The London Interbank Offered Rate (LIBOR) will be phased out by the end of June 2023, and banks and financial markets are preparing themselves for the impending transitional changes and are looking for alternatives.

Speaking at a seminar organized by Refinitiv in partnership with the Forex Club of Tunisia, Samer Mahfouz, Enterprise Specialist MEA at Refinitiv, said: “There are many difficulties that various financial institutions in the world suffer from as they migrate away from LIBOR benchmarks towards new risk-free rates (RFR).”

He added that “the methodology of the new alternative, RFR, is completely different from the LIBOR”.

Vikas Jain, Director, Account Management  (MEA) at Refinitiv.

The seminar, held on the 10th of October in Tunis, focused on the LIBOR transition and RFR solutions provided by Refinitiv as well as the effects of the Russian–Ukrainian war on commodities markets and material prices.

Vikas Jain, Director, Account Management  (MEA) at Refinitiv, said: “This event aims to bring all the banking community together to speak, discuss and arrive at the best solutions that may help partners and customers overcome the tough situations the global markets are facing.”

"We intend to be local, to be close to our customers and Tunisia is an important market for us", Jain added.

In his speech, Mahfouz talked about the difficulties banks and financial institutions are facing at different levels, mainly at the technical level but also involving logistical processes, operation teams and time challenges.

According to Mahfouz, computers are still capable of calculating and dealing with the new data and being up-to-date with the new system.

Team Refinitiv at the seminar in Tunis. Image courtesy Refinitiv. 

He also noted that with the new system the operation teams will know the interest rate by the end of the day, unlike the LIBOR where rates were made known at the start of day. As such, the operations team will not have enough time to do this calculations, which is the big challenge that the banks has to deal with as the countdown begins.

Mahfouz said: “The world will overcome the challenges by the end and find solutions to cope with the new system but banks and financial participants should develop appropriate plans to manage this transition.”

LIBOR serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks.

On March 5, 2021, the Financial Conduct Authority (FCA) announced that LIBOR cessation would take place between the end of 2021 and mid-2023.

LIBOR currently serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks.

Team Refinitiv at the seminar in Tunis. Image courtesy Refinitiv. 

Regulators and central banks have announced and released a series of overnight RFRs such as Sterling Over Night Index Average (SONIA) in the UK, Secured Overnight Financing Rate (SOFR) in the US and Euro Short-Term Rate (€STR) in the euro area.​

While much of the market is expected to adopt these overnight RFRs administered by central banks, pockets of demand remain for term rate benchmarks based on RFRs for loans and other cash products.​

Central banks will not provide term RFRs, but benchmark administrators, including Refinitiv, are developing such products.

(Editing by Seban Scaria seban.scaria@lseg.com)