GER: No Negative Interest on Promissory Note Loans

Jun 2, 2023 Benn-Ibler Rechtsanwälte

According to the German Federal Supreme Court (Bundesgerichtshof, hereinafter BGH), the legal model of loan regulations does not recognise negative interest. A claim for payment does not exist even for promissory note loans if an upper interest limit but no lower limit was agreed upon.

In 2007, the plaintiff had entered into a contract with the legal predecessor of the defendant bank. The agreement was called a ‘loan’ and it was agreed by the parties that the loan was to bear interest ‘annually until the day before the terminal due date, with a nominal 3-month EURIBOR 0.1175% interest and a maximum rate of 5.00%.’ After transferring the loan funds, the plaintiff issued five promissory notes each worth EUR 20,000,000. The plaintiff was of the opinion that he was entitled to payment of negative interest from the time the interest calculation formula computed a negative value. After all, an upper interest limit but no lower limit had been agreed upon.

The BGH ruled on the matter as follows: A claim for payment of negative interest is barred.

In the case of an interest rate agreement concluded in accordance with Section 488 (1) of the German Civil Code (Bürgerliches Gesetzbuch), according to which a change in the reference interest rate referred to leads to an automatic change in the contractual interest rate to the extent provided for by an interest rate premium and an interest rate cap, no express stipulation of an interest rate minimum limit is required in order to exclude or limit the lender’s obligation to pay negative interest to the borrower if the reference interest rate falls below zero.

In the legal sense, interest means the payment to be made for the possibility of using temporarily transferred capital, which is calculated time-dependently, but at the same time independent of profit and turnover. According to this definition, interest, because it must be understood as remuneration, can never become negative. Thus, an interest rate has a definitional lower limit of 0%. Once this is reached, the borrower’s obligation to pay interest is cancelled.

This interpretation also corresponds to the view of an honest and prudent contracting party in their capacity of a professional market participant.

BGH, XI ZR 544/21 (09.05.2023)