What does compensatory balance mean?

The compensatory balance is a loan issuing bank that the loan issuing bank requires the borrowing enterprise to deposit in the loan issuing bank in the form of low interest or no interest at a certain percentage of the total loan amount or the actual loan amount (generally 10% to 20%). Compensatory balances help banks reduce loan risk and compensate for the risks they may be exposed to; For borrowers, the compensatory balance increases the effective interest rate on borrowing.

The interest paid by the enterprise remains unchanged, and the actual total amount of loans received decreases, which increases the financial burden of the enterprise.

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Compensatory balance, i.e., when a business is borrowed, the bank requires the borrowing enterprise to maintain a minimum deposit in the bank calculated by the loan limit or a certain percentage of the actual amount borrowed.

Through the retention of compensatory balances, from the perspective of enterprises, they can enhance their credit awareness and active repayment awareness, and improve their ability to repay debts, but it also increases the effective interest rate of borrowings and increases the interest burden of enterprises. From the bank's point of view, it can reduce the risk and compensate for the loss of loans that may be overdrawn.

Interest rate calculation for compensatory balances:

Compensatory Balance Loan Effective Interest Rate = Nominal Interest Rate (1 - Compensatory Balance) <>

The formula for calculating the compensatory balance is: the effective interest rate of the compensatory balance loan.

Nominal interest rate (1-compensatory balance ratio). The compensatory balance is the minimum amount that a bank account must have, which is used to offset the cost of the bank when setting up the loan. For borrowers, the compensatory balance method will not exacerbate the interest rate of the enterprise, but it will increase the interest rate, so the total amount of the actual loan of the enterprise will be reduced.

The compensatory balance, also known as the minimum deposit balance, refers to the minimum deposit balance that the bank requires the borrowing enterprise to maintain a certain percentage of the loan limit or actual use in the bank in the form of low interest or no interest when borrowing from the bank. The minimum deposit balance is generally about 10% of the borrowed amount.

Further information] Compensatory balance is a loan originating bank that the loan originating bank requires the borrowing enterprise to deposit in the loan originating bank in the form of low interest or no interest, according to a certain percentage of the total loan amount or the actual loan amount (generally 10% to 20%). Compensatory balances help banks reduce loan risk and compensate for the risks they may be exposed to; For the borrowing enterprise, the compensatory balance increases the effective interest rate of the borrowing, the interest paid by the enterprise remains unchanged, and the actual total amount of loans received decreases, which increases the financial burden of the enterprise.

The amount of compensatory balance required by banks is mainly affected by competition in the credit bank loan market. If the credit market is oversupplied, then borrowers may be in a good position to enter into loan agreements and compensatory balances may be smaller; Conversely, the borrower may have to accept a higher compensatory balance.

From the lender's point of view, loan risk refers to the lender's operating loan.

The possibility of various losses faced in the course of business. Loan risk is usually for lenders. Loan risk can be measured, loan risk is measurable, and the probability of repayment of loan principal and interest on time can be calculated by comprehensively examining some factors, before or after the loan is issued.

The so-called loan risk degree refers to the scale of the loan risk degree, the loan risk degree is a specific quantitative index that can be measured, it is usually greater than zero and less than 1, the greater the loan risk, the smaller the possibility of the loan principal and interest to be recovered on time, on the contrary, the smaller the loan risk, the greater the possibility of the loan principal and interest to be recovered on time.

The enterprise borrowed 10 million yuan with a compensatory balance, with a nominal interest rate of 12% and a compensatory balance ratio of 10%. Then the amount of borrowing that the actual enterprise can use is 1000 (1-10%) = 9 million yuan, and the actual interest rate = annual interest The actual available borrowing.

Nominal interest rate (1-compensatory balance ratio).

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A compensatory balance is a minimum deposit balance that the bank requires the borrower to maintain with the bank calculated by a certain percentage of the loan limit or actual borrowing amount (generally 10% to 20%). Compensatory balances help banks reduce loan risk and compensate for the risks they may be exposed to; For borrowing enterprises, the compensatory balance increases the effective interest rate of borrowing and increases the interest burden of enterprises.

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Compensatory Balance: The amount of deposits that must be retained in the bank.

The compensatory balance, also known as the lowest deposit balance, refers to the minimum deposit balance that the bank requires the borrowing enterprise to maintain a certain percentage of the minimum deposit balance in the bank according to the loan limit or actual use amount in the form of low interest or no interest when the enterprise borrows from the bank. The minimum deposit balance is generally about 10% of the borrowed amount.

The contents of the compensatory balance:

The amount of compensatory balances requested by banks is mainly affected by competition in the credit market. If the credit market is oversupplied, then borrowers may be in a good position to enter into loan agreements and compensatory balances may be smaller; Conversely, borrowers may have to accept a higher compensatory balance.

From the bank's point of view, the compensatory balance can reduce the risk of the loan and compensate for the loan losses that may be suffered later. Moreover, businesses maintain these low- or interest-free deposits in banks, increasing the real interest that banks receive from loans.

From the perspective of the borrowing enterprise, the compensatory balance increases the effective interest rate of the borrowing and reduces the actual amount of the borrowing that can be used. If the bank requires a compensatory balance deposit that is higher than the level of deposits normally maintained by the business, the compensatory balance clause will increase the cost of borrowing for the business.

Calculation formula: Compensation Balance Loan Effective Interest Rate = Nominal Interest Rate (1 - Compensation Balance).

Example 1] If an enterprise borrows 10 million yuan with a compensatory balance, the nominal interest rate is 12%, and the compensatory balance ratio is 10%, what is the effective interest rate of the loan?

Effective interest rate = 12% (1-10%) =.

Example 2] If an enterprise borrows 2 million yuan from the bank at an annual interest rate, and the bank requires to keep 10% of the compensatory balance, what is the effective interest rate of the loan?

Real Interest Rate =.

Compensatory balance, i.e., when a business borrows, the bank requires the borrowing enterprise to maintain a minimum deposit in the bank calculated according to the loan limit or a certain percentage of the actual borrowed amount.

From the perspective of enterprises, the retention of compensatory residual suspicions can enhance their credit awareness and active repayment awareness, and improve their ability to repay debts, but it also increases the effective interest rate of borrowings and increases the interest burden of enterprises. From the bank's point of view, it can reduce the risk and compensate for the loss of the loan that may be overdrawn.

Interest rate calculation for compensatory balances:

Compensatory Balance Loan Effective Interest Rate = Nominal Interest Rate (1 - Compensatory Balance) <>