Credit line
In banking, the credit line (or credit line , credit facility ) is the upper limit up to which a borrower can use a certain type of credit .
General
Line of credit is a banking term used for types of credit that can be drawn on on a revolving basis. This includes on a current account granted overdraft , overdraft facilities , guarantee loans , revolving loans , stand-by loans or collateral loans . The opposite of the credit line is the loan , which is usually posted to a separate account and is subject to regular repayment . As a rule, credit lines may be used on a revolving basis, so that repayments made in the meantime are only of a provisional nature and can be reversed at any time by revaluation. The credit line can, but does not have to be, drawn up to the amount granted. Both companies and natural persons are eligible as borrowers .
conditions
Credit lines are usually made available to the borrower under the following credit conditions :
Usage
Lines of credit are used to ensure liquidity of the borrower (except guarantee facilities and Lombard credits) and can payment instruments of cashless payment transactions as transfer , check , change , bank card or credit card , but also by cash payment to be used. Provisional repayments are made through credits from cashless payment transactions. This means that credit lines are used to process payment transactions .
Art
A distinction is made between open credit lines , which are communicated to the borrower as part of a credit agreement , and internal bank credit lines , which remain unknown to the borrower. The borrower only has a payment claim against the bank under Section 488 (1) BGB in the case of open credit lines up to the amount of the credit line, provided they have not been terminated. Open credit lines ( stand-by or backup facilities ) are required by rating agencies for issuers, for example commercial papers, for a good rating , so that these issuers can buy back their paper at the expense of these credit lines. In general, the agreed maximum loan amount forms the maximum limit for the drawdown, excesses are referred to as overdrafts .
Collateral
Credit lines can - depending on the creditworthiness of the borrower - be granted unsecured (see blank loan ) or against the provision of standard bank loan collateral . Often the collateral itself is used for the (provisional) repayment of the credit lines ( assignment of receivables , assignment of current assets as security ). The credit lines are usually only available to the borrower once the payment requirements have been met.
running time
The term of credit lines is usually provided with the clause “until further notice” or “due daily”. This means that both the borrower and the bank have a right of termination with a notice period of one day. There are less frequent lines of credit with a term of less than a year, since the unused portion of credit lines that cannot be immediately terminated with an original term of less than one year and 50% of the credit lines with a term of more than one year are backed by own funds got to. A line of credit is to be regarded as immediately terminable if the institution has an unconditional and unconditional right of termination or a deterioration in the debtor's creditworthiness immediately leads to the lapse of the credit line granted. With such credit limits, the credit approval alone does not trigger any equity costs at the bank; Only when the line is used does the used part trigger equity costs.
Lending rates
In the case of open credit lines ( loan commitments ) with a term of more than one year, the backing of own funds is the reason why banks charge so-called commitment interest . These can be calculated from the entire credit limit or for the part that has not been used. If it is a question of credit lines that are provided for payment transaction purposes, a borrowing interest rate is also agreed for the use .
Special internal credit lines
Credit institutions conclude cash , futures , swap or derivative transactions with one another and with non-banks . According to Article 286 (2a) of the Capital Adequacy Ordinance, credit institutions must subject the creditworthiness of their business partners ( called counterparties in the ordinance ) to a creditworthiness check. Credit decisions must lead to the granting of internal credit lines for counterparties in order to limit the business volume for each individual counterparty. Case of cash transactions, these banks' internal credit lines fulfillment limit hot ( English settlement limit ), all other financial instruments are in the limit for the replacement risk ( English pre-settlement limit ) recorded. The particular risk for banks lies in the term of the other financial instruments, because the market value of these transactions can change during this term . The counterparty is at risk of default if these transactions have a positive replacement value and, from the point of view of the bank, a claim against the counterparty arises as a result of market developments .
Others
In trade credit insurance or supplier credit, the sum insured is referred to as the credit limit (or limit for short). This includes the coverage provided by the (goods) credit insurer in the event of a bad debt loss. Credit limits are set for each customer of the insured company on the basis of extensive creditworthiness analyzes.
There is also the concept of the internal credit limit. In banking, this is the highest possible loan amount that a bank is willing to grant an individual customer based on his or her creditworthiness (rating). Most banks have certain rating levels linked to a credit limit that is automatically reduced when the rating is downgraded.
In foreign trade, the term swing is usually used when bilateral credit facilities are granted between states.
Web links
Individual evidence
- ↑ Michael Bitz, Gunnar Stark: Financial Services. Presentation, analysis, criticism . 2008, p. 65 ( limited preview in Google Book search).
- ↑ Article 166, paragraph 8, letter a of Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 646/2012
- ↑ Burkhard Vamholt: Credit Risk Management , 1997, p. 141.