Financial institutions

Most financial institutions in Asia need until 2023 to scrap Libor benchmark By Reuters

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HONG KONG (Reuters) – Most financial institutions operating in Asia will take until next year to remove references to the benchmark Libor in loan agreements, according to an industry survey, although most iterations of the benchmark were discontinued at the end of 2021.

The Asia Pacific Loan Market Association (APLMA) found that 54% of its members expected to take until 2023 to remove Libor references from their existing loans, according to a survey released Wednesday, attributing the delay in part to the lack of consensus around the path. in which Libor alternatives should be calculated.

Once dubbed the most important figure in the world, the London Interbank Offered Rate or Libor is scrapped after banks were fined in 2012 for trying to manipulate the rate of pricing mortgages, loans and derivatives worth billions of dollars worldwide in five currencies.

Most of the Libor metrics were dropped late last year as financial institutions contracted at “risk-free” overnight rates compiled by central banks, such as the US Federal Reserve’s Sofr, the official replacement for Libor in US dollars.

However, the survey revealed that banks in Asia were split, with some using a method of calculating Sofr widely used in the US, and others preferring a method more commonly used in other markets such as the UK. .

“It has now been almost four months since LIBOR was officially discontinued and it is clear that the transition remains a major issue for new and old loans in Asia Pacific,” said APLMA CEO Andrew Ferguson. , in a press release.

“With so much uncertainty about calculation methodologies and market conventions, borrowers and lenders find it far better to wait and see what happens than to build bad conventions into their legal documents.”