CHB’S LIBOR TRANSITION PLAN

 

LIBOR Transition Background

Interbank Offered Rate (“IBOR”) refers to the different interest rate benchmarks derived from the rate at which major global banks lend to one another in the international interbank market for short-term loans in corresponding markets and currencies. Common examples of IBOR include the London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”), and Hong Kong Interbank Offered Rate (“HIBOR”). Amongst the current IBORs available, LIBOR is one of the most widely used reference rate.

Despite the wide application of LIBOR in financial contracts, the current mechanism of determining LIBOR has long been criticised as inadequate and inherently subject to subjectivity due to its heavy reliance on “expert judgement” during the submission of the quotes by the panel banks.

In July 2017, the UK Financial Conduct Authority (“FCA”) and the Bank of England raised their concern regarding the sustainability of LIBOR and announced that FCA will no longer compel panel banks to provide submission for LIBOR.

 

Key Industry Guidelines and Timeframe

Regulatory authorities, industry bodies and trade associations across the globe have identified alternative reference rates (“ARRs”) as replacement and working towards on the transition from LIBOR to ARRs when LIBOR ceases to exist after the end of 2021.  ARRs working groups and regulatory authorities in different jurisdictions have set out their respective paced transition plans. Key milestones are summarised in the table below (Table 1).

 

Table 1 - Paced transition plan in different jurisdictions

CountryKey milestones and anticipated completion date
GlobalEnd of 2021 – Complete transition from LIBOR to ARRs across the globe
Hong Kong30 June 2021 – HKMA expects AIs to stop issuing new LIBOR-linked products
USBy June 2021 – Alternative Reference Rates Committee expects (i) to create a term reference rate based on SOFR derivatives markets once liquidity has developed sufficiently to produce a robust rate; (ii) market participants to cease issuance of new LIBOR-referencing loans, floating rate securitisation or derivatives trades that increase LIBOR risk
UKBy 31 March 2021 – Working Group on Sterling Risk-Free Reference Rates expects the UK market to cease new issuance of Sterling LIBOR-referencing loan products that expire after the end of 2021
Japan30 June 2021 – Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks expects banks in Japan to cease issuance of new LIBOR-referencing loans

Chong Hing Bank’s Transition Plan and Preparation

The Bank will continue to closely monitor any further developments on the LIBOR transition and implement appropriate action plans and maintain close contact with our clients as the LIBOR transition progresses. We would also encourage our clients to keep updated with the latest developments and seek professional advice when necessary.

Frequently Asked Questions (“FAQ”) of IBOR reform is attached below with corresponding responses for easier reference.

 

In case of any inconsistencies between the English and Chinese versions of this Notice, the English version shall prevail.