Hedging of interest rate risk

Ensure stable financing conditions.

Who is it for?

Corporate clients

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Corporate clients that want to hedge their financial investments or liabilities against significant changes in interest rates.
Key advantage

Set highest interest rate

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Highest interest rate fixed in advance for the whole duration of insurance.
Possibilities of choice

Various financial instruments

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Choose among various funding instruments.

Changes in interest rates can have a significant impact on the costs of financing. By using interest rate risk hedging instruments, you can ensure stable financing conditions and thus more stable operating conditions.

SKB Bank offers several instruments that can protect you against interest rate risk. There are also possible different combinations of individual instruments. We will always offer you a solution tailored to your borrowing conditions.

Conditions for taking out insurance:

  • Signing of the Master agreement for derivative financial instruments.
  • Valid LEI number.
  • Signing of the Reporting agreement (the EMIR regulation).
  • Approved limit for concluding derivative financial instruments.
  • Open transaction account with SKB Bank.

Different financial instruments

Interest rate collar

 

An interest rate collar is a combination of the purchase of an interest rate cap and a simultaneous sale of the interest rate floor with the same characteristics as with the interest rate cap (nominal amount, reference interest rate, maturity).

With such a combination, the buyer can partly or entirely avoid the payment of the premium required for the purchase of an interest rate cap. The premium of the interest rate cap is reduced by the premium the buyer of the interest rate collar receives for the sale of the interest rate floor.

Advantages:

  • Enables dynamic protection against the rise of interest rates above the upper limit (above the interest cap).
  • To protect against interest rate risk, you pay a lower premium or no premium at all.

Disadvantages:

  • Premium payment unless it is a combination without premium.
  • If the reference interest rate falls below the lower limit (below the interest floor), you pay the net difference between the interest rates.

Interest rate swap

 

An interest rate swap is an agreement between the bank and the company on the swap of interest payments in the same currency, either at a fixed interest rate for obligations at a floating rate, or vice versa.

Companies which normally borrow loan at a variable interest rates can by using this instrument exchange the reference interest rate (Euribor, Libor, etc) for the fixed interest rate, determined at the time of the transaction, for the entire duration of the financing/loan.

It protects you against interest rate changes that are unfavorable for you as this instrument secures fixed financing costs.

Advantages:

  • You enjoy full protection against an unfavorable change in interest rate.
  • You can secure a fixed/known interest rate for the entire duration of financing.
  • No additional costs.

Disadvantages:

  • You do not gain in the event of a favorable change in interest rates.

Interest rate floor

An interest rate floor is an instrument hedging the option buyer against the falling of interest rates below the interest rate determined at the time of the transaction (the strike interest rate).

The buyer of the interest rate option has the right to use the option in the case of an interest rate movement that is unfavorable for them and is obliged to pay the bank a premium for this right.

Advantages:

  • You enjoy full protection against an unfavoralble change in interest rate.
  • The company itself determines the strike interest rate.
  • The company gains in the event of a favorable change in interest rates.

Disadvantages:

  • Payment of a premium.

Interest rate cap

An interest rate cap is an instrument hedging the option buyer against the rising of an interest rate above the interest rate fixed at the time of trading (the strike interest rate).

The buyer of the interest rate option has the right to use the option in the case of an interest rate movement that is unfavorable for them and is obliged to pay the bank a premium for this right.

Advantages:

  • You enjoy full protection against an unfavoralble change in interest rate.
  • The company itself determines the strike interest rate.
  • The company gains in the event of a favorable change in interest rates.

Disadvantages:

  • Payment of a premium.

Treasury Department

Employees in the Treasury Department will be glad to provide any additional information or clarifications.


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NOTICE OF COLLATERAL EXCHANGE

“In accordance with the decision of the Bank of Slovenia of 22 February 2022, with regard to the EU EMIR regulations, SKB Bank applies the entire exception regarding the exchange of collateral when dealing with OTC derivative financial instruments (IFI) with a counterparty) – OTP Bank Plc. intra-group transactions.

SKB Bank (LEI identifier: 549300H7CCQ6BSQBGG72) and OTP Bank Plc. (LEI identifier: 529900W3MOO00A18X956) are part of the same OTP Group and both financial counterparties are based in different EU countries. The nominal total amount of IFI OTC contracts, for which the intra-group exemption applies, amounts to 270,000 million EUR".

Documents under the PRIIP regulation

Get acquainted with documents including key information for small investors concerning derivatives of SKB Bank d.d. Ljubljana, which are traded outside the organized market (OTC). Documents are not marketing material.

If you wish, we wil provide you with the requested key information document free of charge.

Treasury Department

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