APAC banks on track for LIBOR phase-out: S&P

Singapore banks are leading the way in adopting alternative reference rates.

Banks in APAC are on track for a smooth transition away from LIBOR (London Interbank Offered Rate), with Singapore leading the way in adopting alternative reference rates (ARRs), reports S&P Global Ratings.

Whilst the phasing out of non-US dollar LIBOR presents immediate issues for banks in the region, these issues are manageable, the ratings agency noted.

"The banking sectors and markets in Asia-Pacific vary greatly in size and complexity. This diversity carries through to the LIBOR transition; no single LIBOR transition story applies to all banking jurisdictions in this region,” said S&P Global Ratings Credit Analyst Nico DeLange. 

Each country has taken a slightly different approach to transitioning and the implementation of country-specific ARRs. The level of preparedness also varies across jurisdictions, he added.

Notably, several APAC jurisdictions have reportedly opted for a multirate approach to benchmark rate transitioning; that is, they have kept an existing benchmark rate in addition to their new ARR. A multirate approach lowers transition and systemic risk for benchmark rate implementation, DeLange said.

“It also provides banks with a choice of the most appropriate benchmark rate for future contracts,” he added. “That said, the adoption of a multirate approach could lower the urgency for banks to shift to an ARR and may therefore result in a slower adoption rate.”