Thai Reference Rate and LIBOR Transition
The Financial Conduct Authority (FCA), the regulator of London Interbank Offered Rate (LIBOR) of the five major currencies (USD, EUR, GBP, JPY, and CHF) announced the future cessation or loss of representativeness of LIBOR by end 2021 for EUR, GBP, JPY, and CHF LIBOR and by mid 2023 for USD LIBOR. Consequently, significant amount of outstanding LIBOR transactions will be affected directly and indirectly.
In Thailand, LIBOR is not only referenced in financial transactions, but USD LIBOR is also a component in the calculation of Thai Baht Interest Rate Fixing (THBFIX), which is widely utilized in financial transactions, both cash and derivative products, as a reference rate for pricing, valuation and cash flow determination. LIBOR discontinuation also poses significant impacts on Thai financial market; as a result, market participants should closely monitor the transition development and prepare for the upcoming transition.
The Bank of Thailand (BOT), in collaboration with the Thai Bankers' Association (TBA) and the Association of International Banks (AIB), has established the Steering Committee on Commercial Banks' Preparedness on LIBOR Discontinuation (the committee) whose key task is to ensure the smooth and fairest transition by focusing on 3 main areas:
1. Amendment of financial contracts referencing LIBOR and THBFIX including loan, notes and derivative contracts.
2. Preparation of commercial banks for LIBOR transition.
3. Development plan for alternative Thai reference rate.
The committee recommends market participants to assess contract outstanding referencing LIBOR or THBFIX in order to assess initial impacts. Moreover, market participants should consult with commercial banks or counterparties in advance to amend existing contracts in timely manner. To keep the market participants informed, progress reports along with conclusions are available on the BOT website.