DIRECTORATE GENERAL STATISTICS DIVISION MONETARY & FINANCIAL STATISTICS ECB-PUBLIC 15.12.2013 COST OF BORROWING INDICATORS: METHODOLOGICAL NOTE 1 Introduction Starting from reference month January 2003, euro area countries report harmonised MFI interest rate (MIR) statistics to the ECB. Currently, these statistics are widely used in economic and monetary analysis and in official publications. In order to assess the effectiveness of the monetary policy pass-through across the euro area countries, it is necessary to use an accurate and comparable measure of the borrowing costs for firms and households in those countries. Four basic categories of lending rates per country are used in the calculations: short-term and long-term lending rates both to non-financial corporations and to households for house purchase. Long-term lending rates to non-financial corporations and short and longterm rates on loans to households for house purchase are obtained directly from the MFI interest rate statistics. The compilation of short-term lending rates to non-financial corporations, by contrast, needs to account for two additional technical factors: the importance of overdrafts as a main source of financing for firms in some large euro area economies and the computation of an estimate of the share of long-term loans issued at floating rates, which are similar to short-term loans. This methodological note explains how detailed MFI interest rate statistics are used to compute the indicator of the cost of borrowing for non-financial corporations that takes into account differences in the financing of firms. This measure enhances cross-country comparability, which until now has been limited owing to the differing impact of overdrafts by non-financial corporations on short-term lending rates. The four cost of borrowing indicators, which are available in the ECB Statistical Data Warehouse (SDW) at euro area and national level for euro area countries, are the following: 1. Cost of borrowing indicator for households.. ^^...... 2250.. 2. Cost of borrowing indicator for non-financial corporations..^^......2240.. 3. Cost of borrowing indicator for short-term loans to households and non-financial corporations..^^......2230.. 4. Cost of borrowing indicator for long-term loans to households and non-financial corporations.. ^^...... 2230.. 1 Further information on the usage of the cost of borrowing indicators can be found in the August 2013 Monthly Bulletin Article entitled: Assessing the retail bank interest rate pass-through in the euro area at times of financial fragmentation http://www.ecb.europa.eu/pub/pdf/other/art1_mb201308en_pp75-91en.pdf
The calculation of the cost of borrowing indicators is based on MIR data, where short-term refers to loans with initial period of interest rate fixation up to one year regardless of maturity. Accordingly, longterm refers to loans with initial period of interest rate fixation over one year. The dimensional structure of the cost of borrowing time series is the same as the MIR key family structure. However, to distinguish the cost of borrowing indicators from other MIR time series, two new item codes and three new original maturity / interest rate fixation codes are introduced. They are described in the Annex with detailed calculation methods for each indicator. For most countries, the data are available as of January 2003, although for certain countries, due to lack of back data, the cost of borrowing indicators have only been calculated for a shorter period of time. The indicators are derived according to the methodology analysed in the current note and may thus diverge from similar indicators published by NCBs. Cost of borrowing indicator for households For each euro area country and for the euro area as a whole, the cost of borrowing indicator for households is calculated as a weighted average of MIR rates on short-term and long-term loans to households for house purchase 2, where the MIR new business volumes used as weights are smoothed with a moving average of previous 24 months observations. See Annex for a detailed description of the calculation method. Cost of borrowing indicator for non-financial corporations As regards loans to non-financial corporations, the MIR data on new business does not include overdrafts. For companies in some euro area countries, overdrafts are however a significant source of short-term finance. Thus, since interest rates on overdrafts are on average higher than other short-term bank lending rates, their exclusion tends to lower average short-term rates. To improve comparability across countries, for cost of borrowing purposes overdrafts are incorporated in the calculation of short-term lending rates by deriving their weights from MFI balance sheet items (BSI) data. Unlike MIR statistics, BSI data does not offer breakdowns by initial period of interest rate fixation. Thus, BSI data on outstanding loans with remaining maturity over one year and interest rate reset in the next 12 months (including overdrafts) is used to derive a proxy for the amount of over one year maturity loans that need to be reallocated to short-term lending keeping in mind that short-term refers to loans with period of interest rate fixation up to one year. The aggregated short-term interest rate for loans to non-financial corporations is the weighted average of the rate on overdrafts and the rate on other shortterm loans, where the weights are the shares of overdrafts and other short-term loans over all short-term loans, derived from BSI statistics. 2 Loans for consumption and other purposes are not included in the cost of borrowing indicator as they are too volatile and less relevant for macroeconomic projections.
