The London Interbank Offered Rate (LIBOR) Transition

Major central banks and regulators have decided to transition from the existing Interbank Offered Rates (IBORs) to alternative Risk-Free Rates (RFRs), also referred to as Alternative Reference Rates (ARRs).

Interest rate benchmarks are referenced in a wide array of financial products, including loans, floating rate notes, derivatives, deposits, trade finance and securitizations. In order to strengthen market integrity and consumer protection, a number of alternative benchmark rates have been developed in the major financial markets to replace the LIBOR and other reference rates that are being discontinued

This is the biggest change that financial markets will undergo in recent times. RAKBANK is closely following the direction of global regulators, industry working groups, and trade associations to facilitate a smooth transition from current interest rate benchmarks to alternative reference rates.

The London Interbank Offered Rate (LIBOR) is the most commonly used set of IBORs that are based on the rates at which prime banks estimate they can borrow from each other. LIBOR is calculated and published daily for five currencies (GBP, USD, EUR, JPY and CHF) over a range of maturities (from overnight to one year) and is used worldwide in the calculation of interest and other payments for many loans, derivatives, bonds and other financial transactions.

A number of the interest rate benchmarks including LIBOR, EURIBOR and EONIA are being reformed or replaced. The recommended replace rate for USD LIBOR is the Secured Overnight Financing Rate (SOFR), while for Sterling LIBOR it is the Sterling Overnight Interbank Average Rate (SONIA). Note that currently there is no specific announcement from the Central Bank of UAE regarding Emirates Interbank Offered Rate (EIBOR) which is the basis for variable rate transitions in UAE dirham (AED).

Alternative Reference Rates (ARRs) are benchmarks generally based on actual overnight transactions. They are considered to be more robust as they are based upon a larger volume of observable transactions.

Alternate Reference Rate

Secured Overnight Financing Rate (SOFR)
Sterling Overnight Index Average (SONIA)
Euro Short Term Rate (€STR)
or EURIBOR
Swiss Average Overnight Rate (SARON)
Tokyo Overnight Average Rate (TONAR)

RAKBANK welcomes the move to more robust and reliable benchmark rates. We are closely following the work being done by regulators, industry bodies, and trade associations to facilitate a smooth transition of the international benchmarks and will continue to update you throughout the various transitions.

Accordingly, we have established a Group-wide initiative to identify, assess, and monitor risks associated with the discontinuation or unavailability of benchmarks, including LIBOR, and the transition to Alternative Reference Rates. We are also evaluating existing contracts across all products to determine the impact because of the discontinuation of LIBOR and other benchmarks and to address potential changes to those contracts.

Furthermore, RAKBANK has adhered to the ISDA 2020 IBOR Fallbacks Protocol to ensure frictionless derivative offerings with our clients.

We will work closely with our customers on the transition, taking into consideration their concerns and will provide updates as necessary. We recommend that you also consult your own legal, tax, financial, and other professional advisors for more specific guidance.

If your facility (or final rate fixing) is before the below dates for the cessation of LIBORs, it can mature naturally, with no required action.

• 31 December 2021 in the case of all sterling, euro, Swiss franc, Japanese yen settings and the 1-week and 2-month US dollar settings; and
• 30 June 2023 in the case of the remaining US dollar settings.

Otherwise we will liaise with you over the course of 2022 and 2023 to transition the contract to an agreed Alternative Reference Rate at a fixing date prior to the above dates.

• New York Federal Bank Committee on LIBOR transition
• Bank of England – Sterling Risk Free Rate Working Group
• ESTR
• Swiss National Bank
• Bank of Japan
• Loan Markets Association
• ISDA