LEXIKON

In variable-rate loan agreements, banks typically agree interest rate adjustment clauses with their customers that are linked to a reference interest rate (e.g., EURIBOR). If the agreed reference interest rate falls sufficiently, the agreed interest rate would theoretically become negative. This raises the question of whether banks would have to pay their customers “negative interest” in this case.

However, the Austrian Supreme Court recently confirmed (February 26, 2020, 1 Ob 16/20i; www.ris.bka.gv.at/jus) its previous case law, according to which this is not the case, even if the wording of the loan agreement is unclear.

The Supreme Court essentially justifies its legal opinion on the grounds that, in the absence of an express agreement, the parties to a loan agreement, in which the bank normally receives interest payments from the customer, cannot be assumed to have agreed the opposite, i.e., that the customer should receive interest payments from the bank.

It assumes—probably correctly—that a lender would generally not agree to a payment obligation in the form of “negative interest” when concluding a contract.