The aggregated cost of borrowing indicators for non-financial corporations is calculated as the one for households above, i.e. as a weighted average of rates on short-term and long-term loans, the short-term weights again including also overdrafts. See the Annex for a more detailed description. Cost of borrowing indicator for short-term loans to households and non-financial corporations The short-term composite cost of borrowing indicator for households and non-financial corporations is calculated as a weighted average of the short-term rates for households and non-financial corporations. For households the weights are derived from the 24 months moving average of MIR new business volumes. For non-financial corporations, overdrafts are included in the weights as described above. The calculations are presented in the Annex. 3 Cost of borrowing indicator for long-term loans to households and non-financial corporations For the long-term composite indicator for households and non-financial corporations, the weights are calculated as moving averages of previous 24 months MIR new business volumes. For Malta and Slovenia, the cost of borrowing indicator for households is used as a proxy for the composite long-term indicator, since long-term rates for non-financial corporations are very volatile, mostly due to small volumes. Their inclusion in the calculation of the long-term indicators would also increase the volatility of the composite indicator. 4 See the Annex for details on the calculations. 3 For Greece the indicator should be interpreted with caution due to small volumes. 4 It should be noted that this can be the case also for other countries where it has been decided not to exclude long-term rates for non-financial corporations; this could explain the volatility of this indicator in some cases.
Annex 1. Cost of borrowing indicator for households.. ^^.. 2.... 2250.... ^^. 2.... 2250.... ^^. 2.... 2250... The original maturity code F refers to loans with initial period of interest rate fixation up to one year and K to loans with initial period of interest rate fixation over one year. The code AM refers to the sum of F and K, i.e. total loans, calculated by weighting the underlying rates with a moving average of new business volumes. MAVE (*, 24) refers to the moving average of a particular series for the previous 24 months. To derive the series keys for all euro area countries and euro area as a whole, the ^^ in the third dimension needs to be replaced with the relevant country code. 5 5 For Estonia, the data is only available from January 2005 onwards. For Cyprus, Malta and Slovakia, the data is available from January 2008 onwards.
2. Cost of borrowing indicator for non-financial corporations.. ^^...... 2240.... ^^.. 2.... 2240.... ^^.. 2.... 2240.... ^^.. 2.... 2240.., 24.. ^^.. 2.... 2240.... ^^.. 2.... 2240.., 24.. ^^.. 2.... 2240.... ^^.. 2.... 2240.., 24.. ^^.. 2.... 2240... The BSI item code A2I refers to loans with initial period of interest rate fixation up to one year plus a proxy for the amount of overdrafts, derived from MIR and BSI statistics. The original maturity code F refers to loans with initial period of interest rate fixation up to one year and K to loans with initial period of interest rate fixation over one year. The code AM refers to the sum of F and K, i.e. total loans, calculated by weighting the underlying rates with a moving average of new business volumes. MAVE (*, 24) refers to the moving average of a particular series for the previous 24 months. The series key MIR.M.^^.B.A2I.F.B.A.2240.EUR.O refers to the amount of short-term loans to non-financial corporations, including also a proxy for the amount of overdrafts. It is calculated by multiplying the MIR new business volumes by the factor 1 + share of overdrafts over all short-term loans:.. ^^.. 2.... 2240.... ^^.. 2.... 2240.., 24 1.. ^^... 20.. 1. 2.2240.... ^^.. 20.... 2240..., Where MIR.M.^^.B.A20.K.B.A.2240.EUR.O.AUX refers to the 12-month average of the share of loans with remaining maturity over one year and interest rate reset within a year over all loans with original maturity over one year. To derive the series keys for all euro area countries and euro area as a whole, the ^^ in the third dimension needs to be replaced with the relevant country code. 6 6 For Estonia, the data is only available from January 2005 onwards. For Cyprus, Malta and Slovakia, the data is available from January 2008 onwards.
3. Cost of borrowing indicator for short-term loans to households and non-financial corporations.. ^^...... 2230.... ^^.. 2.... 2250.... ^^.. 2.... 2240.... ^^.. 2.... 2240.. 1.. ^^.. 2.... 2240... The BSI item code A2J refers to the combination of short-term items for both households and non-financial corporations described before (including loans for households for house purchase and all short-term loans to non-financial corporations). The original maturity code FM refers to loans with interest rate fixation period up to one year, calculated by weighting the underlying rates with a moving average of new business volumes. MAVE (*, 24) refers to the moving average of a particular series for the previous 24 months. For the series MIR.M.^^.B.A2I.F.B.A.2240.EUR.O, see the calculation of cost of borrowing indicator for nonfinancial corporations. To derive the series keys for all euro area countries and euro area as a whole, the ^^ in the third dimension needs to be replaced with the relevant country code. 7 7 For Estonia, the data is only available from January 2005 onwards. For Cyprus, Malta and Slovakia, the data is available from January 2008 onwards.
4. Cost of borrowing indicator for long-term loans to households and non-financial corporations.. ^^...... 2230.... ^^.. 2.... 2250.... ^^.. 2.... 2240.., 24.. ^^.. 2.... 2240.., 24.. ^^.. 2.... 2240.... ^^.. 2.... 2240.., 24. The BSI item code A2J refers to the combination of long-term items for both households and non-financial corporations, including loans for households for house purchase and loans other than revolving loans, overdrafts and credit card credit to non-financial corporations. The original maturity code KM refers to loans with interest rate fixation period over one year, calculated by weighting the underlying rates with a moving average of new business volumes. MAVE (*, 24) refers to the moving average of a particular series for the previous 24 months. To derive the series keys for all euro area countries and euro area as a whole, the ^^ in the third dimension needs to be replaced with the relevant country code. 8 For Malta and Slovenia, the long-term rate for households is used as a proxy for the composite long-term indicator, i.e.:.. ^^...... 2230.... ^^.. 2.... 2250.... ^^.. 2.... 2240.., 24. 8 For Estonia, the data is only available from January 2005 onwards. For Cyprus, Malta and Slovakia, the data is available from January 2008 onwards.
