Standard Chartered completes its first transaction using the risk-free rate
Standard Chartered has completed its first transaction using the Risk Free Rate (RFR) with Akij Ceramics Ltd and Unilever Bangladesh Ltd.
The deal was made in accordance with detailed guidance from the Bank of Bangladesh on how to set the new rates as a replacement for the London Interbank Offer Rate (LIBOR), Standard Chartered said in a press release today.
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The RFR is an interest rate used as a benchmark in financial transactions that is designed to exclude counterparty credit risk and only takes into account economic factors. It is considered to be more robust and less susceptible to manipulation than Interbank Offered Rates (IBOR), such as the London Inter-Bank Offer Rate (LIBOR)
LIBOR is the average rate on interbank loans on an unsecured basis for banks in London. For decades, LIBOR has been the most popular benchmark rate used by banks and other financial institutions around the world for pricing different debt instruments and is currently listed for five major currencies (USD, GBP, JPY , EUR, CHF) through different tenors.
In March 2020, ICE Benchmark Administration (IBA), the authorized and regulated administrator of LIBOR, declared its intention to cease publication of LIBOR parameters after December 31, 2021.
This decision was reinforced by the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and other regulators in the United Kingdom.
Based on the decision, central banks around the world, including the Bangladesh Bank, have agreed for banks to switch from LIBOR to other RFRs from January 1, 2022.
âFor more than three decades, LIBOR has been a key indicator in global financial markets. Standard Chartered works with clients, regulators and stakeholders in all of our 59 markets, to support LIBOR’s transition to its more sustainable alternative, the risk-free rate. (RFR), âsaid Naser Ezaz Bijoy, CEO of Standard Chartered Bank, Bangladesh.
The completion of the first RFR-based trade finance transactions with Akij and Unilever is the result of the important collaboration the Bank facilitated to prepare for the transition ahead of the effective date of January 1, 2022. -he declares.
“This gives us confidence in our ability to lead such significant structural changes in our markets and to serve our clients under the new RFR regime,” added Bijoy.
Sk Bashiruddin, Managing Director of Akij Group, said: âWhile we are still working on the transition process with our other banks, this live agreement with Standard Chartered gives us practical experience of this coming and inevitable change. “
âUnilever Bangladesh is always looking forward to being a pioneering partner in the dynamic changes in the business landscape. We are proud to be one of the first companies in the country to enter into a trade finance agreement using the new benchmark interest rate, âZahidul Islam said. Malita, Chief Financial Officer of Unilever Bangladesh Ltd.
âAs we make this advance transition from LIBOR to the new Risk Free Rate (RFR) which has yet to be implemented globally starting next year, we believe this will open the door to the way for other organizations to follow suit and explore their opportunities in global trade finance, âsaid Malita.