Some Credit Jargon Explained

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Here are some typical terms that you are likely to encounter in the course of applying for business finance.

Base Lending Rate

The AIB Base Lending Rate is an interest rate which is reviewed and determined weekly and becomes effective from the first business day of the following week. It is determined by reference to the three-month Euribor rate, reflecting a daily average of this rate over the three previous months. It will then be rounded to three decimal places.

AIB Base Lending Interest Rate is quoted to customers on a 365 day count basis.

Funding Premium/Liquidity Costs

Following the significant upheaval in global money markets since 2008, the cost of rising funding for banks and governments increased significantly. When banks borrow money from markets, they now have to pay a premium or above the market reference rates. Since February 2009 AIB have been clearly identifying, in customers Credit Agreements and Letter of Sanctions, the exact level of Funding Premium applied to effected customers at the time of their credit application or when they are renewing their facility.

Margin

The 'margin' added to the Base Lending Rate is typically calculated to cover; Return on Capital, Risk Return, Operational Costs, Funding or Liquidity Premium and Bank Profit.

Basel II Accord

The Basel II Accord is a set of international standards (in effect since 2007) that dictates the level of capital banks must maintain to support their lending, as well as the way in which they manage their credit portfolios. A key principle of Basel II Accord is that as credit risk increases, more regulatory capital is required by the bank. If any borrower is in excess of agreed lending limits for 90 days plus, that loan is automatically considered to be in default. This requires an increase in the amount of related regulatory capital that must be held by the bank. It could also potentially compromise the credit standing of the borrower into the future. This aspect of the Basel II Accord requires customers to manage their finances more closely within agreed limits. Levels of flexibility which might have pertained in the pre-Basel environment can no longer be made available. Nonetheless, AIB is fully committed to working closely with all customers to ensure they can meet their funding requirements and avoid default under the Basel II Accord provisions and the subsequent negative impact on their credit standing.

We strongly encourage customers to talk to us on a regular basis to ensure we are fully up to date on your business and can plan in advance for all your financial requirements.

The Irish Banking Federation has issued a clear guide to the Basel II Accord: 'How Basel II impacts on the way that banks deal with business customers'. This can be found on their website www.ibf.ie

Chapter 5 - Other Funding Sources: >>>

Imprtant Regulatory Information

AIB Insurance Services Ltd is regulated by the Central Bank of Ireland.

Credit Facilities

Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial status and are not available to persons under 18 years of age. Security may be required.

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