5. MFI Interest rate raw series used in the calculations.. ^^.. 2.... 2250.... ^^.. 2.... 2250.... ^^.. 2.... 2240.... ^^.. 2.... 2240.... ^^.. 2.... 2240.... ^^.. 2.... 2250.... ^^.. 2.... 2250.... ^^.. 2.... 2240.... ^^.. 2.... 2240.. Interest rates on new business on loans to households for house purchase with a floating rate or an initial rate fixation up to 1 year for country ^^. Interest rates on new business on loans to households for house purchase with a floating rate or an initial rate fixation over 1 year for country ^^. Interest rates of new business on total loans to non financial corporations with a floating rate or an initial rate fixation over 1 year for country ^^. Interest rates on new business on loans and overdrafts, convenience and extended credit card debt to non financial corporations for country ^^. Interest rates on new business on total loans floating rate and up to one year initial rate fixation to non financial corporations for country ^^. Volumes of new business on loans to households for house purchase with a floating rate or an initial rate fixation up to 1 year for country ^^. Volumes of new business on loans to households for house purchase with a floating rate or an initial rate fixation over 1 year for country ^^. Volumes of new business on total loans to non financial corporations with a floating rate or an initial rate fixation over 1 year for country ^^. Volumes of new business on loans and overdrafts, convenience and extended credit card debt to non financial corporations for country ^^.
6. BSI Interest rate raw series used in the calculations.. ^^... 20.. 1. 2.2240.... ^^... 20.. 1. 2.2240.... ^^... 20.. 1. 2.2240.... ^^... 20.. 1. 2.2240.. Loans to non financial corporations with an original maturity over 1 and up to 5 years denominated in euro for country ^^. Outstanding amounts at the end of the period (stocks). Loans to non financial corporations with an original maturity over 5 years denominated in euro for country ^^. Outstanding amounts at the end of the period (stocks). Loans to non financial corporations with an original maturity over 1 year, remaining maturity over 1 year and interest rate reset within the next 12 months denominated in euro for country ^^. Outstanding amounts at the end of the period (stocks). Loans to non financial corporations with an original maturity up to 1 year denominated in euro for country ^^. Outstanding amounts at the end of the period (stocks).
7. Derived series..^^.. 2.... 2250.., 24 Moving average for the previous 24 months of volumes of new business on loans to households for house purchase with a floating rate or an initial rate fixation up to 1 year for country ^^. 1.. ^^.. 2.... 2250.. 24..^^.. 2.... 2250.., 24 Moving average for the previous 24 months of volumes of new business on loans to households for house purchase with a floating rate or an initial rate fixation over 1 year for country ^^. 1.. ^^.. 2.... 2250.. 24..^^.. 2.... 2240.., 24 Moving average for the previous 24 months of volumes of new business on loans to non financial corporations with a floating rate or an initial rate fixation up to 1 year for country ^^. 1.. ^^.. 2.... 2240.. 24..^^.. 2.... 2240.., 24 Moving average for the previous 24 months of volumes of new business on loans to non financial corporations with a floating rate or an initial rate fixation over 1 year for country ^^. 1.. ^^.. 2.... 2240.. 24.. ^^.. 2.... 2240.. Interest rates on new business to non financial corporations weighted by the fraction of loans with initial period of interest rate fixation up to one year and by a proxy for the amount of overdrafts, derived from both MIR and BSI statistics for country ^^. 1.. ^^.. 2.... 2240.... ^^.. 2.... 2240..
.. ^^.. 2.... 2240.. /.. ^^. 2.... 2240.... ^^... 20.. 1. 2.2240.... ^^.. 2.... 2240.... ^^.. 20.... 2240..... ^^.. 20.... 2240..... ^^... 20.. 1. 2.2240.... ^^... 20.. 1. 2.2240.. 1.. ^^... 20.. 1. 2.2240.. /.. ^^... 20.. 1. 2.2240.. 12.. ^^... 20.. 1. 2.2240.... ^^.. 2.... 2240.., 24 Moving average for the previous 24 months of volumes of new business on total loans to nonfinancial corporations with a floating rate or an initial rate fixation up to 1 year for country ^^. 1.. ^^.. 2.... 2240.. 24.. ^^.. 2.... 2240.. Amounts of short term loans to non financial corporations, including also a proxy for the amount of overdrafts for country ^^...^^.......... ^^.. 2.... 2240.., 24 1..^^...........^^.........