Global consultants KPMG Qatar recommends Qatari banks to have an initial three-pronged transition strategy as regulators across the globe plan for a migration away from LIBOR (London Interbank Offered Rate) which influences 25% of their financial products.
Shubhadip Bhattacharya, Financial Risk Management Lead, KPMG Qatar, said “In Qatar, it is estimated that about one-quarter of all the financial products in banks reference LIBOR.”
He said that even though LIBOR plays a pivotal role in the financial markets and supports trillions of dollars in financial products, regulators across the globe have asked firms to transition away from Libor to alternative overnight RFRs (risk-free rates) before December 2021.
Warning that the shift will probably trigger “an upheaval” within financial institutions (FIs) worldwide, he said due to its ubiquitous nature, transitioning will require careful considerations to check adverse impacts on their (FIs’) profitability, customer relations and reputation.
Highlighting that across the Gulf Co-operation Council (GCC), regulators are preparing for the transition away from Libor and are establishing working groups to discuss the challenges; the KPMG Lead said it is unclear yet how the central banks would deal with country-specific inter-bank offered rates such QIBOR (Qatar’s inter-bank offered rate).
Mr. Bhattacharya remarked that due to their exposure to Libor-based products, banks in Europe and the US could be leading with the implementation of their transition programs while the transition path is expected to be similar across jurisdictions and has three initial steps.
“Banks in Qatar could, therefore, leverage the approach taken by their international counterparts,” he said, adding an internal working group could be established including key stakeholders across the bank.
Working groups in most banks are being championed by either the finance or treasury function and may include representatives from risk, legal, operations, and IT, as well as customer-facing business lines such as retail and corporate.
Most banks have formed a separate internal project management office to help co-ordinate the project with internal and external stakeholders.
Banks could plan to undertake an initial impact assessment to identify where LIBOR exposures may exist on the balance sheet, irrespective of their size, according to him. He also said banks would need to consider changes with respect to their trading books on instruments that reference LIBOR.
“After all impacts have been identified, banks could develop a transition roadmap that articulates how and when these impacts will be managed,” Mr. Bhattacharya stated.