What is Eurocredit?

The term "Eurocredit" concerns loans in currency that is not a national currency of the bank lending. EUROCREDIT loans are large and long -term and are usually required only by large corporations and government agencies. Banks that expand these loans usually also participate in the Eurocers market, where they organize deposits in currencies other than the local currency. The "euro-" prefix is ​​often used in finance to indicate foreign currency funds and has nothing to do with Euro currency or European countries. For example, the US Bank provides a loan denominated in Japanese or Russian rubles for American society. EUROCREDIT loans increase capital flow between different countries and help companies and governments finance their investments.

Banks determine the interest rates of these loans on the basis of the predominant London interbank rates (Libor) are usually reset every six months depending on the changes in Libor. These loans are usually large loans with a fixed period and without provisions for earlyrepayment. The size of the loan is usually large, so banks sometimes form a syndicate that provides a loan for EuroCredit that extends the risk of syndicates and limits the risk exposure faced by one bank if the debtor does not pay a loan.

For example, a company from Germany borrows $ 200 million USD (USD) via a syndicated EuroCredit facility for five years with an interest rate of $ 200 (2 percent) compared to Libor. The interest rate floats and reset every six months according to the predominant Libor. It turned out that Libor was 5 percent for the first six months of the loan and 4 percent in the second six months.

In this case, the loan rate becomes 7 percent for the first six months of loan and 6 percent in the second six months. The Company has to pay $ 7 million in interest six months after the loan collection and $ 6 million at an interest rate of one year after collectionLoans. If the company does not make its payments, the whole syndicate absorbs the impact, so each credit institution must only carry part of the loss.

EUROCREDIT also often charges an initial fee for a loan, usually a percentage of a loan. For example, a German company may have to pay 2 percent at the beginning of a loan to cover administrative and operative costs. It would have to pay $ 4 million and only $ 196 million would effectively receive a loan effectively.