OREANDA-NEWS. Unless otherwise agreed in the agreement, a consumer’s loan instalment should be reduced even in cases when the negative base interest rate is above the bank’s margin. Such a decision was adopted by the Supervision Service of the Bank of Lithuania, after settling consumer disputes with Nordea Bank AB.

‘All parties under agreement must comply with contractual terms, therefore banks must calculate interest rates in such a way that is established in an agreement, even if it means that the credit taking party will repay less than it borrowed,’ said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania. In the opinion of the Bank of Lithuania, the refusal of the commercial bank to apply favourable negative interest rates for a consumer is seen as non-compliance with contractual terms.

Disputes between consumers and Nordea Bank AB sparked due to the fact that the bank refused to apply negative interest rates on Swiss franc-denominated loans when the base interest rate became not only negative but was also above the bank’s margin. In such cases, the bank equated negative interest rates to zero, even though this was not established in the contested agreements with consumers. Consumers, in their turn, demanded that the bank would apply the total amount of negative interest rates and would decrease the tranche of the loan to be repaid.

Having analysed the contested agreements between the consumers and Nordea Bank AB, the arguments of the parties and other circumstances, the Bank of Lithuania decided that the refusal of the bank to apply negative interest rates does not conform to the terms of the agreements and is unfair with regard to consumers.

According to the assessment of the Bank of Lithuania, the analysed agreements between Nordea Bank AB and consumers established that the annual interest rate must be calculated by adding the base interest rate and the margin. The Bank of Lithuania is of the opinion that in cases when the base interest rate becomes negative or is above the margin, unless otherwise agreed between the parties, negative interest rates, derived as the mathematical sum of the base interest rate and the margin, should be applied. The overall monthly instalment should be reduced respectively, in this case — the instalment or the respective sum of money should be repaid to the consumer.

The Bank of Lithuania obligated Nordea Bank AB to recalculate both annual interest rates paid under the agreement, and repay the resulting difference to the consumers or include it in the instalment to be repaid.

Back in April 2015, the Bank of Lithuania announced its position on the application of negative interest rates. It was announced then that if it is clearly established in the agreement that the total customer’s interest payable is calculated as the mathematical sum of the fixed margin and a variable (e.g. EURIBOR rate) and during the conversion the latter variable is negative, the total interest payable should drop by that negative value.