Business Clients Interest Rate Swap

The interest rate swap is a derivative financial instrument for the exchange of fixed for floating interest rate, as well as the reverse – floating for fixed interest rate. A swap with fixed rate for floating rate exchange is also called a simple interest rate swap. Interest payments are based on the notional amount included in the interest rate swap agreement, and the parties do not exchange the face value during the term of the agreement. The floating interest rate is calculated on the basis of a reference interest rate index.

The reference interest index can be: Euribor – for transactions in EUR, Libor in USD – for transactions in USD, Libor in CHF – for transactions in CHF.

The frequency of payments depends on the maturity of the reference interest rate. For example, for one-month Euribor or one-month Libor, the frequency is one-month, and for three-month Euribor and three-month Libor, the frequency is three-month.

Term of IRS transactions:

Usually, IRS transactions are concluded for a period of up to 10 years.

Currency:

The currency of the offered interest rate swap can be EUR, USD or CHF.

Objectives:

The interest rate swap is used to hedge interest rate risk.

Target market of the product

The Interest Rate Swap (IRS) is a financial instrument, which the Bank manufactures and distributes as a product. The table below sets out the criteria for determining for which client profile the product is compatible with or not.

	Positive	Negative
Type of clients	all types of clients: retail, professional and eligible counterparties
Clients’ knowledge and experience относно	- the movement and the possible expectations regarding the hedged reference values; - lost profits or realised losses related to a negative change in reference values; - hedging cash flows by entering an IRS in relation to interest payments on credit exposure; - maintenance of collateral required when concluding an interest rate swap transaction	does not meet the indicated knowledge and experience requirements
Clients’ financial situation with a focus on the ability to bear losses	- to bear a negative result on periodic netting payments on the swap, within the maturity of the instrument; - the existence of a credit exposure whose interest payments compensate for the possible negative mentioned above
Clients’ risk tolerance and compatibility of the risk	if the objective is hedging, the client's risk appetite will not be considered	inclined to bear the risks of negative deviations of the reference values in the presence of a long-term loan or if they do not have a credit exposure
Clients’ objectives and needs	to hedge an exposure