Refinancing costs
Refinancing costs are the expenses that banks have to bear for refinancing their lending business .
species
Refinancing costs include the entire interest expense in accordance with Section 29 of the Financial Institutions Accounting Ordinance (RechKredV). This includes in particular the interest expense for customer deposits ( credit interest for visual , forward and deposits ) and inter-bank deposits ( interbank rate ) bonds ( savings bonds ), subordinated liabilities , distributions on issued participation rights and profit bonds or additions accrued interest issued zero coupon bonds . In addition, the expenses with interest character that arise from covered forward transactions and that are distributed over the actual term of the respective business as well as fees and commissions with interest character that are calculated according to the passage of time or the amount of the liabilities must be taken into account. Also imputed interest for the own resources belong to the refinancing costs.
Cost influencing factors
Customer deposits arise in the context of money creation by commercial banks . Bank transactions in the money and capital markets lead to the shifting or conversion of these liabilities into other items on the liabilities side of the bank balance sheet such as savings bonds , liabilities to the central bank or interbank loans . The general level of interest rates on these markets, as well as the exchange rates (when refinancing in foreign currencies ) and the rating are used to determine the minimum equity requirements for credit risks, are considered to be cost factors with regard to the amount of the refinancing costs . All three influencing factors are data parameters as they cannot be changed by a bank in the short term or even have to be accepted. Rising interest rates, rising exchange rates or a poor rating increase the refinancing costs and vice versa. Theoretically, for the minimum reserves held at the central bank , the opportunity costs of a missed, alternative lending must be included in the bank calculation .
Banking aspects
The amount of the refinancing costs has an impact on the net interest margin because, given the interest income, an increase in the refinancing costs reduces this interest margin and vice versa. If the active fixed-interest positions (fixed-interest loans) predominate at a credit institution, the interest margin will decrease when the market interest rate rises, because the variable refinancing costs increase without the interest income being able to be adjusted; this is where the interest margin risk materializes . The determinants of this interest margin risk are fixed interest surpluses and fixed interest gaps, since in the case of an asset surplus or a passive fixed interest gap this different interest rate adjustment behavior with rising interest rates necessarily leads to a decrease in the interest margin and vice versa. The interest margin is also reduced accordingly if a bank cannot adjust long-term passive fixed-interest transactions when the market interest rate falls. A high interest margin can, on the one hand, indicate excessive credit risks and, on the other hand , suggest investors with little bargaining power . If a bank has high bargaining power in both lending and deposit business , its interest margins can increase.
Various hedging transactions can be used to hedge the refinancing costs . In times of rising interest rates, credit institutions can increasingly offer investors fixed-rate agreements; conversely, when interest rates fall, banks tend to have variable credit interest rates. They can also conclude interest rate swaps or currency swaps (for foreign currency investments) with other institutions. When it comes to prepayment, a bank assumes that interest rates will rise and procures funds on the money or capital markets that it initially does not need in its lending business. Conversely, in the case of asset advance, full refinancing is not yet secured, so that the total refinancing costs have not yet been determined.
Individual evidence
- ↑ Reiner Selbach, Risk and Risk Policy at Credit Cooperatives , 1987, p. 37.
- ↑ Henner Schierenbeck / Michael Lister / Stefan Kirmße, Earnings-Oriented Bank Management , Volume 1, 2014, p. 505.
- ↑ Reiner Selbach, Risk and Risk Policy at Credit Cooperatives , 1987, p. 69.