Interest Equalisation
How does the interest equalisation system work?
Under the interest equalisation system the bank arranges for its client purchasing Finnish capital goods and services a fixed CIRR-based export credit. A case-specific interest equalisation agreement with FEC provides the bank a hedge, which converts the fixed CIRR-based receivable into a floating rate receivable.
Under the interest equalisation agreement the bank will pay a fixed CIRR rate plus an optional margin to FEC and receive a floating rate (normally Euribor or SOFR) plus a spread from FEC as follows:
| Repayment period in years | Credit amount | |||
| under 5M€ | 5–25 M€ | 25–50 M€ | over 50M€ | |
| 5 or under | 50 bp | 40 bp | 35 bp | 30 bp |
| over 5–10 | 50 bp | 45 bp | 40 bp | 40 bp |
| over 10 | 50 bp | 50 bp | 45 bp | 40 bp |
If the reference interest rate is a risk-free interest rate (e.g. SOFR), the margin shall be increased in accordance with the transitional practices generally accepted in the interest rate derivatives market.
The bank often covers the credit risk with export credit guarantee but the credit risk can also be covered by the bank itself or the bank can use other arrangement of it’s choice.
