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INFORMATION ON LIBOR TRANSITION
LIBOR
LIBOR stands for London Interbank Offer Rate (LIBOR). It is a benchmark reference rate, administered by the Intercontinental Exchange (ICE), for floating rate transactions for bonds, derivatives, loans, securitizations etc. LIBOR is the most important Inter-Bank Offered Rate (IBOR) in global financial markets. LIBOR is calculated by submissions from various leading banks that estimate the rate of borrowing from other banks from overnight to 12 months. It is quoted in GBP, USD, EUR, Swiss Franc (CHF) and Japanese Yen (JPY) across 7 different types of maturities i.e. overnight, 1-week, 1-month, 2-month, 3-month, 6-month and 12 month.
TIMELINE FOR LIBOR CESSATION
The UK’s Financial Conduct Authority has announced that LIBOR quotes beyond Dec 2021 will not be published. As such publication of all LIBOR settings will cease immediately after 31st December 2021 except for overnight, 1 month, 3 month, 6 month and 12 month USD LIBOR.
Publication of the overnight, 1 month, 3 month, 6 month and 12 month US Dollar LIBOR settings will cease immediately after 30th June 2023.
IMPACT OF LIBOR TRANSITION ON PRODUCTS
In general, the following products will be impacted because of this transition:
- Derivative contracts
- Foreign Currency Term Loans
- Foreign Currency Demand Loans
- Trade Finance Loans
- External Commercial Borrowings
- Foreign Currency Investments
- Foreign Currency Borrowings
ALTERNATE REFERENCE RATES WHICH MAY REPLACE LIBOR
|
Jurisdiction |
Currency |
Alternative RFR |
RFR Administrator
|
|
UK
|
GBP |
Reformed Sterling Overnight Index Average (SONIA)
|
Bank of England
|
|
US
|
USD |
Secured Overnight Financing Rate (SOFR)
|
Federal Reserve Bank of New York
|
|
Eurozone
|
EUR |
Euro Short-Term Rate (ESTER)
|
European Central Bank
|
|
Switzerland
|
CHF |
Swiss Average Rate Overnight (SARON)
|
SIX Swiss Exchange
|
|
Japan
|
JPY |
Tokyo Overnight Average Rate (TONA)
|
Bank of Japan
|
KEY DIFFERENCES BETWEEN LIBOR AND ARRs
|
LIBOR |
ARRs
|
|
|
FALLBACK CLAUSE
Fallbacks are contractual provisions that determine a replacement rate which counterparties may use in case benchmark rate is not available.
It comprises of:
- The events which trigger the transition from referenced rate to a replacement rate along with spread adjustments
- The replacement rate
For further information, please contact your Branch.
Disclaimer
Punjab & Sind Bank has provided the above information based on the sources considered as authentic.
The information on LIBOR transition is on non-advised basis and is provided for general purpose only. No person/ entity should act on it without seeking guidance from professional advisors.
