February, 6, 2020
ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service urges CBSL and Sri Lankan companies, including some of the biggest SOEs to get ready for the London Interbank Offered Rate (LIBOR) transition which is scheduled for 2021.
“Central Bank of Sri Lanka (CBSL), Sri Lankan commercial banks and companies, including some of the biggest SOEs has substantial exposures to LIBOR linked instruments. The transition from LIBOR to Alternative Reference Rates (ARRs) will be much more complicated than a straightforward administrative change in the benchmark rate. Therefore, CBSL and Sri Lankan companies must start getting ready for it. This is because there are major differences between LIBOR and ARRs, and in order to have a smooth transition, the impact of these intricacies must be understood deeply and reacted swiftly.” ICRA Lanka Limited said in its latest publication.
LIBOR is the most popular financial benchmark rate in the world with instruments linked to it grossing over US$ 400 Tn globally. Post 2008 financial crisis, serious doubt has been cast over the credibility of LIBOR as a true reflection of the market. Consequently, in 2017 the Financial Conduct Authority (FCA) in the U.K. announced the benchmark will be phased out by 2021. This event will have a profound impact on the financial markets and has triggered many companies to start evaluating their options of transitioning out.
“Discontinuation of LIBOR should not be considered a remote event; CBSL, banks, and firms who are exposed should treat it as something that will happen. CBSL, banks, and companies must assess the impact and the transition should start immediately and in coordinated fashion,” ICRA Lanka added.
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