Standard Chartered completes first transaction using Risk Free Rate

Standard Chartered has completed its first deal using Risk Free Rate (RFR) with Akij Ceramics Ltd and Unilever Bangladesh Ltd.

The deal was completed in line with detailed guidance from Bangladesh Bank on how to set the new rates as a replacement for the London Inter-Bank Offer Rate (LIBOR), Standard Chartered said in a press release today.

RFR is a rate of interest used as a benchmark in financial transactions which is designed to exclude counterparty credit risk and account solely for economic factors. It is considered more robust and less susceptible to manipulation than interbank offered rates (IBORs), such as London Inter-Bank Offer Rate (LIBOR)

LIBOR is the average interbank lending rate on an unsecured basis for banks in London. For decades, LIBOR has been the most popular benchmark reference rate used by banks and other financial institutions around the world for pricing of different debt instruments and is currently quoted for five major currencies (USD, GBP, JPY, EUR, CHF) across different tenors. 

In March 2020, ICE Benchmark Administration (IBA), the authorised and regulated administrator of LIBOR, declared its intention to cease the publication of LIBOR settings after 31 December 2021.

This decision was further bolstered by the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and other regulatory bodies of the United Kingdom (UK).

Based on this decision, central banks around the world, including Bangladesh Bank, have given consent for banks to transition away from LIBOR to other RFRs from January 1, 2022.

"For more than three decades LIBOR has been a key indicator in global financial markets. Standard Chartered has been working with clients, regulators, and stakeholders across all our 59 markets, to support the transition from LIBOR to its more sustainable alternate, Risk Free Rate (RFR)," said Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bank, Bangladesh.

The completion of the first RFR based trade finance transactions with Akij and Unilever is the outcome of the significant collaboration that the Bank has facilitated to prepare for the transition ahead of the effective date of January 1, 2022, he said.

"This gives us the confidence in our capabilities to lead such significant structural changes in our markets, and to serve our clients in the new RFR regime," Bijoy added.

Sk Bashiruddin, managing director of Akij Group, said: "While we are still working out on the transition process with our other banks, this live deal with Standard Chartered gives us a hands-on experience with this upcoming and inevitable change."

"Unilever Bangladesh is always looking forward to be a partner in pioneering dynamic shifts in the business landscape. We are proud to be one of the first companies in the country to complete a trade finance deal using the new interest rate benchmark," said Zahidul Islam Malita, finance director of Unilever Bangladesh Ltd.

"As we make this transition ahead of time from LIBOR to the new Risk Free Rate (RFR) that is yet to be effectuated on a global scale from next year, we believe that this will pave the path for other organizations to follow suit and explore their opportunities in global trade finance," Malita said.