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

April 20, 2022: Most financial institutions operating in Asia will take until next year to remove references to the Libor benchmark in loan agreements, an industry survey found, though 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 references to Libor from their existing loans, according to a survey published on Wednesday, attributing the delay partly to lack of consensus around the way in which Libor alternatives should be calculated.

Once dubbed the world’s most important number, the London Interbank Offered Rate or Libor is being ditched after banks were fined in 2012 for trying to manipulate the rate for pricing mortgages, loans and derivatives worth trillions of dollars globally across five currencies.

Most Libor settings were discontinued at the end of last year, with financial institutions shifting contracts to “risk-free” overnight rates compiled by central banks, such as Sofr from the U.S. Federal Reserve, the official replacement to US dollar LIBOR.

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

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

“With so many uncertainties about calculation methodologies and market conventions, both borrowers and lenders feel it is far better to wait and see what happens than to hardwire the wrong conventions into their legal documentation.”

Reuters