Interbank Offered Rate (IBOR) is an interest rate benchmark which has been used for more than 40 years in the global banking industry. PT Bank Permata Tbk uses IBOR as a reference rate to determine customer’s interest rate on a wide range of banking products and services such as loan facilities, derivatives, bonds, and other structured products.
London Interbank Offered Rate (LIBOR) is one of the most widely used IBOR in the global banking industry as a reference rate for banking products. LIBOR is published daily by International Exchange (ICE) Benchmark Administrator (IBA) in 5 foreign currencies: USD (US Dollar), EUR (Euro), JPY (Japanese Yen), GBP (British Pound) and CHF (Swiss Franc), with seven (7) types of interest reference periodsincluding overnight, 1 week, 1 month, 2 months, 3 months, 6 months and 12 months.
IBOR Transition to Risk-free Rate (RFR)
On March 5, 2021, Financial Conduct Authority (FCA), the LIBOR regulatory body, announced to cease LIBOR as a reference rate in global banking industry. PT Bank Permata Tbk will continue to provide updated information regarding IBOR reference rate transition process in line with the guidelines from Regulator. The latest information regarding IBOR cessation stages as follows:
IBOR will be replaced with Risk-free Rate (RFR) as interest rate reference based on currency types:
|US Dollar (USD)||USD LIBOR||
|British Pound Sterling (GBP)||GBP LIBOR||Sterling Overnight Index Average (SONIA)|
||Euro Short-Term Rate (€STR)|
|Swiss Franc (CHF)||CHF Libor||Swiss Average Rate Overnight (SARON)|
|Japanese Yen (JPY)||
||Tokyo Overnight Average Rate (TONAR)|
|Singapore Dollar (SGD)||
||Singapore Overnight Rate Average (SORA)|
|Australian Dollar (AUD)||Bank Bill Swap Rate (BBSW)||AUD Overnight Index Average (AONIA)|
|Canadian Dollar (CAD)||Canadian Dollar Offered Rate (CDOR)||Canadian Overnight Repo Rate Average (CORRA)|
|Hong Kong Dollar (HKD)||Hong Kong Interbank Offered Rate (HIBOR)||Hong Kong Overnight Index Average (HONIA)|
The calculation methodology of Term SOFR is forward-looking based on market expectations implied from transactions in the derivatives markets. Term SOFR reference period is 1, 3, 6 and 12 months, i.e CME SOFR Futures. Term SOFR currently ready to use in loan or trade product, whilst utilization in derivatives product is still limited. Latest Alternative Reference Rates Committee (ARRC) recommendation stated that they support the usage of Term SOFR for end user-facing a derivatives hedging need, however it does not support the usage for interdealer derivatives markets.
Differences between IBOR and RFR
In brief, here are the basic differences between IBOR and RFR interest benchmark:
|Purpose||Reflects future interest rate expectations (based on expert judgment).||Reflects actual interest rates according to market conditions (based on real transaction).|
|Method||As a reference to calculate Customer's interest rate in next several periods (Forward Looking).||As a reference to calculate Customer’s payment obligation based on actual data, today and the previous few days (Backward Looking).|
|Term Structure||Overnight to 12 months.||Overnight.|
|Interest Calculation||Interest amount can be calculated in the beginning of the payment period (in advance).||Interest amount can be calculated at the end of the payment period (in arrears).|
Customer Needs to Know
IBOR interest rate benchmark transition will impact Customer’s interest rate calculation in PT Bank Permata Tbk, such as short-term loans, long-term loans, several investment products, and derivatives.
Therefore, Customer needs to carry out an in-depth analysis of the interest reference rate changes impact on the Customer's facilities or other financial instruments that currently use IBOR as a reference rate.
If you have any queries regarding impact of this transition on your facilities or services in PT Bank Permata Tbk, such as new types of reference interest rates, adjustment of interest rates calculation, legal documents amendment, new transaction system or others, you may contact our Relationship Manager or you may find the updated information regarding IBOR transition on PT Bank Permata Tbk website.
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