January 2018

Take out a loan and for or get extra money: For customers, a Frankfurt bank that dream come true. Offers above all a profession must.

The Landwirtschaftliche Rentenbank in Frankfurt wants to pass the negative interest rates at which they can finance the capital market in the meantime to their credit customers the first bank in Germany. However, while it goes a special way. The bank, whose mission is to promote agriculture and rural development, grants development loans primarily to farmers, but only about their own bank.

Since it becomes clear that the bank itself money can borrow on the capital market to negative interest rates, she found herself under pressure to pass on this benefit to their customers: “As a development bank we do not work for profit, but would like to pass the low-interest rate to the final borrowers,” says Horst Reinhardt, CEO of Rentenbank.

The first idea was: Rentenbank could extend loans with a negative interest to the bank. This could pass on the loan at a small premium to farmers. About this idea, the leaders of Rentenbank discussed some time ago with representatives of other development banks such as the KfW bank. But we came to the conclusion that such an approach would be technically and legally problematic. So, at least initially will not have been all eligible banks technically able to process development loans with negative interest rates at all.

Savings: As bank customers to defend themselves against negative interest rates

However, the development banks have to forgive their loans “competitively neutral”, so each bank must have the same chances to pass such a loan, which would not have worked if not all were capable technically capable. In addition, legal uncertainties should have spoken against this form of transfer.

Rentenbank has therefore opted for a different approach: They are their favorable financing conditions continue in the form of a so-called investment subsidy to the borrower. So a small gift one receives extra-speak when taking a loan. The funding grant is now available not for all development loans, but for a whole range of program loans, especially short-term.

In extreme cases, zero percent interest per year

This is calculated as follows: The minimum rate at which the pension Bank grants loans to the bank, currently at zero percent. The bank provides loans partly to one percent interest a year on to the borrower, which is the lowest regular rate of interest for him. But: Once, with the payment of the loan, he now rewarded with a funding grant of one percent.

From the perspective of the farmer of the development loan for him is therefore indeed further connected to the bottom line with an interest payment. He gets the credit is not given, or even more money on it. He pays for the entire duration of the promotional loan still quite positive interest rates, although very low. However, the funding grant at the beginning may be approximately offset the interest payments.

From the perspective of Rentenbank, however, one can certainly say that it issues as well the first institute in Germany loans at negative interest rates. Finally, she gets from the bank, in extreme cases only zero percent interest a year – and pays in addition to the final borrowers once one percent of the loan amount as a promotional grant. So for them, it is a minus business.

So far, there had not been negative interest rates on loans in Germany. In Denmark, there were individual cases of home loans with flexible interest rates that were linked to a reference interest rate and temporarily slipped into the red. There, however, other banking fees had eaten up the advantage for the customers were.

In the goods financing, such as buying a car, there are also negative in this country lending rates. Borrowers get into this case, but often correspondingly less discount. A funding grant as the Rentenbank there is sometimes at KfW. There, however, the money will not come from negative interest rates to refinance but have been already paid earlier from the budget of the Federation.

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