Skip to main content Skip to accessibility page Skip to search input

Bank bill facilities

What are Bank Bills?

A Bank Bill is an unconditional written order by one party addressed to a Bank to pay a fixed sum - the bill's face value - at a fixed time to the Bank. A Bank Bill is a bill of exchange.

Two types of Bill of Exchange facilities are available: Bill Discount and Bill Acceptance. The Bill Discount facility, the primary facility offered by St.George, provides for the Bank to discount bills and provide the discounted funds on drawdown. On maturity the customer indemnifies the bank for the full face value.

Bank Bill facilities are generally provided for a set term. The term of the Bill will be renegotiated by drawing a fresh Bank Bill for an agreed number of days at each rollover.

St.George provides four facility options that offer a range of strategies for managing interest rate risk. This range includes:

 Floating Rate Bills

The interest rate at which a Floating Rate Bill is discounted is determined by St.George’s Financial Markets division on a daily basis. This Bank Bill facility is offered for terms of 30,60,90,120,150 or 185 days. If the current bill is to be rolled, there would be negotiation of the interest rate, which will be applied to the new bill, effective from the commencement date of that new bill.

It is possible that the interest rate may differ on each rollover, depending on the market rate at the time. The interest rate can be negotiated in advance of the maturity date, for Floating Rate Bill facilities that are being rolled over.

 Fixed Rate Bills

With Fixed Rate Bills you have the reassurance of an interest rate that is fixed for a specified time. Terms are available for any period greater than 185 days.

When negotiating your interest rate, a range of options is available to provide true flexibility. These options include principal reductions, progressive draw-downs and forward starts.

You should note that if you wish to terminate the Fixed Rate Bill facility prior to maturity, a cash settlement might be required. This amount will be based on the difference between the fixed rate and the market rate for the remaining term, on the date of the termination. Which means that you may be asked to pay the difference between the two rates by way of cash settlement.

While your interest rate is fixed for your nominated term, rollover of the bills can occur - usually on a monthly or quarterly basis - when interest payments are required.

 Capped Rate Bills

While borrowers utilising Floating Bill facilities face exposure to short term interest rate movements, a Capped Bill facility can provide a limit to the interest rate that you will have to pay. In exchange for this protection the borrower pays a premium to the Bank.

The premium for the purchase of the interest rate cap is determined by a number of factors including, the size of your loan, the length of the term to maturity and the proximity of the capped rate to the current rate at which you could otherwise borrow.

As demonstrated in the following example a Capped Rate Bill provides protection from increasing interest rates, while at the same time giving you the opportunity to participate in interest rate falls. In the event that the floating bill rate is trading below your capped rate at the time of rolling your bill, you will only pay the lower floating bill rate.

 Collared Rate Bills

To reduce the cost of establishing an interest rate cap, you may be willing to forego some of the benefit that can be gained from a falling interest rate. With a Collared Rate Bill structure, both a cap and a floor are established simultaneously. This may be the preferred option for borrowers who are seeking protection from rates rising above a certain level while believing that interest rates will not fall below a certain level.

The interest rate cap limits the interest rate you will have to pay in a rising interest rate market, while at the same time allowing you to benefit from falling interest rates down to the level of the interest rate floor. If the floating bill rate is below the floor level at rollover, you will pay the floor rate.

Costs of establishing a Collared Rate Bill structure depend primarily on the levels of the cap and floor that are chosen. It is possible to arrange the interest rate collar for zero cost.