March 7, 2020

Evolution of credits, when bad explanations get tough!

 I am one of those who formally oppose the opinions of those who see a more or less direct correlation between OAT rates and real estate rates.

Thus, to justify this correlation, Best Lending explains in a publication on its site that this relationship exists since the OAT rate (noted for the example at 0.89%) would also be that of the refinancing of banks at the Best Bank also noted at 0.89 %.

I want to formally contradict this explanation given by a broker whose opinion, widely publicized on this point, actively participating in the dissemination of unfounded information.

The explanation given is doubly false:

  • On the one hand, the OAT rate is in no way a rate of loan financing
  • On the other hand, the refinancing rate of banks at the Best Bank has been 0.05% since September 2014 and not 0.89%

To understand the evolution of the rates charged by a bank, you must know the mechanism of their constitution.

Each credit institution determines its credit rates by calculating the cost price of its financial resource to which it adds a margin rate.

The calculation of this cost price is obtained from financial and accounting elements all perfectly-identified where the OAT rate never intervenes! :

 

The price at which banks buy the money they lend

credit loan

The price of money paid by a bank to constitute its credit financing resource consists of:

  • Remuneration of private depositors. This is freely negotiated and currently it is on average less than 1%
  • Remuneration of passbook accounts administered by the State (Example 1% since August 2014 for passbook A)
  • Remuneration for refinancing at the Best Bank (0.05% since September 10, 2014)
  • The remuneration of interbank loans from one week to one year. This is the EURIBOR rate currently around 0.16%.

 

The cost of risk

credit loans

Each establishment has its own criteria. French banks are among the safest with a risk rate of less than 2%.

 

The cost of credit transformation

credit loan

It is the set of administrative, commercial and accounting costs incurred to sell the credits, set them up and manage them. This item is directly linked to the bank’s development and operating policy (fixed assets, rentals, salaries and charges, insurance, etc.). For this cost class at constant scope, inflation is always the rule.

It is indisputable: the OAT is neither a component nor a resource taken into account for the bank financing of companies and households.

To confirm these explanations, I would remind you that an OAT is a debt obligation on the State and that the OAT rate is the rate of return on a loan made by an investor to the State

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *