Standard Chartered has completed the first trade financing transaction using Risk Free Rate (RFR) with their clients, Akij Ceramics Ltd and Unilever Bangladesh Ltd.
The deal was completed in line with detailed guidance from the Bangladesh Bank on how to set the new rates as a replacement for The London Inter-Bank Offered Rate (LIBOR), reads a press release
The London Inter-Bank Offered Rate (LIBOR) is the average interbank lending rate on an unsecured basis for banks in London. For decades, LIBOR has been the most popular benchmark reference rate used by banks and other financial institutions around the world for pricing of different debt instruments and is currently quoted for five major currencies (USD, GBP, JPY, EUR, CHF) across different tenors.
In March 2020, ICE Benchmark Administration (IBA), the authorised and regulated administrator of LIBOR, declared its intention to cease the publication of LIBOR settings after 31 December 2021. This decision was further bolstered by the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and other regulatory bodies of the United Kingdom (UK). Based on this decision, Central Banks around the world, including Bangladesh Bank have given the consent for banks to transition away from LIBOR to other Risk Free Rates from 01 January 2022.
Naser Ezaz Bijoy, Chief Executive Officer of Standard Chartered Bank, Bangladesh said, "For more than three decades LIBOR has been a key indicator in global financial markets. Standard Chartered has been working with clients, regulators, and stakeholders across all our 59 markets, to support the transition from LIBOR to its more sustainable alternative, Risk Free Rate (RFR). The completion of the first RFR based trade finance transactions with Akij and Unilever is the outcome of the significant collaboration that the bank has facilitated to prepare for the transition ahead of the effective date of 1st January 2022. This gives us the confidence in our capabilities to lead such significant structural changes in our markets, and to serve our clients in the new RFR regime."
Sk Bashiruddin, managing director at Akij Group said, "While we are still working out on the transition process with our other banks, this live deal with Standard Chartered gives us hands-on experience with this upcoming and inevitable change. I would like to thank the Standard Chartered team for guiding us through this pilot transaction and explaining in detail about the forthcoming changes."
Zahidul Islam Malita, finance director at Unilever Bangladesh Ltd, said, "Unilever Bangladesh is always looking forward to be a partner in pioneering dynamic shifts in the business landscape. We are proud to be one of the first companies in the country to complete a trade finance deal using the new interest rate benchmark. As we make this transition ahead of time from LIBOR to the new Risk Free Rate (RFR) that is yet to be effectuated on a global scale from next year, we believe that this will pave the path for other organizations to follow suit and explore their opportunities in global trade finance. We would like to thank Standard Chartered for their timely initiative in helping us to navigate this transition. This deal is a testimony of Standard Chartered's nimbleness to meet client needs while staying abreast with market developments."
Akij Ceramics Ltd and Unilever Bangladesh Ltd were the first two clients who accepted the offer to complete Trade Financing Transaction using the RFR. The bank is also actively engaging with their other clients to familiarise them with the new rates. The aim is to ensure that the transition for the clients is smooth. These transactions will also act as a reference point for other banks to follow and take guidance from.