Negative interest rate indicators and our experience with community loan agreements

“Floor or no floor” – a sentence with a big impact. With regard to contracts, in the light of the current case law or in the handling of various banks on the subject of non-disclosure of the negative indicators, a first distinction must be made as to whether or not an interest rate floor was agreed in the original contract.

In the case of contracts without an interest rate floor in the original loan agreement, the starting situation is definitely positive for the communities. We can underline this with current comparison solutions, which we continuously bring about. There are no OGH judgments yet. We do not know whether and when there will be decisions on this contractual situation by the OGH. We also do not know whether the OGH has any cases in this regard – according to our lawyers, no. If this remains so, a waiver of limitation would not lead to an automatic reimbursement. Individual action is therefore always necessary and a waiver of limitation does not really help if the bank does not want to start negotiations for solutions.

For contracts with an interest rate floor in the original loan agreement, there is already a first OGH judgment from 2019. This has been in favor of the bank (we are happy to provide this on request). This is a case of corporate finance (real estate), which, in our view, is only partially applicable to municipalities due to its short-term nature. Nevertheless, the banks also refer to municipalities (as is well known, municipalities are not consumers). Please note, however, that this judgment speaks of an absolute interest rate floor (of 2.75%) and not of an interest rate floor of 0% plus surcharge (“indicator floor”). According to our lawyers, individual wording and wording can be decisive here.

At present, there are apparently more cases with a lower interest rate at the OGH for decision, so that one will probably have more information and legal bases in 2020. However, we still recommend obtaining limitation waivers (as far as this makes sense and possible), as further OGH judgments cannot currently be assessed and possible imbalances could occur in the future.

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.