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What instead of WIBOR? A key decision for borrowers in June

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The conversion of WIBOR to WIRON was questionable. A re-analysis of benchmarks is ongoing. The final decision is expected to be made in June. Regardless of it, WIBOR is to cease to be quoted at the end of 2027. WIBOR and the bank's margin are components of the loan interest rate.

– In mid-June, the National Working Group on the Reform of Benchmark Indicators will decide on which indicator will replace WIBOR – said Tadeusz Białek, president of the Polish Bank Association, at a press conference on Tuesday

The idea is to re-analyze the process of implementing a new reference index replacing WIBOR in loan agreements. Finance Minister Andrzej Domański asked for it at the beginning of April. According to the so-called road map, the WIBOR reference index currently used on the market (which determines, for example, interest rates on loans or bonds) was to be replaced by the end of 2027 WIRON index.

When will the end of WIBOR in loan agreements?

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– As part of the review of alternative indices that could replace WIBOR, extensive public consultations will be held in May, which were not available before. As a result, indicators will be assessed WIRON, WIRF and WRR in terms of whether they should become an indicator which will replace WIBOR – announced the president of the Polish Bank Association, who is also the chairman of the Steering Committee of the National Working Group on the reform of benchmarks.

He emphasized that the review of reference indices does not change anything and there will be a transition from the WIBOR indicator, which currently determines, among others, interest rates on bonds or loans, to another reference index. He added that WIBOR will cease to be quoted at the end of 2027.

– We need to move from IBOR-type indicators to Risk Free Rate-type indicators. The reform must be carried out in line with global trends, added Tadeusz Białek.

Which indicator instead of WIBOR?

WIRF, i.e. the Warsaw Financial Market Index, covers overnight transactions, but only made by credit and financial institutions. WIRON, which is indicated as the successor to WIBOR, also covers transactions of large companies. In turn, WRR, i.e. Warsaw Repo Rate, is an index that measures the domestic market of REPO and Buy-Sell-Back secured transactions. These three indicators belong to the group of RFR (Risk Free Rate) indicators.

These indices are based on transactions made, which would then be converted to obtain monthly, three-month indicators, etc., so they are created on the basis of actual transactions from the past.

WIBOR, in turn, is an index that is based partly on concluded transactions, but also on banks' binding declarations on the rates at which they are ready to accept deposits in the coming periods (e.g. monthly, three-month, etc.).

Conversion of WIBOR to WIRON. What about the annexes already signed?

During the press conference, Tadeusz Biała stated that banks that try to include the so-called emergency clauses regarding a possible change in the reference index on which loan interest rates depend fulfill their legal obligation.

– Pursuant to the EU BMR regulation (concerning benchmarks – ed.), which is directly applicable, banks are obliged to introduce emergency clauses into old contracts concluded before the entry into force of the BMR regulation. The regulation requires active actions by banks. The EU legislator decided that annexing contracts is the best solution for customers because it gives them greater comfort due to having appropriate provisions in the contract, Białek said.

The banks' actions were criticized in his 2023 report by the Financial Ombudsman, who pointed out that customers receive such an annex when they come to the bank for another matter and are often unable to assess the provisions of the contract. Tadeusz Białek called the conclusions of this report “absurd”. He admitted, however, that the refusal to sign such an annex did not change anything about the loan itself.

– If the client does not sign the annex, nothing will happen formally. The loan will be converted to a new ratio pursuant to the regulation of the Minister of Finance, and not pursuant to the emergency clause, noted the president of the Polish Bank Association.

Stages of work on WIBOR conversion

At the end of April 2022, then Prime Minister Mateusz Morawiecki announced that from January 1, 2023, the government would want to force banks to use a reference rate other than WIBOR, more favorable to borrowers.

At the beginning of August 2022, the majority of participants in public consultations on the reform of indicators indicated WIRF as an alternative to WIBOR. However, a month later, the NGR Steering Committee selected WIRD – whose name was changed to WIRON – as the target RFR for Poland.

Main photo source: fizkes/Shutterstock

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