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Wednesday, October 27, 2021

End of Libor. What’s next PKO BP, mBank, BNP Paribas. Banks are waiting for the decision of the European Commission on the replacement

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The end of the LIBOR rate is getting closer. Banks are waiting for the decision of the European Commission to determine the ratio that will replace it in loan agreements, according to the responses sent by financial institutions. Thousands of Swiss franc borrowers, whose installments are calculated based on LIBOR, are also waiting for decisions.

At the end of the year, LIBOR rates will no longer be published. It will be a big problem for banks, because LIBOR rates are included in mortgage loan agreements as a variable part – next to the bank’s fixed margin – of the interest rate. According to the June “Report on the stability of the financial system”, published by the National Bank of Poland, the lack of a substitute for the “CHF LIBOR index may endanger the continuity of such contracts and, as a consequence, translate into financial losses of banks”.

A replacement for the CHF LIBOR index may be determined by the European Commission. She got such an opportunity thanks to the amendment to one of the EU regulations adopted at the beginning of this year. The EC has even started work on a legal act in which it indicates a replacement. At the beginning of August, it launched public consultations on the draft regulation in which the SARON 3 months Compound Rate (SAR3MC) is indicated as a replacement for LIBOR CHF 3M. The public consultation ended on August 31. It is not known when the regulation will be adopted by the European Commission, but the banks are waiting for this decision, because it will automatically replace the old ratio with the new one.

Banks are waiting for Brussels

“We have been working on the subject of changes resulting from the BMR Regulation for a long time. We are still waiting for the decision of the European Commission regarding the appointment of a substitute for LIBOR. the effects of the end of the publication of the LIBOR index.

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“Bank BNP Paribas monitors the situation on an ongoing basis, in particular the position of the European Commission regarding the possible replacement of the CHF LIBOR reference index with another index” – wrote in the reply of the Press Office of BNP Paribas Bank.

“The European Commission is preparing an implementing regulation in which it plans to set an alternative benchmark that will replace the current CHF LIBOR ratio in loan / loan agreements. We are waiting for the results of this work and we will make further actions in this area dependent on them. accruing interest on loans and advances of customers whose contracts are based on the LIBOR CHF ratio, ”PKO BP replies to PAP’s questions.

Such action of banks is in line with the recommendations of the central bank in the “Report on the stability of the financial system”, which indicated that “the actions of banks should depend on further action by the European Commission”.

An emergency variant in the event of no substitute

PAP also asked the banks if they were preparing for a situation in which the European Commission would not appoint a replacement for LIBOR for the franc.

“The bank has also been preparing for months when such an indication does not take place. As part of the prepared schedule of activities, we inform customers about the situation and we will offer customers to conclude annexes to the existing loan agreements” – wrote the press office of BNP Paribas Bank.

MBank also informed that work is underway there on a solution in case a replacement for LIBOR has not been designated.

Bank PKO BP informed that if the European Commission does not appoint a substitute, the bank will first inform its clients about the rules of calculating interest rates and possible annexes to the agreements.

Banks admit that if the European Commission does not appoint a LIBOR substitute, it will be necessary to add annexes to each loan agreement in Swiss francs. This will be a significant burden for banks, because in the middle of the year – as reported in the “Report on the stability of the financial system” – there were over 400,000. such loans. It is also not known whether and how the interest rate on the foreign currency loan will be calculated if the contract is not annexed or the customer does not agree to sign the annex.

At the end of June, the number of active Swiss franc mortgage contracts was 415.1 thousand. – it follows from the data of the Credit Information Bureau made available to “Rzeczpospolita”. Loans of this type are repaid by approx. PLN 723 thousand. people.

Swiss franc loans in PolandPAP / Adam Ziemienowicz

Main photo source: LIDERO / Shutterstock.com

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