In the Serbian financial market, the share of loans approved to both the economy and the population related to the daily reference interest rate LIBOR, which will be abolished by the end of the year, is negligible – only 0.2 percent, so there is no reason to worry.
Sputnik’s interlocutor, Secretary General of the Association of Serbian Banks (UBS), Vladimir Vasic, points this out, emphasizing that because of that, our financial market will not be affected by any of the “overnight” interest rates that will be used instead of LIBOR.
LIBOR (London Interbank Offered Rate) is the daily reference interest rate at which banks lend money to each other in the interbank market.
Long-term 30-year practice, however, has shown that the entire system of data collection and analysis that will serve as a basis for calculating the rates on which LIBOR will be based does not work well.
Back in 2012, numerous scandals broke out related to this daily reference interest rate. It turned out that many banks adjusted the value of their rates on the basis of when LIBOR was further calculated, in order to increase profits.
As many regulators in the financial sector agreed that the daily reference interest rate no longer reflects the real state of the market, it was decided that LIBOR will stop calculating for the British pound, European euro, Japanese yen, Swiss franc by the end of 2021, as well as for certain maturities related to the US dollar.
As far as the Serbian financial market is concerned, most of our loans indexed in foreign currency are tied to the EURIBOR interest rate in 99.99 percent of cases, so this change in the LIBOR rate will have almost no impact on loans indexed in another currency – Japanese yen, the British pound and the Swiss franc, Vasić points out.
EURIBOR (Euro Interbank Offered Rate) is the daily reference interest rate at which European banks lend money to each other on the interbank market. It is determined every morning by the European Banking Federation based on the average interbank interest rates of selected European banks.
Vasic notes that the domestic banking system has been familiar with the process of reforming reference interest rates on the international market since March and the announcement of the British regulator.
Asked whether something will change the fact that some of the overnight, short-term interest rates that are formed among banks on the basis of actually realized transactions will be used instead of LIBOR, the head of UBS answered in the negative.
The alternative to LIBOR should not worry either
“There is certainly an alternative. There are working groups that have defined the method of measurement, ie the average basket of loans that are taken as a benchmark for LIBOR, ie for its replacement. As far as we are concerned, it is left to domestic banks to adjust if they have that interest rate in their portfolio, but according to the latest information, thanks to the conversion of loans in Swiss francs into euros, that is a small amount. At the moment, these are loans in Swiss francs, the equivalent of which is between 15 and 20 million euros,” Vasic specified.
We are traditionally tied to the European market and the euro, and EURIBOR is a reference for us, so our bankers, like most of their colleagues on the international market, will not have their hands full before the holidays due to the withdrawal of LIBOR, nor the economy and citizens, Sputnik News reports.
