Loan adoption of SOFR leads to Libor transition in Asia Pacific. Numbers of issues still need to be addressed before a remediation of legacy loans. It remains a reference that the rate is carrying out. It would take at least one year for the adaptation or removal of references to Libor. The delay is just another roadblock.
54% out of 90 institutions said that they expect to finish the remediation of legacy loans in the first half of 2023. The other 38% said that the completion could be earlier in 2022. The remaining 8% of the respondents argue that they would finalize the switchover in the first half of this year, said IFR Asia.
U.S. dollar Libor recommends The Secured Overnight Financing Rate alternative. However, the lack of consensus around the new risk-free rates is under Asia’s impending progress calculation. So, SOFR would take at least six months or a year to become a standard in Asia, argued the Hong Kong-based head of loan syndication.
The mixed banks of Asian, European, and the U.S. banks have a different view in terms of calculation. Unlike Asia, the U.S. and U.K. have more decisive approaches. The former favors more forward-looking rates such as SOFR. But the latter prefers overnight rates compound.
Andrew Ferguson, CEO of the APLMA noted that the forward-looking rate SOFR is attractive for many borrowers. They could predict their cash flows and interest payments. Plus, it allows them to hedge the exposures. It is highly useful but challenges also occur for borrowers. In other words, taking this scenario would put them into further delay as challenges surge. In order to know how much the borrowers pay they must wait until the interest payment date.
