Luminor

Fixed interest rate

Fixed interest now available for Luminor business customers:

Fixed rates for credit lines (overdrafts) and loans for investment and working capital financing
The rate fixing period is up to 1 year for credit lines (overdafts) and up to 5 years for loans
The interest rate fixing for loans, credit lines and overdrafts is up to EUR 3 million
For bigger exposures, Luminor has other offers available

New reality

While times ahead may appear turbulent, there are also new opportunities that businesses can explore in this grim situation

The first months of this year brought hope for a new normal where the subsiding COVID‑19 pandemic would give room for regrowth, yet the world was flung into new hardships. Russia's invasion of Ukraine, Russia's energy warfare spilling out into the EU and China's strict COVID‑19 containment strategy had wrought havoc on the global supply chains and triggered a spike in energy, food, and other prices. This prompted Lithuanian businesses to change and adjust to new supply chains, as well as to open new import and export opportunities. The surge in energy, food and other prices pushed up the business costs that cannot always be offset by the increase in sales revenue.

Prospects of stability

According to Žygimantas Mauricas, Chief Economist for Luminor Lithuania, in the light of persistent geopolitical uncertainties, inflation may remain elevated for a longer period, especially if the supply of Russian gas will be cut off this winter; however, it is projected to decline considerably in the second half of 2023.

“Currently, inflation of the euro area stands at 8%; however, due to the base effect, the annual growth rate of prices is expected to slow down to 6–7% at the end of this year, while inflation is projected to decline back significantly and hover at about its usual level of 2–3%.”

The 3-month Euribor interest rate is expected to reach 1.2% at the end of this year

"With regard to interest rates, since the global economic crisis of 2008–2009, they had remained at a record low level, and even negative. For homeowners and businesses alike, there was little motivation to fix the interest rate.

However, a sharp pick-up in inflation has prompted central banks to tighten monetary policy and raise the base rate, fearing that a temporary increase in prices could become a permanent one. It was a dramatic change, which took many by surprise, considering that at the end of 2021, financial markets had high hopes that the 3-month Euribor rate would remain in negative territory until the very end of 2024. However, earlier this year, the expectations of the financial markets started to change. The invasion of Ukraine looked set to send the interest rate significantly higher. The 3-month Euribor rate has already entered positive territory. The financial markets expect that the Euribor will reach 1.2% by the end of 2022 and 2.0% by the end 2023,” comments Žygimantas Mauricas.

You can manage fluctuations with a fixed interest rate

For businesses, one of the ways to plan ahead and manage undesirable base rate fluctuations might be choosing a fixed interest rate rather than a floating rate.

Vytis Žegužauskas, Luminor's Corporate Customer Department Manager, points out, fixing the interest rate for longer periods of time might not work for all businesses, but there are cases where owners could benefit from this move; for example, in cases of long-term supply agreements, especially with fixed contract prices for an extended period.

Fixing the rate as a means of insurance

“When considering your options, remember that long-term interest rates are almost always higher than short-term rates, the main reason for this being term premia, liquidity premia, and the insurance component. When you fix the rate for longer, you’re essentially paying insurance – you pay less (below the market price) when interest rates are high, and you pay more when the rates are low. To this effect, businesses that want to manage the risks on their costs might also benefit from fixing the interest rate,” says Vytis Žegužauskas, Luminor's Corporate Customer Department Manager.

Currently, Luminor offers fixed rates to business customers for credit lines (overdrafts) and long-term loans (investment and working capital). The interest rate can be fixed for up to 1 year for credit lines (overdrafts) and for up to 5 years for long-term loans. In any case, the interest rate can be fixed for loans (credit lines and overdrafts) for up to EUR 3 million. For bigger exposures, Luminor has other offers available.

Navigating the stormy seas together

“Experts are doing an immense job analyzing and forecasting global economic developments, yet anyone managing loans or investments should be prepared for other scenarios. Regardless of what the future may bring, one thing is for sure – we’re here to guide our customers. Whenever any need or question may arise, we’re here to offer a private consultation to weigh out the options,” says Vytis Žegužauskas.

To discuss any questions or next steps for your business, feel free to reach out to your relationship manager or follow this link to book an appointment with one of our advisors.

Fixing interest – a way to manage your business plans

How much will it cost for my business to get a loan with a fixed interest rate for the whole loan period? Can I fix the rate for the credit line?

Fixed rates are applicable for loans, credit lines, and credit lines (overdrafts). The applicable fixed interest rate level will depend on the fixing period, repayment schedule, loan amount, etc. For further details, please consult your relationship manager or advisor.

Why is fixing the interest rate a more expensive option than the floating rate?

Long-term interest rates are almost always higher than short-term rates, the main reason for this being term premia, liquidity premia, and the insurance component.

Can I switch from a fixed interest rate to a floating rate? What are the applicable fees?

Yes, you can switch from a fixed interest rate to floating rate throughout your agreement. If your rate fixing period is up to 1 year, and you want to change your rate from fixed to floating, no breakage fees will be applied, except from the agreement amendment fee, as indicated in the pricelist. If your rate fixing period is longer than 1 year, in addition to the credit agreement amendment fee, a breakage fee will be applied from the outstanding loan amount, as stated in your credit agreement.

Can I repay my loan early if I have a fixed interest rate? How much will it cost?

Yes, you may repay your loan early in full or partially. The fee for early loan repayment is indicated in your credit agreement or Luminor's Price List. If the fixing period is up to 1 year, no additional breakage fees will be applied. If the rate is fixed for a period longer than 1 year, you will be charged an additional breakage fee from the prepaid loan amount. The fee will be indicated in your credit agreement.

I have an investment loan at Luminor with the remaining maturity of 4 years and a floating interest rate. Can I still switch from a fixed interest rate to a floating rate? Can I fix it for the whole term loan period?

Yes, you may fix the interest rate for the entire remaining loan period (up to 4 years) or for any shorter period. The interest rate can be fixed for up to 5 years for loans.

The interest rate may be fixed for up to 1 year for credit lines and credit lines (overdrafts) loans.