New report provides insight on the impact of LIBOR transition for banks and corporations in the trade finance industry.
WASHINGTON — BAFT, the leading global financial services association for international transaction banking, in collaboration with TXF Intelligence and Baker McKenzie today announced the publication of No More LIBOR: What Next for Trade Finance? This report explores the impending impact the cessation of LIBOR will have on trade finance. Using a mixed methodology that combined quantitative survey responses with detailed qualitative insights from banks and corporations between February and May 2021, this report sheds light on the industry’s transition priorities in the months leading up to LIBOR’s cessation.
“The goal of this research is to present the latest market trends surrounding the impending cessation of LIBOR across trade finance,” said Tom Parkman, head of research, TXF Intelligence. “The data presented provides an insight into prevailing sentiments across parts the banking and corporate world this critically important issue – research which to date, does not exist in the trade finance industry.”
The transition away from LIBOR will have a deep impact across the suite of trade finance products. In 2019, global trade flows totaled $18.1 trillion, with an estimated $9.77 trillion of that sum comprised of bank intermediated trade. Corporations surveyed in this research have reportedly made very little progress to successfully transition all of their LIBOR-linked exposures to a suitable alternative rate. Banks surveyed continue to stress the importance of transitioning to term rates for all currencies, but especially for U.S. Dollar. Banks cited the uncertainty and lack of clarity around the availability of term rates across currencies as a roadblock to effectively communicating a transition plan with corporate clients. Regulatory efforts are being made in the U.S. to assist the availability of the Term SOFR rate and more progress is expected soon. For example, on July 21, the Alternative Reference Rates Committee recommended conventions and use cases for employing the forward-looking Secured Overnight Financing Rate (SOFR) term rates that are expected to be formally recommended by the ARRC in the coming days.
“While LIBOR transition has often been regarded as a ’bank problem,’ banks tread a fine line between educating borrowers who may be less familiar with the issues around LIBOR transition and providing advice,” said Luka Lightfoot, partner, banking and finance, Baker McKenzie. “It is important that corporates and banks engage with each other to come to mutually acceptable solutions to the LIBOR transition challenge.”
“Banks should continue to track currency-specific transition deadlines, intensify internal system and process preparations, and enhance and tailor communication with corporate clients,” said Diana Rodriguez, vice president, international policy, BAFT. “Taken together, these steps will help to ease some of the uncertainty and pave a more solid path toward transition.”
To read No More LIBOR What Next for Trade Finance?, click here.
To read BAFT’s other resources on navigating the transition, click here.
BAFT is the leading international financial services association whose membership includes large global and regional banks, service providers, and fintech companies headquartered around the world. BAFT provides advocacy, thought leadership, education, and a global forum for its members in transaction banking, including international trade finance and payments. For nearly a century, BAFT has expanded markets, shaped policy, developed business solutions, and preserved the safety and soundness of the global financial system.