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IBOR Transition

What is the international reform of interest rate benchmarks?

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 securitisations. 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. Bank ABC 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)

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.

Following the LIBOR fixing scandal that was exposed in 2011 and the general decline in the importance of interbank lending in the financial markets, global financial regulators decided that markets must move away from using LIBOR as a benchmark and have it replaced.

Certain interest rate benchmarks including LIBOR, EURIBOR and EONIA are being reformed or replaced. If any of your financial products or internal processes refer to these rates or other interest rate benchmarks, the following information is relevant for you.

Most notably, the USD LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR), and the UK has reformed the Sterling Overnight Interbank Average Rate (SONIA) in 2018 as a replacement of the Sterling LIBOR.


Risk Free Rates

Risk Free Rates (RFRs) are benchmarks generally based on overnight deposit rates. They are considered to be more robust as they are based upon a larger volume of observable transactions. For products that require a forward-looking rate, such as Trade & Islamic Finance, a term rate may be available.

Alternate Reference Rate

Sterling Overnight Index Average (SONIA)

Secured Overnight Financing Rate (SOFR)

Euro Short Term Rate (€STR)

Swiss Average Overnight Rate (SARON)

Tokyo Overnight Average Rate (TONAR)

Alternative Reference Rate for most Commercial Loan Facilities, Derivatives & some deposits

SONIA compounded in arrears
Administered by Bank of England since August 2020

SOFR either compounded in arrears or simple average in arrears
Administered by IBA since June 2020

Published since October 2019


Published since March 2020


Published since June 2016

Term rate for Trade Finance, Islamic Finance & Export Finance products


Published by ICE, Refinitiv since January 2021


Expected to be published 30 June 2021

NA – EURIBOR is an alternative

No term rate available

Term TONAR is under consideration


How is Bank ABC responding to this?

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

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.

What does this mean for our clients?

We will work closely with our clients on the transition, taking into consideration their concerns and will provide updates as necessary. For further guidance on how to prepare for the possibility that LIBOR or other benchmark rates will be discontinued or materially changed, please consult your Bank ABC relationship manager. We recommend that you also consult your own legal, tax, financial, and other professional advisors for more specific guidance.

Some benchmark rates are being reformed or will be discontinued and replaced with alternative benchmark rates that meet the new regulatory and market requirements. This may impact the products and services which are currently made available to you and those which we will provide in the future. 

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 send you an amendment to your contract outlining the transition to Risk Free Rates.  In addition, we will liaise with you to transition the contract to a Risk Free Rate at a fixing date prior to the above dates.

Latest developments
  1. On 30 November 2020, ICE Benchmark Administrator (IBA), the FCA regulated and authorised administrator of LIBOR, announced that it will consult in December 2020 on its intention to cease the various LIBOR currency and tenor settings. Subject to confirmation following the IBA consultation, the cessation timelines are expected to vary.
    • 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.
  2. On the same day, the US Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation announced that no new contracts referencing USD LIBOR can be issued beyond 31 December 2021. The UK’s FCA has already indicated that GBP LIBOR referencing contracts cannot be issued beyond Q1 2021, if their maturity date extends beyond 31 Dec 2021.
  3. On 5 March 2021, the FCA announced the future cessation and loss of representativeness of all Libor benchmarks as per the above timelines published by the IBA.
  4. Regulators in the USA, the UK and the Eurozone area continue to work towards developing term rates based on RFR, which can offer a forward-looking curve for associated contracts. Preliminary versions of Term SONIA (in the UK) have been available since 11 January 2021.

Credit Adjustment Spread

One of the differences between LIBOR and RFRs is that LIBOR embeds an interbank credit spread which contains a term liquidity premium to reflect the credit risk associated with lending for different periods. Therefore, the all-in interest rate for a LIBOR based loan is simply the LIBOR rate for the relevant term plus the bank’s commercial margin. In contrast RFRs do not include a credit term liquidity premium, so to address this difference the market has introduced the concept of a Credit Adjustment Spread (CAS) which is added to the Risk-Free Rate (RFR). Therefore, the all-in rate for a loan transitioned to Risk Free Rates is comprised of three elements: The RFR, plus the CAS plus the agreed commercial margin.

The cessation of LIBOR on 5 March 2021, has resulted in the credit adjustment spreads used in derivative calculations to be fixed and it is expected that a similar approach will be adopted for the CAS in the loan market. The fixed CAS percentages can be found here.

Any further questions?

For more information on the reform of benchmark rates, please visit the various websites below. You can also reach out directly to your Bank ABC relationship manager. We will continue to update you as interest rate benchmark reforms and transitions develop. The information presented here is not intended to be a complete or exhaustive overview.

Further external information can be found here


All clients are advised to obtain their own advice prior to making any decision or taking any action whatsoever based hereon, and Bank ABC disclaims any liability for any direct, indirect or consequential damage or losses that that may be suffered from using or relying on the information contained herein, even if notified of the possibility of such damage or loss, and irrespective of whether or not independent advice has been obtained.

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