Composite cost of borrowing indicators
The composite cost-of-borrowing indicators are based on MFI interest rate statistics. This measure is used to accurately assess borrowing costs for non-financial corporations and households and further enhances cross-country comparability. Four basic categories of lending rates per country are defined: short-term and long-term lending rates both to non-financial corporations and to households for house purchase.
General description of construction of the cost-of-borrowing:
General guidance on the usage of the cost-of-borrowing:
- Assessing the retail bank interest rate pass-through in the euro area at times of financial fragmentation, August 2013, ECB's Monthly Bulletin (Box 1, pp. 76-79).
A new indicator for the cost of borrowing in the euro area
The construction of the new cost-of-borrowing indicators is based on MFI interest rate statistics, which are considered the most relevant source of information for bank lending rates in the euro area. Four basic categories of lending rates per country are used in the calculations: short- and long-term lending rates to both non-financial corporations and households for house purchase, respectively.
Long-term lending rates to non-financial corporations and short- and long-term rates on loans to households for house purchase are obtained directly from the MFI interest rate statistics. The compilation of short-term lending rates to non-financial corporations, on the contrary, needs to account for two additional technical factors: the importance of overdrafts as a main source of financing for firms in some large euro area economies (e.g., Italy) and the computation of an estimate of the share of long-term loans issued at floating rates. Long-term loans issued at floating rates are akin to short-term loans and should therefore be considered part of short-term loans.
In particular, interest rates on short-term loans to non-financial corporations are aggregated based on interest rates on overdrafts and bank lending rates on loans with a rate fixation period of less than one year, as described in the methodological note.