i.e. only the preferential interest rate is defined), the interest rate for clients who do not transfer their salaries to the Bank within an agreed term or transfer their salary to another bank at a later point will be increased by 1.00 p.p. Interest rates on deposits can be regular or preferential (increased) interest rates. The regular interest rate is contracted in accordance with Bank s official tariff for interest rates on deposits. The preferential (increased) interest rate is contracted according to the Bank s official tariff for interest rates on deposits, increased by certain number of percentage points, depending on the deposit amount and term.

3 3. Determining variable interest rates on loans The variable interest rate on loans varies throughout the whole loan repayment term and consists of the variable and the fixed part. The variable part of interest rate is a contracted parameter, which changes independently from the will of the counterparties. The fixed part of the interest rate is a certain number of percentage points, defined by the loan contract, which does not change during the loan utilisation or, respectively, loan repayment term. Parameters used for the determination and change of interest rates can be reference interest rates, rates of the average cost of funding for banks in Croatia or other publicly available rates, applicable in accordance with statutory regulations. Reference interest rates are publicly disclosed market interest rates determined on the interbank market or the Croatian market for certain currencies and terms. They are used for calculation of interest on interbank loans for terms not exceeding 12 months. The Bank applies the reference rate which corresponds to the currency in which the loan is contracted and calculated. In this sense, the Bank uses values of reference interest rates EURIBOR, LIBOR and ZIBOR. As a parameter for definition of the variable part of interest rate, the Bank also uses the discount rate. The discount rate is determined and published by the Croatian National Bank (CNB) twice a year. The discount rate serves as a base for defining the default interest rate and, indirectly, the maximum allowed value of effective interest rate that can be contracted in retail banking. As a parameter for definition of the variable part of interest rate, the Bank can also use the rate of average cost of funding for the banking industry in Croatia, which is expressed as the National Reference Rate (NRR). The NRR is calculated and expressed according to publicly available data published by the CNB for deposits of natural and legal persons in the finance and non-finance industries for currencies HRK, EUR, CHF and USD and for terms of 3, 6 and 12 months Variable parameters for the calculation of the base interest rate EURIBOR EURIBOR (eng. Euro Interbank Offered Rate) means the interest rate based on average interest rates at which major European banks borrow funds between each other for terms from 1 week to 1 year. EURIBOR is considered to be one of the most important reference indicators of the movements of interest rate on the European money market and is therefore used as the basis for determining different types of financial products. It is determined every business day at 11 o clock (CET) and becomes effective 2 business days later (T+2). More information on and LIBOR LIBOR (eng. London Interbank Offered Rate) is the London Interbank Offered Rate for certain currencies calculated on loans between banks operating on the London capital market. It is displayed daily by the British Bankers Association (BBA) through the Reuters IT system at 11:00 o clock (London time). The LIBOR prevailing on a certain date is the interest rate determined and displayed two days earlier (according to the business days calendar valid in Great Britain). LIBOR is determined for 7 international currencies: USD, CHF, JPY, GBP, AUD, CAD and EUR. More information on ZIBOR ZIBOR (Zagreb Interbank Offered Rate) is the uniform reference interest rate on the Croatian interbank market. The official calculation of Zagreb Interbank Offered Rate by maturities is prepared based on the calculation of average values of interest rates of 8 major Croatian banks displayed by Reuters daily at exactly 11:00. Zagreb Interbank Offered Rate is displayed on every business day at 11:30 o clock at

4 NRR NRR (National Reference Rate) represents the average cost of sources of funding of the Croatian banking industry (banks and savings banks) with regard to a certain past period, type of source (retail deposits, non-finance corporate deposits, other sources of funding of banks) and relevant currency. NRS thus represents the average interest rate paid by the banking industry to obtain funds it requires for lending operations. The Croatian National Bank (hereinafter referred to as: CNB) publishes in the second month of every quarter the aggregate standalone data on interest expenses for main sources of funds during the previous quarter and balances of the sources of funds at the end of each month of the quarter to which such interest expenses refer (data broken up into funds of natural persons, natural persons and non-finance sector, and all natural and legal persons). The data re published on the CNB website (link Credit institutions operations indicators at in the table entitled Sources of funding costs of banks ). Based on the above data, the Croatian Banking Association (hereinafter referred to as: HUB) calculates the values of individual NRSs (with regard to type, interest rate and currency) and publishes them on on the 16th day of second month of each quarter or, respectively, on the first business day after the day when CNB has published the aggregated data. More about NRS at Cessation of existence of the variable parameter If the variable reference parameter defined for the adjustment of variable interest rate during the term of rights and obligations arising from the credit transaction should cease to exist, then the parameter defined by the body or person having defined the original parameter as substitute for the no longer existing parameter according to relevant publicly available rules, independent from the will of the counterparties, shall primarily apply henceforth. If a variable parameter, after it has ceased to exist, could be substituted by another parameter, such new parameter, applicable it terms of contracted maturity and currency of the credit obligation, shall apply henceforth to the contractual relationship. The replacement of parameters shall be performed within the shortest term possible and no later than until the fist determination of the variable part of interest rate to follow Formula for calculation of variable interest rate on loans Bank chooses parameters for the definition the variable interest rate for each of the Bank s credit products individually, according to following formula: I = Xt% + m Xt% reference interest rate EURIBOR, LIBOR, ZIBOR, CNB discount rate or NRR, all according to the currency or currency clause of the loan. t represents repayment period (t = 1 month, 3 months, 6 months or 12 months) m represents the fixed part of interest rate, denominated in percentage points 3.4. Calculation period for change of interest rate for loans Variable interest rates are determined, i.e. adjusted to the changes in used parametetrs semi-annualy. The values of parameters are determined sami-annually, on January 2 and July 1 every year or on the next business day if the above day is a non-business day. Based on determined parameters, the interest rate for the next loan repayment period is calculated and effective on February 1 and August Determining and calculating the variable interest rate for the portfolio of loans in repayment The determination and calculation of interest rate according to this Decision applies to the portfolio of loans in repayment established on 09/01/2013 in such way that the current interest rate is shown as variable part and invariable part with the first application on 01/08/2013 and based on parameters established on 01/07/2013, as stated in the article Determining the interest rates for loans offered The fixed and variable part of interest rate for loans to be approved in the period from 09/01/2013 is determined by a separate decision, in accordance with the formula established by these Rules and by application of parameters established

