Prime

economic-dictionary

Prime is the rating given by financial institutions to their most solvent clients. That is to say, it is a category where all the owners of large capitals, individuals and companies enter, and who are also good payers.

This segment can access special benefits: lower interest rates, higher credit lines, personalized services and an exclusive window at the bank. This, given that their debt capacity and income level is higher.

Likewise, these clients often request specialized advice for the management of their assets. Thus, they invest large sums of money in the capital market.

It is worth mentioning that the term prime is also used in the real estate sector to refer to luxury offices. This niche market reports the most expensive rents and works with the most exclusive urban areas.

Prime rate

The prime or preferential rate is the interest rate charged, on average, by US banks to their best borrowers (individuals and companies). To obtain it, a sample of what the main credit institutions charge is averaged.

This indicator is characterized by being fundamentally related to the bank's business with its clients. On the other hand, other references such as the Libor rate are used for operations between financial institutions (interbank).

Another point to take into account is that the prime rate is set individually by each bank. That is, it does not require consensus nor does it move based on another specific variable.

The prime rate is also important because it serves as a parameter to set interest rates on mortgages, credit cards, and other loans. Although for the calculation of these rates, additional factors such as the creditor's internal reserve level and competitors' prices are also considered.

Prime at Moody’s

The credit rating agency Moody’s has three categories of Prime debtor in its methodology. All of them refer to the probability of repayment of a short-term loan.

Qualification

Ability to return

a short-term credit

Equivalence in length

term

Prime 1HigherAAA, Aa1, Aa2, Aa3, A1, A2, A3
Prime 2StrongA3, Baa1, Baa2
Prime 3Acceptable

Baa2, Baa3

Tags:  banks biography markets 

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