Progress is being made but challenges remain in Libor transition

While financial services firms are “largely on track” for a successful transition away from Libor, half of them are still facing challenges related to systems and operations readiness, according to a new survey from Bloomberg.

The useBe27_Libor_500x652 of British sterling, Swiss franc and Japanese yen Libors stopped at the end of 2021.

The survey revealed that 36% found the repapering of existing transactions and agreements continuing to be a hurdle while 45% were facing difficulty around choosing new alternative rates and conventions.

The report, which polled 130 executives from global financial services firms, also noted that 15% said that customer outreach and negotiation remained an issue.

Firms are also still working on how to handle non-centrally cleared derivatives, with 28% indicating that they were “not sure” how to address these derivatives before the cessation date and 13% admitting that they are still formulating a transition strategy.

In addition, 20% are planning a mixture of re-papering to risk free rates (RFR) equivalents and International Swaps and Derivatives Association fallbacks, and 11% plan to let these derivatives run to maturity via the ISDA fallbacks.

The delayed cessation for key US dollar Libor tenors until June 2023 has given firms additional time to make transition decisions around non-centrally cleared USD Libor derivatives as well as tough legacy contracts.

Progress though is being made overall with 51% of firms no longer trading US dollar USD) Libor-indexed products, including floating-rate notes, cross-currency swaps and eurodollar futures.

As for the Libor-indexed term loans, 63% indicated that they would continue the transition process throughout 2022 and potentially into early 2023.

Fifteen percent said their timeline for term loan transitions is “undecided,” and only 9% said their transition process was already complete.

“The data clearly shows that while the LIBOR transition is proceeding well overall, there is more work to be done,” said Jose Ribas, global head of risk and pricing solutions at Bloomberg.

©Markets Media Europe 2022

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