5 on 02/01/2013. The first calculation, i.e. adjustment of interest rate for these loans shall be made on 01/08/2013 based on the parameters established on 01/07/2013 as indicated in the article Client notification In accordance with the rules from this Decision the Bank shall notify the clients about change of interest rates for loans in writing, by notification posted on the notice board in the branch offices of the Bank and on the Bank s website (www. splitskabanka.hr) at least 15 days prior to the application of new interest rate Risk of interest rate variability The Bank shall warn borrowers about risks related to variations of interest rate. Each individual loan agreement approved at the variable interest rate contains the clause which clearly and unambiguously unambiguous defines the manner, conditions and period of calculation and changes of interest rate in a way. 4. Determining variable of interest rates on deposits Variable interest rates on deposits can be changed over the whole duration of the deposit. The Bank shall contract variable interest rates only on sight deposits. Starting from , the Bank has excluded from its offer all models of fixed term savings with variable interest rate. From this date, fixed term deposits are possible only with fixed interest rates as defined by the valid Decision on interest rates depending on currency, amount and deposit term. Parameters used to determine interest rates can be reference interest rates, rates of average financing cost for banks in Croatia or other publicly available rates, applicable in accordance with statutory regulations. To determine interest rates on deposits, the Bank may use the following published and publicly available parameters: Reference market rates (EURIBOR, LIBOR, ZIBOR) depending on the currency). The Bank normally uses 6-month reference rates unless stated otherwise by the Managing Board decision. Interest rates of credit institutions on kuna deposits without currency clause new originations (monthly weighted interest rate, in percentage p.a.) table G1a published by HNB. From the above table, the parameter of interest rates for households is used total average weighted interest rates for fixed term deposits. Table G1a replaces table G3 which is no longer published. Data re published at the CNB website under the title Interest Rates Movements of Interest Rates. Interest rates of credit institutions on FX deposits without currency clause new originations (monthly weighted interest rate, in percentage p.a.) table G1c published by HNB. From the above table, the parameter of interest rates for households is used total average weighted interest rates for fixed term deposits. Table G1c replaces table G4 which is no longer published. Data re published at the CNB website under the title Interest Rates Movements of Interest Rates Formula for calculation of variable interest rate The Bank shall use the following formula when deciding on changes of interest rates on retail deposits: IP = G1a% or G1c% IP Total index of change G1a - change of total monthly average weighted interest rates for households on kuna fixed term deposits without currency clause - (new originations)

6 G1c - change of total monthly average weighted interest rates for households on FX fixed term deposits - (new originations) The determined variable interest rate on deposits can be changed if the parameter G1a (for kuna deposits) or G1c (for FX deposits) changes cumulatively for over 0.01 percentage points since the last change of interest rates. If this condition is met and if the Bank decides to change the interest rate, it shall change for as many percentage points as a certain parameter has changed, with a haircut of maximum ± 1.00 percentage points. If the interest rate change option is partly used or not used at all in a period, it can be transferred to the next period of change. When changing interest rates on deposits, the Bank has no obligation to apply this methodology if the change is in the client s favour Accounting period for changes of interest rates on deposits Parameters values based on which deposits interest rate change is defined are determined quarterly, from the date of adoption of the most recent Decision on interest rate change or, respectively, from the date of first parameters publication ( ) if the Bank has changed interest rates last time before this date. 4.3 Notification of clients Changes of interest rates on deposits according to rules defined in this Rulebook will be communicated to clients timely and in written form, by notification posted on the notice board in the branch offices of the Bank and on the Bank s website ( at least 15 days prior to the application of new interest rate. 5. Modification of Rules These Rules can be modified taking into account that at least 6 month shall have passed since the last change. If any of the parameters referred to in these Rules is not publicly available or ceases to be published, the Bank may also change the Rules in a shorter period of time. 6. Publication of Rules The Decision on the rules on determining interest rates is published at the Bank s website ( and on notice boards in branches of the Bank.