• Question ID: 2022/0005
• Date of publication: 22/11/2022
• Subject matter: Loans price and other conditions
• AnaCredit Manual: Part II
• Data attribute: Interest rate

Question

The interest rate in AnaCredit is defined as the annualised agreed rate (AAR) or the narrowly defined effective rate (NDER) in accordance with Regulation (EU) No 1072/2013^[1]. Given the definitions of the AAR and NDER, please clarify (i) the distinction between interest payments and other charges, and (ii) whether some of the cash flows in other charges should be taken into account when calculating the interest rate in AnaCredit.

Answer

The interest rate to be reported in AnaCredit is computed in accordance with the requirements set out in Regulation (EU) No 1072/2013 on MFI interest rate statistics.

Interest rates can be reported in AnaCredit by providing either the annualised agreed rate (AAR) or the narrowly defined effective rate (NDER). The AAR is defined as “the interest rate that is individually agreed between the reporting agent and the household or non-financial corporation for a deposit or loan, converted to an annual basis and quoted in percentages per annum”. It “covers all interest payments on deposits and loans, but no other charges that may apply”.^[2] The NDER is defined as “the interest rate, on an annual basis, that equalises the present value of all commitments other than charges […], agreed by the reporting agents and the household or non-financial corporation”. ^[3]

Both the AAR and the NDER cover all interest payments but no other charges (see Section 4.2 of the Manual on MFI interest rate statistics). Charges that are not related to interest payments on deposits or loans should be excluded from the interest rate (AAR/NDER) regardless of their purpose – whether they are characterised as revenue or purely represent costs for the observed agent. Thus, when an interest rate or interest payments are specified in a contract, the interest rate to be reported in AnaCredit is computed exclusively based on the interest payments themselves, excluding any other charge or fee.

In the special case where a contract does not specify an interest rate or interest payments but only charges or fees, or the contractually agreed interest rate is equal to 0%, the interest rate is then calculated based exclusively on the part of the fee or charge that corresponds to interest payments on the loan. This does not apply in the case where a variable interest rate is exactly 0% in a given month owing to fluctuations in the reference rate.

Where it is not possible to disentangle the fee or charges from the part that represents interest payments, then all charges or fees are to be used to calculate the interest rate. This applies to payday loans, for example (as well as to other instruments with similar characteristics). For payday loans, there is no contractual interest rate and the only compensation for the bank is a fee. Therefore, in the case of payday loans, “the fee has to be considered as an interest rate, unless the underlying ‘true’ fee can be disentangled from the interest rate” (see Section 8.14 of the Manual on MFI interest rate statistics).