Prime Bank trials SOFR-linked transaction
Prime Bank Limited has conducted a trial transaction in secured overnight financing rate (SOFR) with Wells Fargo Bank, New York on August 25 as the London interbank offered rate (LIBOR) would cease to exist after June 2023.
The SOFR is a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the LIBOR. This transition is expected to increase long-term liquidity but also result in substantial short-term trading volatility in derivatives, according to investopedia.com.
The LIBOR has been the most reliable benchmark in the world for setting interest rates on the international interbank market for short-term loans, says a press release.
However, the SOFR provides a more accurate reflection of lenders' funding costs in US dollars and supports a large volume of transactions and financial products.
"This is a right step to prepare for the post-LIBOR landscape," said Hassan O Rashid, Prime Bank Limited managing director and CEO.