Commitment fee

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

A commitment fee is the charge on the committed but undrawn portion of a facility, most visibly on revolving credit facilities. The bank must hold capital and plan funding against the whole committed limit — if every client drew in full tomorrow, the bank has promised to fund it — so the undrawn half of the promise has a real cost. Some banks charge it on the undrawn part alone, others as a line fee on the whole limit — Issue 03's seasonal line carries 0.40% on the limit. It is the item borrowers most often discover after signing rather than before, which is why an honest quote is the all-in cost at several utilization levels, never the headline drawn rate alone.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.