IRS is a transaction hedging interest rate volatility risk, where the client swaps payments based on a floating index (e.g. WIBOR) for a fixed rate of a specified amount. Such transactions are made in order to hedge the risk resulting from financing based on a floating rate, e.g. loans or bond issues. Before entering into the transaction, the client bears an interest
cost based on WIBOR and a credit margin. WIBOR can change and grow over time, causing interest costs to rise. Thanks to the IRS transaction, the company knows the amount of the costs it will incur throughout the entire security term.
The modification of the transaction implemented by Santander Bank Polska has been to make the IRS conditional on sustainability principles. An additional financial incentive was introduced in the form of a reduction of the fixed interest rate. However, in order for such a reduction to be achieved, Tauron will have to fulfil the applicable terms which were agreed before the transaction was concluded and will be monitored on an annual basis. If the terms are met in a given year, the interest rate will be reduced by the agreed value, for the next year.
The Polish economy, like many European economies, faces the challenge of green transformation. Contractors, individual customers and investors are becoming increasingly aware of the environmental, climate and social impacts of their activities. Businesses are monitoring their environmental footprint and developing ambitious strategies to reduce it. Therefore, it is to be expected that transactions of this type, such as the „green IRS” or instruments like Sustainable Development Bonds, will appear more and more often on our market.