Help And Support

IBOR Transition - Corporate Loans and Derivatives

FREQUENTLY ASKED QUESTIONS
  • London Interbank Offered Rate (LIBOR)

    When is LIBOR Contracts cessation?

    Global issuance of new LIBOR contracts cessation was on 31 December 2021. Learn more.

    How can I know more about LIBOR transition in Malaysia?

    Learn more about LIBOR transition in Malaysia.

  • Existing / Legacy Loans / Financing

    My company has an existing loan/financing that references LIBOR and matures after end 2021. What should I do about this?

    There is no immediate impact on your loan/financing at this juncture, and we will be reaching out to you in due course to assist with the transition.

    What will happen to my outstanding loan/financing if I do not want to change my rate, even when LIBOR is discontinued?

    When LIBOR is discontinued, we will no longer be able to calculate your interest/profit payment using LIBOR. Instead, your loan interest /financing profit payment will be calculated using a 'fallback' rate or other alternative provisions. We will reach out to you in due course on the transition to replacement rate.

    How will the change in benchmark affect my loan repayment/financing payment?

    The transition from LIBOR to another benchmark could lead to some changes to your loan repayment/financing payment, depending on market conditions at that point in time. We will reach out to you in due course on the transition to the replacement rate.

    What if I had hedged my LIBOR loan/financing with a swap?

    If you had hedged your LIBOR loan/financing with a swap, your swap would also have been likely pegged to LIBOR. You should review the terms of your swap contract as early as possible to understand the consequential implications once LIBOR is discontinued. Notably, if the terms of your swap contract provide for a 'fallback' rate, there is a possibility of a hedging mismatch if the 'fallback' rate of your loan/financing differs or kicks in at a different time. We will reach out to you in due course to discuss options.

    In other markets such as the US, borrowers, whose loans are pegged to LIBOR, have similarly been encouraged to transition both their loans and swaps to reference the Secured Overnight Financing Rate (SOFR) or other alternative rates in order for hedge effectiveness to be maintained.

    What are the tax and accounting-related implications of the change in benchmark?

    Relevant bodies such as the Malaysian Accounting Standards Board, the Malaysia Inland Revenue Board, the ARRC, the Financial Accounting Standards Board and the US Internal Revenue Service have provided/may provide guidance from time to time on such issues pertaining to the LIBOR transition.

  • New Loans / Financing

    I am looking to take up a new loan/financing. Should I avoid entering into any new contracts that still reference LIBOR?

    If you wish to take up a new loan/financing that references LIBOR, you should carefully consider the possible alternative rate on cessation of LIBOR.

    Will banks continue to offer fixed rate loans/financing? Will these be affected by the transition?

    The expected discontinuance of LIBOR only affects contracts that reference LIBOR, e.g. LIBOR floating rate loans/financing. We will continue to offer other types of loans/financing that fit customer needs, including fixed rate loans/financing.

  • Derivatives

    What is the industry solution to address cessation of benchmarks in swap and derivatives documentation?

    ISDA, which is the global leading industry body for swaps and derivatives, is in the process of updating and amending the 2006 ISDA Definitions to include new fallback provisions to apply in the event of cessation of certain benchmarks, including benchmarks such as LIBOR.

    The proposed fallback provisions shall state that upon the occurrence of the specified event (i.e. the cessation of the relevant benchmark), references to the affected benchmark will be replaced with references to an identified replacement rate in the same currency. The fallback provisions are still in consultation and drafting phase.

    What is the market's transition plan for existing and new swap and derivatives contracts referencing benchmarks such as LIBOR, which shall permanently cease in end 2021?

    Once details on the fallback rates and calculation methodology are finalised, ISDA will publish one or more supplements to the 2006 ISDA Definitions (Revised 2006 ISDA Definitions).

    New swap and derivatives contracts entered into on or after the effective date of the Revised 2006 ISDA Definitions shall be deemed to have applied the fallback rates by incorporating by reference the Revised 2006 ISDA Definitions into the swap and derivatives contracts.

    ISDA will also publish a related protocol (ISDA Protocol) that market participants can adhere to amend legacy swap and derivatives transactions entered into prior to the effective date of the Revised 2006 ISDA Definitions.

    How will my outstanding swap or derivatives contracts be affected by the transition?

    If you have outstanding swap and/or derivatives contracts referencing LIBOR that mature beyond end 2021, the smoothest transition would be to replace or amend such contracts referencing LIBOR to reference the fallback replacement rates set out in the Revised 2006 ISDA Definitions before end-2021.

    What is SOFR?

    SOFR is the secured overnight financing rate administered, and published, by the Federal Reserve Bank of New York and it is the recommended alternative to USD LIBOR selected by the Alternative Reference Rate Committee (ARRC). ARRC is a group of private market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York.

    As a market participant, what do I need to do to prepare for this transition?

    You should assess your impacted swap and derivatives contracts and familiarise yourself with the developments of this transition.

    You may wish to consider either adhering to the ISDA Protocol or bilaterally amending your impacted swap and derivatives contracts to include the revised fallbacks. The ISDA Protocol will provide for standard amendments to include the revised fallbacks and is an efficient method to multi-laterally amend contracts with other adhering parties. Bilateral amendments could be used to amend contracts individually with counterparties on terms that are mutually agreeable.

    Please visit www.isda.org for information on ISDA's efforts on benchmarks reform.

    Are all swap and derivatives transactions impacted by this change?

    All interest rate swap and derivatives products, including, but not limited to, cross currency swaps, swaptions and all structured products referencing discontinuing benchmarks such as LIBOR will be impacted.

    One component of USDMYR cross currency swaps is the USDMYR basis, referencing the USD LIBOR and the Kuala Lumpur Interbank Offered Rate (KLIBOR) benchmarks. We will provide updates in due time on announcements affecting KLIBOR.

  • Other Matters

    Should firms start building or investing systems to products referencing the new benchmarks?

    The use of new benchmarks such as SOFR in your financial contracts will require changes in systems, operations, accounting and other processes. It is important that firms start reviewing the changes needed, as these will take time to implement. The industry is trending towards the use of compounded overnight rates. It is therefore important for institutions to have in place the systems to manage such backward-looking compounded overnight rates.