Loan commitments include

Chinese name: loan commitment

Important: customers must pay a certain commitment fee.

Quality: Off-balance sheet business of banks

Justice: direct credit promised at some time in the future.

Commitment is a traditional off-balance-sheet business of commercial banks, and it is a commitment to provide funds and loans to borrowers when they need it. It is divided into letter of credit, standby letter of credit, revolving letter of credit and bill insurance. Opening a letter of credit is an informal agreement between a bank and a borrower. The bank is prepared to expand the credit line at the agreed interest rate within a certain period of time, but the agreement has no legal effect. The bank can perform the contract or refuse to perform it. Standby commitments are more binding, but the commitment period of letter of credit commitments and standby commitments generally does not exceed one year. Revolving credit is a medium-term loan commitment, which means that banks guarantee customers to borrow and repay funds, and then borrow and repay them after a period of extension, with a time span of 3 to 5 years. If the borrower's financial situation deteriorates during this period, the bank will bear greater risks. Insurance business is also a medium-term loan agreement, and banks agree to buy bills when borrowers cannot sell them. This kind of commitment also bears great risks. When a bank makes a commitment for the borrower, it should charge the corresponding commitment fee according to the risk.

pore pressure

199365438+February, the Board of Governors of the Federal Reserve System issued the revised H regulation. According to Regulation H, commitment refers to any legally binding agreement, which means that the bank undertakes the following obligations:

(1) Providing credit by way of loan or lease;

(2) purchasing loans, securities or other assets;

(3) Participate in loans or leases.

In addition, commitments include overdraft facilities, revolving credit arrangements, housing rights and mortgage credit lines, and other similar transactions. Formally speaking, loan commitment is an important part of commitment, and overdraft facility and revolving credit arrangement are its concrete manifestations. Commitment plays an important role in the credit market. In the competitive credit market, the existence of loan commitment can meet the borrower's future demand for uncertain credit; For the promisor, the loan commitment can be arranged as soon as possible, and the credit market share can be maximized by establishing a long-term customer relationship. In addition, loan commitment can also solve the risks caused by information asymmetry, reduce transaction costs, and thus improve the overall efficiency of financial markets.

Wind risk

As a credit tool, loan commitment generally needs to bear two kinds of financial risks:

First of all, credit risk is directly related to the repayment ability and willingness of potential borrowers. Almost all the promised credit risks come from potential borrowers;

The second is market risk, which is widely related to adverse changes in market conditions, including the risk of changes in interest rates, exchange rates and prices. However, for the loan commitment, only when the market value of one party is positive, it is possible to breach the contract, because this value represents the expected loss or cash outflow obligation. From an economic point of view, loan commitment has the characteristics of options.

For example, when commercial banks (option issuers) and other financial institutions make a commitment to provide loans at a fixed interest rate in the future without considering the commitment fee, if the market interest rate is higher than the set interest rate during the implementation period, the promise holder (potential borrower) will make a loan commitment and get the income equivalent to the product of the difference between the market interest rate and the set interest rate and the maximum loan amount; If the market interest rate is lower than the set interest rate, the promisor will give up the execution and use the current market interest rate to obtain the loan, thus avoiding the loss equivalent to the product of the difference between the market interest rate and the set interest rate and the maximum loan amount.

For commercial banks and other financial institutions, the income of commitment holders is equal to the opportunity cost of holding loan commitments. Therefore, with the increase of the deviation between the market interest rate and the set interest rate, the promisor actually bears all the market risks (including the exchange rate risk in the case of foreign currency loans). The risk may be unlimited, and the income is limited to the loan commitment fee paid at a certain proportion or a fixed amount. The same is true of long-term standby commitments to purchase loans.