Home Business “Financial Briefing” for Al-Arabiya: loans in dollars per “Libor” exceed 200 trillion

“Financial Briefing” for Al-Arabiya: loans in dollars per “Libor” exceed 200 trillion

With the start of 2022, the suspension of the LIBOR interest rate in London is entering its final phase, as banks are expected to stop using it to issue new loan contracts.

In this context, an investigation conducted by Etah Financial, which involved some companies in Saudi Arabia represented by risk executive, financial manager and treasury managers, showed that 69% of those with credit exposures in dollars is still in phase of conducting interviews and internal discussions to understand the implications of interrupting work with “Libor”. .

LIBOR derives its importance from its widespread use as a benchmark for many other interest rates at which transactions are already conducted, but its reliability has taken many hits, in particular the British bank “Barclays” manipulated him in 2012, when the bank agreed to pay estimated fines in $ 450 million, while the IMF estimates in 50 billion dollars the amount of fines related to manipulation operations.

In an interview with Al-Arabiya, Moaz Al-Husseini, the executive partner of Ehtaat Financial, explained that LIBOR has existed since the mid-1980s and has been associated with global financial markets and has been linked to many credit and credit products. investment, so it will be difficult to break away from this reference price.

He specified that the LIBOR price includes several currencies, in first of all the dollar, with values ​​close to 200 trillion dollars, and then other currencies such as the euro, the Japanese yen, the Swiss franc and the pound.

He stressed that the breakthrough in LIBOR is due to the manipulations that have taken place by financial institutions in the wake of the global crisis, in particularly in 2012 when banks were fined billions, and the main reason is the method and components of the LIBOR pricing, which has a kind of conflict of interest, in how much are the banks that place it By appointing experts from within it, it was decided to resort to an alternative reference price.

He continued: “2017 was significant for the London Stock Exchange, the FCA, as it announced its recommendations on the alternative reference price it is working on. This alternative price – what is now called saver or Secured overnight financing. rate (SOFR) – Free of credit components, after we got used to banks announcing LIBOR daily, it now becomes clear that the price component for the sofer will be completely different and this essential difference, as it is based on real transactions in the financial markets and it does not have the credit component that Libor once did is higher.

But now an important question arises, namely how to move and facilitate the transition from “Libor” to “Suffer”, which is the biggest challenge facing financial markets currently, according to Ehtaat Financial’s executive partner, who said: ” We have many loans, investment products and financial derivatives linked to a Libor monopoly and extended over the long term up to 40 years.

On the other hand, Al-Husseini stressed the need to accelerate the understanding of the repercussions, especially since “we are in waiting for a very important date, which is June 2023, when all the contracts related to the Libor will expire and the change to the alternative price will be made. “

He explained that the passage depends on the duration of the loan and the price linked to it, so there will be an adjustment margin, but there is a dispute over the appropriate margin and the indications for choosing it.

He said: “Therefore, we advise institutions operating in the Kingdom that they have exhibitions in dollars to study the financial impact on them. “

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