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Investor insights 22 August 2022

JIBAR Transition to an Alternative Reference Rate

The transition away from LIBOR has received significant focus from both local and international financial market participants, and the move away from “the world’s most important rate” has demanded a global mobilisation of effort, requiring that firms devote significant time and resources in grappling with how to remove their deep dependencies on LIBOR. Reducing the reliance on LIBOR, and facilitating reference to designated alternative reference rates has been a behemoth task, but one that financial market participants have now (largely) gotten to grips with. With just under a year to go until the formal cessation of the remaining USD LIBOR tenors, it is important that market participants with JIBAR exposures now turn their attention to developments around this rate, as South Africa’s own transition journey is underway.

What is reference rate reform and why is it relevant in South Africa?

As a G20 member, South Africa is represented on the Financial Stability Board’s (FSB) Official Sector Steering Group (OSSG) to ensure that the local interest rate benchmarks adhere to international best practices and adopt reform programmes where necessary. To that end the SARB has established an industry working group, i.e. the Market Practitioners Group (MPG) which is responsible for driving the local reforms.

In November 2020, the Deputy Governor of the SARB confirmed that JIBAR would cease ‘at some future point’ and that South Africa would transition to alternative reference rates. Current expectations are that JIBAR will likely cease to exist in the near future, and that the replacement benchmark (the “successor rate”) will be the South African Rand Overnight Index Average (“ZARONIA”), which is an unsecured overnight rate.

The MPG has been tasked with directing market participants through an orderly transition away from JIBAR towards the use of alternative reference rates such as ZARONIA, in anticipation of JIBAR’s ultimate cessation.

When will JIBAR cease?

Whilst work on transition has commenced in some areas, most notably in designating ZARONIA as successor rate, no formal date for JIBAR cessation has been announced.

When will ZARONIA be made available?

ZARONIA is not yet available in the market and there is a concerted effort from SARB underway to publish this rate to market participants. We understand that the aim is to start publishing ZARONIA imminently to allow market participants an opportunity to familiarise themselves with the rate and how it operates.   At this stage the expectation is that JIBAR will continue to be made available in parallel with the new rate for a limited period of time, to avoid cliff edge effects.

Where can I access further information on JIBAR cessation?

We encourage impacted market participants to familiarise themselves with developments around JIBAR cessation, as well as transition expectations and possible timelines. The SARB MPG website, which provides updates on JIBAR transition, can be accessed here . We would also encourage market participants to become involved in relevant industry associations to help shape transition efforts locally.  As with LIBOR transition, it is important that market participants start engaging with transition efforts currently underway,  and commence the necessary internal impact assessments with regard to the nature, scale and complexity of their JIBAR exposures.