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Corona/COVID-19: Corona / COVID-19: Are municipalities currently finding attractive financing conditions, also due to digitization?

The municipalaties are now feeling the effects of the crisis, e.g. loss of local tax or a decrease in the share of income. In the case of new financing or debt restructuring, however, the municipalities benefit from the current situation around Corona / COVID-19. This should now be used by the municipalities as an opportunity to have their financing habits checked when new tenders and debt restructuring are carried out.

The right answers to questions about interest rates, terms, project descriptions or other parameters can result in a significant reduction in the interest burden on the communities. We are currently locating particularly attractive conditions for municipal financing with both variable and fixed interest rates. It is currently possible for municipalities to opt for an interest rate of approx. 0.7% p.a. fixed debt for 20 years; a variable interest rate currently costs approx. the half. With the long-term nature of municipal financing, this brings a great deal of savings compared to the situation a few years ago.

In addition to the low interest rate phase, there are also completely different internal criteria from a bank’s perspective that can be important for the cost of a loan. Some banks obviously have sufficient liquidity and make it available to the municipalities on attractive terms. In addition, banks are also dealing with the digitization of their business processes and financing for municipalities is a good option. Other banks in turn do not make any offers at all.

In order to make the right decisions when it comes to credit tenders and debt restructuring, you need to know the market and its players well. But that’s exactly the point. It is becoming increasingly difficult for municipalities to track the market for municipal financing. Until now, the principle of regionality has often been a good guide, but this does not currently have to apply, or at least only to a limited extent. Nevertheless, it is still important for the municipalities to maintain partnerships with their banks. We also recommend this route to our customers.

On the other hand, banks in the crisis are required to continue lending, and municipalities in particular can be the right partners for this. Loans to municipalities do not result in capital costs for the banks and the alternative parking of money at central offices only leads to additional costs for the banks; even if there have been regulatory facilitations for banks since Corona. However, ongoing financial controlling is necessary so that one or the other financing offer does not turn out to be a nasty surprise in the future. Together with the tendering function for loans via our digital loan platform, every municipality is well positioned.

How can you benefit from this? It is essential that you have professional support. We at FRC know the market and can make a good assessment of which bank has liquidity in order to use it accordingly.Let us analyze your loan portfolio together and discuss appropriate measures. Debt restructuring can also be a good remedy for negative interest rate indicators (“negative interest rates”). Our range of services for municipalities can be found here.

Contact us at [email protected].

About The Author

Heinz Hofstaetter
Over 20 years of international experience in senior management positions in the areas of consulting, banking, finance, asset management, valuation and Real Assets.