Tag: SOFR

RBI asks banks to shift from scam-tainted LIBOR to other rate benchmarks, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank of India has asked banks and financial institutions to use any widely accepted alternative reference rate (AAR) instead of LIBOR (London Interbank Offered Rates) as the reference rate for entering into new financial contracts.

The Reserve Bank‘s directive follows a decision of the Financial Conduct Authority (FCA), UK which on March 5, 2021, had announced that all LIBOR settings would either cease to be provided by any administrator or would no longer be representative.

The UK directive to phase out LIBOR came after a rate fixing scandal involving major global banks.

The RBI directive

In order to deal with the emerging situation, the RBI has asked banks and financial institutions to “cease entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted alternative reference rate (ARR), as soon as practicable and in any case by December 31, 2021.” The financial institutions, it suggested, should incorporate robust fallback clauses in all financial contracts that reference LIBOR and the maturity of which is after the announced cessation date of the LIBOR settings.

The RBI has also advised the financial institutions to cease using the Mumbai Interbank Forward Outright Rate (MIFOR), a benchmark which references the LIBOR, latest by December 31, 2021.

Board approved plan

The Reserve Bank of India (RBI) had in August 2020 asked banks to frame a board approved plan, outlining an assessment of exposures linked to LIBOR and steps to be taken to address risks arising from the cessation of LIBOR, including preparation for the adoption of the ARR.

While certain US dollar LIBOR settings will continue to be published till June 30, 2023, the extension of the timeline for cessation is primarily aimed at ensuring roll-off of USD LIBOR-linked legacy contracts, and not to encourage continued reliance on LIBOR.

“It is, therefore, expected that contracts referencing LIBOR may generally be undertaken after December 31, 2021, only for the purpose of managing risks arising out of LIBOR contracts (e.g. hedging contracts, novation, market-making in support of client activity, etc.), contracted on or before December 31, 2021,” the RBI said.

It has also asked banks and financial institutions to incorporate robust fallback clauses, preferably well before the respective cessation dates, in all financial contracts that reference LIBOR and the maturity of which is after the announced cessation date of the respective LIBOR settings.

The central bank also said it will continue to monitor the evolving global and domestic situation with regard to the transition away from LIBOR and proactively take steps to mitigate associated risks in order to ensure a smooth transition.

LIBOR scandal

The LIBOR Scandal was a highly-publicised scheme in which bankers at several major financial institutions colluded with each other to manipulate the LIBOR. The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003.

Many leading financial institutions were implicated in the scandal, including Deutsche Bank (DB), Barclays (BCS), Citigroup (C), JPMorgan Chase (JPM), and the Royal Bank of Scotland (RBS). As a result of the rate fixing scandal, questions around LIBOR’s validity as a credible benchmark rate have arisen and it is now being phased out. According to the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be replaced by the Secured Overnight Financing Rate (SOFR).



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,

Yes Bank executes its first trade borrowing transaction linked to SOFR

Banking & Finance

[ad_1]

Read More/Less


Private sector lender Yes Bank has executed its first Secured Overnight Financing Rate (SOFR) linked transaction.

SOFR is an identified replacement for USD LIBOR (London Inter-Bank Offered Rate), which is likely to be phased out at the end of 2021.

“The transaction was a trade borrowing availed from Wells Fargo Bank and will provide further impetus to the bank’s export finance business,” Yes Bank said in a statement, adding that it is part of its benchmark transition management plan and is the first step towards a smooth transition to the new Alternative Reference Rates (ARR).

Also read: Privatising public sector banks isn’t a good idea

“This is an on-balance sheet transaction and is an industry-first onshore foreign currency borrowing on the SOFR benchmark. The bank will take strides towards adopting the new standards in the global context and this borrowing will support the bank’s endeavour to transition and adopt the new ARR,” said Ashish Agarwal, Global Head, Wholesale Banking, Yes Bank.

Santanu Sengupta, Managing Director and Head, CIB – FIG, APAC South, Wells Fargo Bank further said, “As the global financial markets transition from LIBOR to ARR, we are delighted to partner with Yes Bank on their first SOFR benchmarked loan.”

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

Asian companies ready debt deals under new benchmark rate rules

Banking & Finance

[ad_1]

Read More/Less


Asia’s financial companies are gearing up to issue their first debt using a new global benchmark interest rate that will replace the contentious Liboras the region catches up to the rest of the world, according to bankers and advisors.

Britain’s financial regulators last week called a formal halt to nearly all Libor rates from the end of this year, piling pressure on markets to quicken a switch in interest rates used in $260 trillion of contracts globally.

Also read: The end of Libor: the biggest banking challenge you’ve never heard of

Libor (London Interbank Offered Rate) is being replaced with rates compiled by central banks after lenders were fined billions of dollars for trying to rig the reference rate for their own gain in 2012.

Also read: NBFCs in India need to plan for effective IBOR transition: EY India

SOFR replaces Dollar Libor

The Dollar Libor will be replaced by the Secured Overnight Financing Rate (SOFR), which is published by the New York Federal Reserve to use as a reference point for US dollar derivative and debt transactions.

The deadline is likely to expedite the number of debt transactions in Asia using SOFR to meet the regulator’s timetable and set the borrowers’ costs of funds, after the Covid-19 pandemic resulted in a slow take-up rate in the region.

“The first wave of deals using the new benchmarks will be initiated by banks, financial institutions and asset managers due to the push by regulators on them to lead the way,” said Jean Woo, partner at law firm Ashurst.

Asia’s first issuance

Korea Development Bank (KDB), a state-owned policy bank,last week raised $300 million in a three-year floating rate note– the first issuance in Asia sold globally using SOFR as the reference rate.

Also read: ICICI bank makes its first interbank-money market transaction linked with SOFR

Some $2.25 billion worth of SOFR bonds have been issued in Asia in the past 12 months compared to the global total of $160.8 billion, according to Refinitiv data. US companies have issued $124.9 billion worth of SOFR linked deals in that time.

“The whole world is moving towards it, people cannot be closed to the fact there is a change and issuers need to be making steps towards moving to the transitions,” said Amy Tan,head of DCM Origination Asia ex-Japan at JPMorgan.

Joseph Pepping, head of debt capital markets syndicate for the Asia-Pacific region at Bank of America, said the switch away from LIBOR had not been a high priority for Asian borrowers in 2020 but he expected that to change.

“We expect … for more Asian issuers to elevate this on their priority list,” he said.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,